| Eric Takaha |
Franklin Templeton Investments is looking to raise its allocation to the government bonds of developed countries (ex-U.S.), on the view that a currency play against the dollar will boost returns. Eric Takaha, portfolio manager of a $600 million strategic income fund, says he plan to add roughly $18 million in investment-grade Asian sovereigns. The fund currently is allocated 17% to international developed bonds and the purchases would raise its exposure to 20%. "We think continued dollar depreciation, particularly versus some of the Asian currencies, will continue over the near-term," he explains. Franklin Templeton currently holds investment-grade sovereigns from Korea and Thailand and will consider adding to these and other credits, he says.
The money manager would finance the move by putting cash to work and possibly taking profits in high-yield securities, according to Takaha, who is based in San Mateo, Calif. "Valuations have come in significantly from 1,100 basis points over Treasuries to 500 and change over," he notes. Junk bonds account for 40% of the portfolio, which has helped the fund's class A shares return about 17% this year as of Nov. 4. Takaha believes tight spreads are justified given improving corporate fundamentals and a brighter economic outlook.
Elsewhere, agency and emerging market debt each account for about 12% of the portfolio, with another 7% in investment-grade corporates. Treasuries are about 5%. The fund uses the Lipper multi-sector income average as its benchmark. Its average duration is five years, roughly flat to that of the benchmark, but Takaha notes that because of its heavy weighting to high-yield, the fund is more sensitive to credit than interest-rate swings. Therefore, its duration is really shorter than that of the index.
