Franklin Templeton's Steadiness Stands Out Amid Drama
This solid steward has avoided the distractions that have sidelined peers.
This solid steward has avoided the distractions that have sidelined peers.
Many broker-sold fund firms have been headline-grabbers in recent years for their mega-mergers, senior-executive turnover, or big outflows. But at Franklin Templeton, operations have been notably steady and relatively quiet, and that's been a good thing for fund shareholders.
Founded and still controlled by the Johnson family, Franklin has been in business in one form or another for more than 60 years. At the top, the firm has always been run by a culture of investment managers, starting with Rupert Johnson and continuing to this day with current chief executive Greg Johnson, who ran Franklin Income (FKINX) and Franklin Utilities (FKUTX). Today, Franklin Templeton is several fund families rolled into one and is owned by Franklin Resources (BEN). The firm started out primarily as a bond shop but now includes some of the most respected names in the investment business, including deep-value specialists Mutual Series and foreign-stock experts Templeton.
Franklin Templeton's investment culture is one of thrift, prudence, and patience, which is evident in most of the funds' low-turnover approaches and generally low fees. The firm has grown via acquisitions over the years yet has retained these core values across all its investing styles. The firm has an extensive roster of well-regarded portfolio managers that span the investing spectrum from municipal bonds to emerging equity markets--backed by a sizable and experienced analyst staff.
Fingers in Many Pies
The firm offers an extensive lineup of funds, which gives investors plenty of choices among both fixed-income and equity asset classes. Franklin equity funds cover the spectrum from growth to value, with such solid offerings as Franklin Flex Cap Growth on the growth side and Franklin Rising Dividends (FRDPX) and Franklin Small Cap Value (FRVLX) on the blend and value sides, respectively. The Templeton lineup is well known for its international-stock investing and includes funds such as Templeton World (TEMWX) and Templeton Growth (TEPLX). Deep-value expert Mutual Series also has decent funds, including Mutual Global Discovery (TEDIX) and Mutual Beacon (TEBIX). On the fixed-income side of things, Franklin's long history in this arena has given the firm a competitive edge. For example, Franklin's muni-bond fund team--headed by co-directors Sheila Amoroso and Rafael Costas--is one of the best in the industry, managing two funds designated as Morningstar Analyst Picks: Franklin Federal Tax-Free Income (FKTIX) and Franklin CA Tax-Free Income (FKTFX). Franklin also has a number of good funds that invest in taxable bonds, including Franklin Strategic Income (FRSTX) and Franklin High Income (FHAIX).
Franklin has done a good job integrating its separate investing units under one umbrella without being too meddlesome in the investment process. The firm generally allows each of the firms it has purchased to run autonomously and manages its subsidiaries well. For example, during the acquisitions of Templeton in 1992 and then Mutual Series in 1996, Franklin was careful to keep each office unchanged, down to the office decorations and paint on the walls. Each investing unit does its own hiring, analyst training, and research, and offloads common administrative duties to Franklin's global administrative platform. For example, every investing unit uses the same trading system, legal and compliance department, call centers, and distribution system. Overall, Franklin's structure has given the firm plenty of efficiency gains, while still preserving the unique attributes and autonomy of its various investing units.
Low Expenses Are a Plus
The firm's culture of thrift is evident in the expense ratios of the funds. Indeed, most funds are downright cheap compared with most broker-sold rivals, especially its fixed-income and municipal-bond offerings, where low expenses are critical. Shareholders in the firm's equity offerings have mostly benefited from lower fees as well. Even the firm's campus headquarters, in San Mateo, Calif., leans more toward the functional side of a business environment, as opposed to lavish, ornate decor and expensive furnishings.
When it comes to investment personnel, Franklin has created an environment where people tend to stick around, which is one of the strongest signs of a positive corporate culture. Overall, Franklin Templeton has very low turnover among its investment professionals, at both the portfolio manager and analyst level. Roughly two thirds of its funds have management teams with above-average category tenures, such as Jerry Palmieri, who has run Franklin Growth (FKGRX) for more than 40 years, and Bruce Baughman, who has managed Franklin Balance Sheet (FRBSX) since its 1990 inception. Although the styles and strategies of the groups' managers differ, they are tight-knit teams that follow consistent processes with plenty of analyst support. Templeton, for example, has more than 60 analysts worldwide covering developed and emerging markets.
Still, the family has suffered some manager turnover in its recent past. For example, in early December 2009, comanagers Anne Gudefin and Charles Lahr left Mutual Series after a successful tenure at Mutual Global Discovery. Earlier in 2009, comanager Mike Embler left Mutual Beacon (although he didn't join a rival firm). It has been and probably always will be more of a challenge to retain people at Mutual Series because other firms will pay dearly for their expertise in investing in distressed companies. Still, the firm has handled attrition well so far. To fill the void left at Mutual Global Discovery, the firm put two of its most senior managers in charge of that fund: Peter Langerman of Mutual Shares and Philippe Brugere-Trelat of Mutual European. At Mutual Beacon, comanager Christian Correa, who has been on the fund since 2007, stepped up to take the reins along with Mandana Hormozi, who started at Mutual Series in 2003.
Manager Ownership Falls Short
Although Franklin Templeton's corporate culture is strong, there is still the lingering issue with fund manager ownership, which is unimpressive overall. When managers eat their own cooking, it helps to align the interests of portfolio managers more closely with those of shareholders. With substantial personal investments, a fund manager is less likely to act against the long-term interests of shareholders. Overall, fund manager ownership doesn't meet the industry's highest standards. At many funds, including Templeton World (TEMWX) and Franklin Templeton Founding Funds Allocation (FFALX), there is little financial support from their respective managers.
However, long-tenured management, below-average fees, and a philosophy of patient, prudent investing go a long way in serving shareholders over the long term.
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