franklin's US equity fund combines bottom-up and top-down approaches with focus on firms with exposure to a broad range of industries
As Franklin Templeton launches into the UK market via a Dublin base, it is using mirror versions of an existing Luxembourg range. One of these is the $690m Franklin US Equity fund, a diversified multi-cap, multi-industry and multi-style fund, run by Kent Shepherd.
Since its launch in 1999, the fund has achieved a number one ranking out of 67 funds in the Luxembourg Equity US sector and is positioned third out of 144 funds in the combined Luxembourg and Offshore Territories Equity US sectors, according to Standard & Poor's. The fund picks stocks that have growth potential and focuses on flexibility by combining bottom-up stockpicking with top-down industry themes. The idea is to cast a wide net and focus on the best companies in the US, with broad-based exposure to a wide range of industries.
The company has a team of 11 analysts who look at a stock's growth potential and valuation. The process is bottom-up driven and the analysts focus on risk/return profile, future growth prospects and sustainability.
Shepherd said: 'Our analysts look at the current and future positions of growth margins within a company. They predict to what degree management delivers high returns, how profitable and sustainable they are in differing market conditions, and examine whether the company had any difficulties executing its business plans.'
Analysts at Franklin Templeton Investments do not divide companies up by market cap sizes. This is so an analyst who has followed a stock for a while does not have to give it up if the company goes up or down a market cap bracket.
In addition, Shepherd believes it is impossible to predict what style or sector will be next in vogue. It is much more beneficial to have analysts with a knowledge of the different market capitalisation and styles to be able to keep up with the industry, he said.
The higher the risk profile of a stock, the lower its weighting. This is to maintain a well-diversified portfolio. For example, the fund has a position in a firm that is presently developing a cancer drug.
As ultimate success is far from assured Shephard has only a small holding in it. A core part of the analyst's role is to share information with other investment professionals at the group. The fund is currently underweight technology, as Shepherd believes technology services are reasonably valued. One year ago, he had a higher weighting here but this was halved as Shepherd wanted to sell out before the bubble burst.
One-and-a-half years ago he began positioning the fund in electrical utilities due to their greater defensive characteristics and Shepherd predicted they should do well in the event of a technology fall back. The fund is currently underweight in financials, post-11 September. However, Shepherd likes Citibank and Bank of New York as both have had compelling P/E ratios and he bought into them at 15-16 times earnings.
In the past six months, the fund has been overweight in retail. Since 11 September the valuation of stocks have come down because of fears of how consumers would behave after the attacks.
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