Franklin Templeton  

Product review: Franklin Templeton Corporate Bond and UK Gilt fund

Product review: Franklin Templeton Corporate Bond and UK Gilt fund

Two new bond funds by Franklin Templeton have hit the market

Review

Franklin Templeton announced the launch of two UK bond funds this month. The Franklin UK Corporate Bond fund and the Franklin UK Gilt fund have ongoing charges of 0.35 per cent and 0.45 per cent, respectively. 

With a view to achieve a total investment return consistent with prudent management, the Franklin UK Corporate Bond fund will invest mainly in investment-grade fixed or floating-rate debt securities of UK companies.

As its name implies, the Franklin UK Gilt fund will invest mostly in gilts and UK government-issued securities. There is also scope for the fund to invest up to 20 per cent of its net asset value in other government bonds as well as supranational and government-related issuers.

The Franklin Templeton UK bond fund investment team is comprised of lead portfolio manager and European fixed income head David Zahn as well as Roderick MacPhee, portfolio manager for the Franklin Templeton fixed income group.

The latter previously worked for Western Asset Management – the Legg Mason subsidiary – before joining Franklin Templeton in 2013.

The fund house believes investor nervousness over market volatility will mean there continues to be appetite for government and corporate bond vehicles despite the multi-year rally for fixed income in general.

www.franklintempleton.co.uk

Comment

Given sky-high prices and Britain’s exit from the European Union to contend with, investing in UK government bonds may seem like a risky choice. 

However, the fact that the Franklin UK Corporate Bond fund and UK Gilt fund are actively managed means they have the potential to protect investors against some of the trickier areas of the market.

Mr Zahn has 22 years of investment experience, while Mr MacPhee has wide-ranging credit market experience, according to the company. 

Active managers are arguably well placed to reduce the duration of their portfolios when yields rise, but there are limits to conventional gilt and corporate bond funds’ ability to do this.

However, there will always be demand for traditional fixed income funds, and these products’ lower-than-average charges give them a good chance of standing out. The average charge for a sterling corporate bond fund is 0.6 per cent, according to FE Analytics: Franklin’s own offering is 25 per cent cheaper.

At a time when providers are increasingly promoting the benefits of passive fixed income funds, these cheaper charges may just prompt them to reconsider, particularly given passives’ inability to mitigate a rise in yields.

kuba.shandbaptiste@ft.com