Franklin Mutual Global Discovery Fund (TML180).
Last October, Franklin Templeton announced that Philippe Brugere-Trelat,
long-time manager of this fund, would retire in May. The transition was
very gradual, and given the team management approach and the manner in
which the transition took place, any disruption to the fund management is
likely to be minimal.
In January, Christian Correa was added as a co-manager along with current
co-manager Tim Rankin under lead manager Peter Langerman, who is chairman,
president, and CEO of Franklin Mutual Series. Mr. Rankin is well versed in
the process used by the Franklin Mutual Group. He has more than 20 years’
experience in the iindustry, of which 14 have been with Franklin
The management process is very much a bottom-up approach that looks for
undervalued stocks, with an identifiable catalyst that can unlock share
price appreciation. This is a go-anywhere approach that allows the fund to
invest in companies of any size anywhere in the world.
The portfolio is broken into three different components. The first is
relative value, which is focused on undervalued stocks. This is typically
the largest slice of the portfolio. At the end of June, roughly 90% of the
equity exposure was in relative-value names. The other components of the
fund include merger arbitrage and distressed companies. Combined, these
sectors represented approximately 4% of the equity weight at the end of
June. The amount invested in each sleeve will be dependent on the
Given the defensive focus of the fund, performance has lagged both the
index and peer group over most time periods. However, historically it has
held up well in periods of extreme market volatility and tends to
experience less fluctuation than the index or peers.
VanEck Vectors Vietnam ETF (NYSE: VNM). I was asked by an advisor about the best way to invest
in Vietnam, one of the fastest growing economies in the world. Its
improving living standards and rising incomes are paving the way for it to
emerge as one of the more potentially attractive investment opportunities.
Vietnam has a population of 95 million, nearly half of whom are under 30.
There has been significant urbanization and industrialization, with more
expected to come.
However, screening mutual funds and ETFs based on country weights is a
tricky proposition at the best of times. In Canada, a quick search revealed
that there are no dedicated mutual funds or ETFs that focus exclusively on
Vietnam. The fund with the largest exposure to Vietnam is the
Franklin Templeton Frontier Markets Fund, which had approximately 14% allocated to the country as of the end of
In the U.S., the VanEck Vectors Vietnam ETF was the only dedicated Vietnam
ETF currently available. It invests in companies that are incorporated in
Vietnam or generate at least 50% of their revenues in that country. At the
end of June, the portfolio consisted of 27 positions, representing roughly
70% of the market capitalization of the Vietnam equity market.
VNM’s sector mix looks a lot like you would expect an emerging-market
country to look – heavy emphasis on consumer stocks, financial services,
and real estate. Combined, these sectors make up 70% of the fund.
Performance has been strong over the past year, with the fund advancing
8.1% to the end of June in U.S. dollar terms. Over the long-term, however,
performance has been somewhat disappointing, with the fund posting an
average annual compounded rate of return of just -1.0% for the past five
For those looking for dedicated Vietnam exposure, this is really the only
way to access it. But it is risky, as it is a single-market ETF focused on
a very young economy. Unless you need dedicated Vietnam exposure, you’re
likely better off looking at a broader emerging markets fund, or if you are
really looking for something more speculative, a frontier markets fund.
Mackenzie Global Leadership Impact Fund (MFC5279). Mackenzie launched this interesting new fund last
October. It’s unique in that it looks to invest in companies that promote
gender diversity and women’s leadership. The fund is based on the Pax
Global Women’s Leadership Index, which scores companies based on their
gender diversity, based on such factors as the percentage of women on the
board of directors, percentage of women in key leadership roles, and
whether the company is a signatory to the Women’s Empowerment Principles.
In addition to the gender score, each company must meet certain
environmental, social, and governance (ESG) criteria, or sustainability
standards. The fund also avoids companies involved in weapons and tobacco
products. These screens whittle the MSCI World Index down from more than
1,600 names to roughly 400.
The companies are then weighted based on their gender score and other risk
factors. While the fund has a go-anywhere mandate, sector weights are
capped at +/- 5% of the weight of the MSCI World Index. It is expected the
initial geographic mix will be 60% U.S. and 40% international equities. The
index will be rebalanced and re-weighted annually.
One concern with funds that use screening factors to both eliminate and
weight stocks is the potential performance differential. For example,
between January 2012 and September 2017, the PAX Ellevate Global Women’s
Index delivered an annualized 11.2%, while the broader MSCI World Index
returned 11.8%. For the 12 months through the end of June, the PAX Index
advanced 12.2%, while the MSCI World Index gained 9.8%.
It is far too early to be evaluating the investment merit of this fund.
However, the index performance and unique mandate may make this an
interesting choice for those who are looking for more socially-aware
PIMCO Monthly Income Fund (PMO005). In a very volatile bond market, this global-focused
offering continued to outperform not only the Canadian bond funds but most
of the global offerings as well. This outperformance can be attributed to
PIMCO’s diverse global team and active management style. They use a mix of
top-down economic analysis and bottom-up security selection to consistently
identify mispriced opportunities while maintaining a focus on generating
At the end of June, the fund had a very modest duration of 3.41 years,
focused mostly on its high-quality, government-related security holdings in
Looking ahead, this remains one of the most consistent bond offerings
around. Last year, the fund was also launched with an ETF structure
(TSX: PMIF). Its costs are the same as the F Class mutual fund, making it a great way
for do-it-yourself investors to access this top-shelf bond offering.
Steadyhand Income Fund (SIF120). With a quarterly gain of 1.57% to June 30, this
fixed-income-focused balanced fund placed in the first the Canadian
fixed-income market but failed to keep up with its more balanced peers.
With rising bond yields putting pressure on the two thirds of the fund that
is invested in fixed income, the equity sleeve was a positive contributor,
helping to buoy the fund.
The focus of the equity holdings is on attractively-priced companies that
have the potential to grow their dividends in higher-yielding sectors such
as financials, pipelines, and industrials. Throughout the quarter, the
manager has been actively reducing the risk exposure in the fund, but still
prefers corporate and provincial bonds over governments for their higher
yield and lower interest rate sensitivity. With the benefit of some equity
exposure, this remains a strong pick for those looking for a fixed-income
fund in a rising yield environment.
Dave Paterson, CFA, is the Director of Research, Investment Funds for
D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due
diligence on a variety of investment products. He is also the publisher
Dave Paterson’s Top Funds Report,
offering regular commentary and in-depth analysis of Canada’s top
investment funds. He uses a unique analytical approach to identify
funds with strong, risk-adjusted returns, and regularly publishes his
insights and analyses in Fund Library.
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