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Riding The Waves And Leaving The Navigation To The Experts

Current clients of MASECO (and those clients who were with us when we were at Citigroup) will by now know that one of our longest held positions is the Templeton Global Bond fund managed by Michael Hasenstab.  The fund is one of the ‘active’ investments we make because we dislike the composition of the benchmark that is the alternative way of getting exposure to ‘foreign’ bonds.  As we discuss in our Investment Philosophy meetings and from time to time in our blogs, we dislike the global bond indices which are market weighted and thus own bonds in the most heavily indebted countries in the world.  Most of these countries government bonds also pay a very low rate of interest to investors and have seen (and may continue to see) their credit ratings downgraded.  For example, currently, the most heavily indebted large country in the world, Japan, has more than 200% debt to GDP, has been paying almost no interest to investors for years and has steadily seen its credit rating fall.  The US is another of the heaviest weighted countries in all global bond indices and has been paying investors very little interest over the past 5 years, it too has seen its credit rating cut.  European countries tied to the euro round out the top three largest weighting in the indices and their debt to GDP is higher than the US, they also pay very little interest to bond investors (except when investors have totally given up on their credit worthiness – think Greece) and many other European countries have seen their credit ratings cut.  This is why it is important not to ‘hug’ the index when it comes to buying ‘foreign’ bonds.

So, who is left?

That is the question we constantly ask Hasenstab and that is why we use an expert like him to help navigate through government bonds across the globe and determine whether it is other countries such as Malaysia, Poland, South Korea or Sweden that are better places to invest.  Over the years Hasenstab has safely guided investors through various market cycles and has regularly been one of the top managers in his field.  According to www.morningstar.com his US based flagship fund (he has similar funds based out of Luxembourg for non-US tax payers) has outperformed his benchmark (and most of the global bond indices by a similar amount) by 4.78% annually over the past 5 years and by 4.69% annually over the past 10 years.  He is also ranked in the top 20% of managers over the past 3 and 5 years and top 1% over the past 10 years.  There are periods (such as 2011) when he under-performs, but these periods tend to be short lived and his strong conviction usually pays off.

TGBAX

As a firm we continue to have confidence in both our decision not to ‘hug’ the global bond indices and Hasenstab’s ability when it comes to allocation and currency decisions for this important asset class.  If you would like to see his latest commentary, please click here.

Joshua Matthews
Managing Partner


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