Fund Review: Templeton Asian Growth

In spite of having a negative effect on short-term performance, Mark Mobius, manager of the $15.6bn (£9.7bn) Templeton Asian Growth fund, has faith in the long-term commodities story.

The manager, who has been at the helm of the fund since it launched in 1991, says: “The whole commodities area is something we are focusing on. There has been a lot of negative sentiment and the prices have gone down as have the stocks so we have started to pick up some more names in this space.

“In South Africa, a lot of the mining stocks have come down dramatically and the currency has weakened. Since we are sterling or US dollar investors we can buy these stocks much cheaper and that is an opportunity. Companies like Anglo American are very depressed in dollar terms.”

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However, those investors that backed Mr Mobius just five years ago would today be sitting on a handsome return. To date (September 28), the fund has surged ahead of its IMA Asia ex Japan peer group, returning 98.08 per cent against a sector average of 78.35 per cent, according to data from FE Analytics.

The fund, which aims for long-term capital appreciation, is benchmarked against the MSCI All Countries Asia ex Japan index, which posted a 81.67 per cent return in the same time period.

Mr Mobius is a bottom-up stockpicker, focusing on companies that are either listed in Asia or carry out more than 50 per cent of business in the region.

“Generally the rule of thumb is that the company has to generate 50 per cent of earnings from these markets,” he says. “We have maybe 5-6 per cent of the portfolio in companies that are expanding into these markets.”

The manager is value-orientated and applies this approach for undervalued companies across his range of emerging market, frontier market and Asia-focused funds.

Using the Templeton database comprising of roughly 21,000 emerging market companies, Mr Mobius and his team look for those businesses that are at a “discount to projected future intrinsic value”.

The team carry out fundamental analysis, followed by in-depth analysis at both the stock and sector level. Based on this information, the analysts produce a target price for the individual companies. Mr Mobius explains: “The market is driven by emotion and it is our job to sit back and judge what is really happening then react to that. The problem that we have is that these markets haven’t really come down all that much. You haven’t seen emerging markets in a bear market, it has been a correction in an ongoing bull market.”

Year to date, the fund has suffered significantly, posting a loss of 4.29 per cent, compared with a positive sector average return of 3.29 per cent. The fund’s MSCI All Countries Asia ex Japan index benchmark also posted a positive figure in 2013 so far, returning 2.53 per cent.

The main detractor, Mr Mobius explains, has been his exposure to the commodities sector, as well as exposures to Thailand, Indonesia and India which were three weaker performers recently.