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By Karin Anderson | 06-02-2016 11:00 AM

Despite Recent Difficulties, Hasenstab Still Golden

Templeton Global Bond has suffered weak performance lately, but we're maintaining the fund's gold rating, says Morningstar's Karin Anderson.

Karin Anderson: Gold-rated Templeton Global Bond Fund has had a difficult time lately. It was down about 4% in 2015 and it's down nearly 2% so far this year. I'm going to talk about some of the reasons why we're standing by our Gold rating.

First of all, we really like the team behind this fund. It's led by Michael Hasenstab and he has a really excellent support staff and comanager Sonal Desai and six experienced analysts and traders. And what they do is they look around the world for government bonds, quasi-sovereign bonds, and they really aim to be early and hang on to those bonds as their top-down thesis plays out. So, for a long time the focus has been on emerging-markets bonds and currencies. So, that makes this fund a good deal riskier than most funds in the world bond category.

Another thing that makes this fund rather aggressive is its currency bets. So, for many years as well it's had bets against the yen and euro. So, when the dollar weakens against these two currencies that tends to hold this fund back. Another key theme is a lack of interest-rate risk, another long-term theme for the fund.

So, a lot of this has been working against the fund lately, but the key thing to remember is this fund has been performing as expected. If you look at risk-on environments in the past, like 2012, this fund did very well. In the past year when EMs sold off, this fund did not do well. Again, it's very risky, though very highly correlated with equities, so something to think about when you're putting this into your portfolio.

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