The Templeton Growth fund is an ideal vehicle to replace a core global equity position in a portfolio, according to head of research at Whitechurch Securities Ben Willis, who recently bought the fund with the ample profits he made from the top performing Scottish Mortgage investment trust.
Willis, like many FE Trustnet readers is a keen follower of the top-performing trust, managed by Baillie Gifford’s James Anderson since 2000. The £3.3bn Scottish Mortgage IT is consistently one of the most searched for trusts on our site, most likely due to its huge returns over the past decade or so.
According to FE Analytics, Scottish Mortgage has gained 398.89 per cent since 2000 [when Anderson took over], vastly more than the sector and index. It is also top decile over one, three, five and 10 years in the IT Global sector.
Performance of trust, sector and index since 2000
Source: FE Analytics
It has also beaten every single open-ended fund in the IA Global sector over all of these time periods with the exception of the past year when it comes second to the F&C International Heritage fund which has returned 65 per cent over the past year.
Anderson was joined by Tom Slater in 2009 and pair have largely built a thematic portfolio ignoring the typical more quantitative method of picking stocks. The trust has two main themes: the rise of China and disruptive technology particularly connected to demographic trends such as ageing populations.
Top holdings include some of the leading names in tech and biotech such as Illumina, Google, Facebook, Amazon and Baidu. However, the fund is also increasingly investing in unquoted companies believing the most rapid periods of growth of companies come a long way before they are typically offered up at a public listing.
Willis (pictured) says while the strategy has been very successful he is, however, expecting markets to favour a different style in the coming years and so scooped up units in the £220m Templeton Growth fund managed by Dylan Ball.
“It is quite punchy but it is still a core fund and has an interesting style that is paying off nicely at the moment,” he said.
“We did have Scottish Mortgage which has been phenomenal and was trading at a premium. We were thinking can they sustain this as it has been so excellent? So we banked the profits and bought this fund as it was more aligned to our view of equities market. When we did the research he came closest to our view on world markets.”
“He [Ball] is quite value-biased and so there is going to be times when he doesn’t outperform – when style goes out of favour. We bought in because of this value bias and he is overweight to Europe at the expense of the US. That has really come to fruition year to date.”
The US equity market has somewhat come off the boil in 2015 after several years of dominance over other developed markets. In contrast, Europe’s stocks have rallied after Mario Draghi, president of the European Central Bank, fired his much anticipated ‘bazooka’ – in the form of full-scale sovereign quantitative easing.
The MSCI Europe ex UK has gained 11.38 per cent since the start of the year while the S&P 500 gained 3.78 per cent.
Performance of indices and fund in 2015
Source: FE Analytics
In the Templeton Growth fund, Ball still has a the US as his biggest bet with just over a third in US stocks but this is a significant underweight to the MSCI World index. His next largest position is Europe ex which makes up about 27 per cent of the total assets in his portfolio.
Pharmaceuticals are a big theme particularly European listed firms with Merck, Roche and Actavis the largest three positions in the portfolio. In total healthcare represents about 18 per cent overall.
Financials is the largest sector bet with 23 per cent portfolio exposure.
Since the Ball took over the fund on the eve of the financial crisis it has underperformed both sector and index with a return of 56.91 per cent.
Performance of fund, sector and index since 2008
Source: FE Analytics
However, over three years the fund has fared better with top quartile returns and top decile gains in 2015 so far. Last year, in contrast, the fund was bottom decile with a return of just 4.74 per cent.
The fund has an ongoing charges figure [OCF] of 0.85 per cent and has a current yield of 1.24 per cent.
Scottish Mortgage has an OCF of 0.5 per cent and is 12 per cent geared. It is on a current premium of 0.7 per cent.