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Mobius’ successor overhauls Templeton Emerging Markets

Trust’s new lead manager, Carlos Hardenberg, will increase holdings and reduce risk in bid to improve performance.

 
Mobius’ successor overhauls Templeton Emerging Markets

Templeton Emerging Markets (TEM ) investment trust is set for a bigger-than-expected shake-up under its new manager and Mark Mobius’ successor, Carlos Hardenberg.

According to Winterflood Securities, the trust’s broker, Hardenberg intends to change over a quarter of the £1.2 billion portfolio in a bid to turn around the trust after five years of underperformance.

Hardenberg, who has worked at Templeton for 13 years, today formally replaces Mobius, the trust’s founding manager, who it was announced in July was stepping back as the trust’s manager after 26 years.

Although Hardenberg has not revealed his intentions in public, he has spoken to Winterfloods which said it was surprised by the scale of the measures he planned.

While Hardenberg will maintain the trust’s historic value investment approach, Winterfloods said he and portfolio manager Chetan Sehgal had indicated they would:

  • increase the fund’s holdings from 55 to between 80 and 120 stocks;
  • include technology and consumer companies as part of a ‘redefinition’ of value;
  • improve sell discipline to avoid profits being lost;
  • place more emphasis on risk controls with greater limits on ‘non-benchmark’ countries not in the MSCI Emerging Markets index.

‘Although we were expecting more of an evolution than revolution under the stewardship of Carlos Hardenberg and Chetan Sehgal, it is clear that there are some significant changes afoot,’ said Simon Elliott of Winterfloods in a note to investors.

‘We suspect that in future the turnover of the portfolio is likely to increase, while the concentration of the largest holdings is likely to fall,’ he added.

Elliott said that behind the scenes there were clearly big changes to the trust’s 50-strong investment team, with analysts encouraged to put forward their best ideas.

‘It is difficult to estimate how this will impact the fund’s performance but the managers are clearly focused on high conviction holdings,’ he said.

Elliott described the ‘new broom’ approach as a reaction to Templeton’s disappointing performance, adding there was ‘substantial pressure’ on the new team to do better.

Although, according to Winterfloods, TEM has beaten its index is six of the last 10 years, the second half of the decade has tarnished its long-term record. Even with dividend payments included, shareholders have lost nearly a third of their money in the past five years.

As a result its ten-year total shareholder return of 85% lags both JPMorgan Emerging Markets (JMG ) and Genesis Emerging Markets (GSS ), although it is just ahead of the MSCI index.

With the downturn in emerging markets worsening so far this year the trust has lost its shareholders 26%, double the decline in its benchmark and worse than all rivals in its sector. The discount – or gap between the share price and the trust’s underlying net asset value – has widened slightly to 12%.

There is some continuity with Mobius, however, who remains a portfolio manager on the trust and chairman of the Templeton Emerging Markets Group. The trust retains an over 70% exposure to Asia with Hardenberg apparently believing there has been an ‘overreaction’ in China. The country’s car maker, Brilliance China (1114.HK), remains the top holding, accounting for 8.3% of net assets.

According to Winterfloods, Hardenberg remains positive on Thailand but has reduced the fund’s weighting to Brazil to just under 12%, conceding to the consensus pessimistic view of the country’s prospects.

2 comments so far. Why not have your say?

Private Investor

Oct 02, 2015 at 16:20

The performance of this trust has not just been bad it has been disastrous over 5 years and massively worse than other emerging market trusts. Down 37% over 5 years, so it now needs to gain 58% to get back to where it was 5 years ago. The point that the 5 years preceding the last 5 were exceptionally good is no consolation at all to investors who have invested new money over the last few years.

report this

Richard_L

Oct 04, 2015 at 15:15

And what of the equivalent UT - does that not have an even worse performance?

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