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By Karin Anderson | 06-18-2014 02:00 PM

Hasenstab: What's So Attractive About Ukraine

Short-sighted panic-selling has offered good opportunities to buy Ukraine's dollar-denominated government bonds, which are backed by solid fundamentals, says Templeton Global Bond manager Michael Hasenstab.

Karin Anderson: I'm Karin Anderson, a senior analyst with Morningstar. I'm here today with Michael Hasenstab, the portfolio manager of Templeton Global Bond.

Michael, thank you for being with us.

Hasenstab: My pleasure.

Anderson: You've invested very heavily in emerging markets in the global bond portfolio for years, and one thing that you and a lot of other managers that look at this space have been talking about lately is the importance of country differentiation right now. Why is that so key now, versus, say 10 or 15 years ago?

Hasenstab: I think it's always been important, first of all, and we've always spent a lot of time and resources to ensure that we understand the differences country by country.

The first objective is really go to these countries, understand the macroeconomic political differences between a Korea and a Turkey or a Mexico and a Brazil. But the second is, then, within those countries to understand there are so many different levers and opportunities as well as risks--the currency side, the interest rate side, the sovereign credit.

When we go into a market, our goal is to be able to isolate the exact source of alpha that we want and hedge out the risks we don't. If you look back over the last five to seven years, our positions in Korea have gone from full hedged to unhedged; they've gone from long duration to short duration. There are a lot of levers to pull, but it requires a fair amount of effort to understand those differences, because the behavior, both of countries and assets within those countries, is quite divergent.

Look at 2013: The best-performing market was Hungary, up over 10%. The worst-performing was Indonesia, down 30%. So, you can't just talk about the asset class. You have to go country by country and within those countries, isolate the different variables.

Anderson: Staying along the emerging-markets theme for a moment… Your Ukraine debt position has gotten a lot of attention lately. What attracted you to it, initially--I believe you added that maybe a few years ago? And where do you stand now given that the election has happened and there has still been a turmoil in the region?

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