Following in the Steps of John Templeton

09/05/2013 10:00 am EST


Legendary investor John Templeton died in 2008, leaving behind a set of investing maxims that are still followed by the managers of Templeton funds. As an investor, Templeton was a contrarian by nature, notes Vaughan Scully, of S&P Capital IQ in The Outlook.

He moved his office from New York to Nassau, the Bahamas, in part, to get away from the groupthink that prevailed on Wall Street, and claimed his performance improved because of it.

One of his maxims exhorts investors to do the same: “If you buy the same securities as other people, you will have the same results as other people. It is impossible to produce superior performance unless you do something different from the majority. To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”

James Harper, one of five managers currently running the Templeton World Fund (TEMWX), cites this maxim in explaining how the fund is managed and the philosophy behind it.

“We are completely bottom-up driven, five-year time horizon, value-oriented stock pickers,” he says. “We tend to buy when people are selling, and sell when people are buying. That, I think, gives you the best long term performance.”

Templeton sold his fund company in 1992 to what is now Franklin Templeton Investments, but the Templeton funds are still managed in Nassau according to John Templeton's unique style.

The Templeton World Fund opened in 1978 and has long been team managed. In 2011, however, after a period of inconsistent performance, the team was restructured, to give each of the five managers one fifth of the fund's assets and have them invest independently.

In addition to managing the World Fund assets, Harper and the firm's other portfolio managers, are also fundamental sector analysts, with Harper covering global insurance and information technology hardware. These analysts produce a Bargain List that portfolio managers use to initiate new positions.

Currently, the fund has 102 different holdings, a number Harper says managers try to keep from growing much larger. The team tries to keep every holding at least 0.50% of total assets; the largest holding, Citigroup (C) is 2.4% of the assets under management.

The bottom-up driven management sometimes leads the fund to have significantly different weightings on, both a sector, and a geo-graphic basis than its benchmark, the MSCI World Index. Harper says the managers just let their bottom-up, value style take them wherever it leads.

As of July 31, the fund had about 42% of its assets in Europe and just 39% in North America, compared with the MSCI World index, which has almost 55% of assets in the US.

Three of the fund's top 10 holdings—ING Groep (ING), BNP Paribas (Paris:BNP) (US:BNPQY), and Credit Suisse Group (CS)—are European financials that came into the fund beginning in early 2012, when the team began to sense the pessimism regarding the European banking sector was too extreme.

“We took a pretty aggressive stance on financials 18 months ago.” Harper says. “In May 2012, there were valuations that were effectively unprecedented. European financials were trading at 30% of book value. That's a good example of us saying 'the market is clearly concerned.' We didn't believe that was the case and saw amazing opportunities. A lot of those companies have doubled. That's what we're trying to do on an ongoing basis.”

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