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A World-Stock Fund With a Different Playbook

Alec Lucas, Ph.D.

Alec Lucas: Silver-rated Franklin Mutual Global Discovery (TEDIX) takes a distinctive approach compared with its world-stock category peers. 

As part of Franklin's Mutual series, the fund's portfolio is focused on cheap stocks, but also includes merger-arbitrage plays on announced acquisitions and distressed debt positions. These distressed debt positions, which have recently ranged from 5% to 7% of the fund's assets, provide an added layer of diversification. 

That's because bankruptcies, whether they result in liquidations or reorganizations, move according to the court's timing and, thus, have payoffs that are independent of market movements. The managers, no doubt, court risk by investing in troubled firms, but their expertise, combined with an insistence on an appropriate margin of safety when buying, provides some protection. 

They're also willing to wait years for their investment theses to play out and will readily go to cash if compelling alternatives are lacking. And they're quick to sell once securities reach their estimate of fair value. 

The fund has a history of holding up well in troubled markets and its risk-adjusted performance under the current team has been strong. It's worth a look if you're a conservative-oriented investor and you want a global offering.