HEAD-TO-HEAD: Jupiter vs Franklin Templeton

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Both the Jupiter and the Templeton funds belong to the global fixed income category defined by FE, but they have significant differences in investment strategy and holdings.

Ng said the Jupiter fund has been actively adjusting allocation with the aim of generating a high return.

“The overall strategy is to manage the fund actively and maintain a balance between corporate and government bonds. The team targets gains from both capital appreciation and income generation,” he added.

The active approach has led to several important allocation changes in recent years. “For example, the manager decided to reduce the portfolio’s average duration to slightly above one year from 4-5 years around late 2016.”

However, the average duration has since been taken back up to around five years.

The Jupiter fund has a bias toward developed markets when compared with the Templeton product, Ng said.

The Jupiter fund has around 65% of the portfolio invested in long positions in bonds issued in North America, the UK and Europe combined.

Jupiter’s top geographic allocation

Source: FE. Note: The chart shows long positions only

Six out of ten top holdings in the fund are US treasuries with varied maturities. The longest will mature in 2047.

“The Jupiter fund investment process is typical for a fixed income fund. They first look at the environment from the top-down to find ideas and then select securities with bottom-up analysis,” Ng said.

The portfolio has 535 holdings and an average credit rating BBB+ as of the end of March, according to FE. Government bonds globally take up 42.8% of assets while corporate bonds represent another 48.3%.

Turning to the Templeton fund, the emphasis is on global emerging markets and the allocation results from an unconstrained approach, Ng said.

Although the Templeton fund has chosen the Bloomberg Barclays Multiverse Index as its benchmark, the allocation shows positioning that is clearly unlike the index positions.

“The strategy of Templeton is unconstrained, not following the mainstream allocation seen among peer global bond funds,” Ng explained. “The fund heavily invests in emerging market fixed income. It has nearly no exposure to Japan and developed markets in Europe.”

Top geographic allocation against its benchmark

Source: FE.

The managers also hold consistent macroeconomic views. “They tend to focus on the relative strength in currency and the interest rate cycle of countries. These views are also the reason for the heavy investing in emerging markets.

“The managers and their team of analysts primarily make investment decisions by looking at the macro environment. Bottom-up analysis would be used for selecting corporate bonds.”

In addition, the managers believe the return of rather synchronised global growth may lead to increasing inflation. The view has resulted in an increasingly short bond duration strategy in recent years.

“The Templeton portfolio further lowered the duration to close to zero since 2015 and even reduced it to slightly negative today in order to hedge the inflation risk,” he added.

The average duration at the end of March was -0.76 years, according to the fund’s factsheet. Overall credit rating BBB is slightly lower than that of the Jupiter fund.

Moreover, the team also places some short positions on currency. Currently, the fund has short position in Japanese yen and the euro.

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