Franklin Templeton has appointed David Zahn to co-manage the firm’s Strategic Bond fund, in a move that has seen the manager bolster the portfolio’s emerging market debt and high yield exposure.
Zahn, who also manages the Global Aggregate and Euro Aggregate fixed income strategies, is working with manager John Beck to re-focus the portfolio and take advantage of yield-generating opportunities, which has left the fund holding no gilts.
‘Strategic bond funds should be strategic and move assets around,’ said Zahn. ‘Emerging markets are a differentiator for us; it’s an area of strength.’
By selling out of gilts and buying emerging market sovereign debt, as well as yield corporate bonds, Zahn said the fund’s strategic positioning differs distinctly from the peer group average.
The Templeton fund, for example, has 9.2% in emerging Europe, 1.5% in Emerging Asia and 11.60% in South and Central America.
This compares with the average regional breakdown of the top 10 funds in the IMA’s sterling strategic bond sector, whereby South and Central America exposure represents only 0.70%, Emerging Europe 0.32%, and Emerging Asia 0.13%.
Although Zahn and his team will keep a core of corporate within the fund’s UK exposure, which represents 34% of the fund, they seek opportunities in regions that have been overlooked by the majority of the peer group.
The fund primarily invests in securities denominated in, or hedged back to UK sterling, although it does have some positions in local currency, such as the Polish Zloty and Brazilian Real. The fund is also able to have an allocation of up to 20% outside UK sterling.
Over three years to the 6 November, the fund has delivered 28.5% versus the benchmark’s 16.2%.