Emerging markets guru Mobius struggles outside Asia

Reuters: Templeton emerging markets funds investing beyond Asia have failed to match the strong returns of its flagship Asian product, putting pressure on star manager Mark Mobius to turn the tide or risk eroding his reputation among investors in markets such as Russia and Brazil.

Mobius, widely recognised as an emerging markets guru, enjoys strong success in Asia, where his $15.5 billion Templeton Asian Growth Fund has given investors an over-five-fold return in the past decade.

His forays outside the region, however, have been less impressive, partly due to the fact that bets have been spread more.

The geographically diverse Templeton Emerging Markets Fund ranked just 103 out of 236 funds over 10 years in total returns, according to Lipper, a Thomson Reuters service.

And Mobius’ $3.1 billion BRIC fund, which has a shorter history, lies in the bottom quartile of funds that invest in Brazil, Russia, India and China for the three-year period to November 2010.

“The Asian growth fund has done very well and that is very clear from the data. But for the broader emerging markets funds, it’s another story,” said William Cai, Deputy Investment Head at Singapore-based GYC Financial Advisory.

Investors have followed the money. The Templeton Asian Growth Fund, the top Asia ex-Japan equities fund over 10 years according to Lipper, has seen assets nearly double from around $8 billion at the end of last year.

But assets in the Emerging Markets Fund, Templeton’s oldest, at about $1.2 billion, have been more or less stagnant since the start of the year.

Mobius, 74, Executive Chairman of Franklin Resources’ Templeton Emerging Markets Group, joined the firm in 1987.

The PhD holder in economics and political science from the Massachusetts Institute of Technology (MIT) is a strong believer in “value investing”, or buying out-of-favour stocks that have cheaper valuations, and is known for taking large contrarian positions.

Templeton’s more successful investments in 2010 include Brilliance China, whose share price has more than tripled this year as the firm stopped making its own sedans and focused on its production and sales venture with Germany’s BMW.

In an interview with Reuters, Mobius acknowledged Templeton’s broader emerging market funds have not fared as well as their Asia counterparts and said the firm has taken steps to improve performance by focusing on a smaller number of stocks.

“One of the changes has been our concentration. We’ve concentrated the portfolios a lot more than previously,” he said. Lipper data shows that the BRIC and emerging market funds’ returns have moved to the top quartile in recent months.

“In the past the funds were big, and we had to be diversified among many different companies. With the increasing liquidity we’ve now been able to focus more on what we think are the best value companies,” he said.

While Mobius describes himself as a value investor and the Templeton Asian Growth Fund is on the recommended list of many private banks and investment advisory firms, some financial advisers regard the fund as risky.

DBS’ private bank, for instance, recommends the fund only to investors with a higher risk appetite.

The Asian growth fund has a four-star ranking from fund tracker Morningstar, one notch below the top rating enjoyed by the likes of Invesco’s Asian Equity and First State’s Asian Growth funds.

“If the return is not high enough, and the risk and cost are not low enough, it can’t attain a higher rating,” said YT Kum, Hong Kong-based Senior Research Analyst at Morningstar Asia.

“Templeton is a bit biased toward growth,” added Victor Ong, Director at Financial Alliance, a Singapore-based advisory firm. “We have some style-bias and what we currently recommend are the more value-driven, more dividend-based funds.”

Mobius, however, said his stock selections are based on careful research, and the high percentage of Thai assets in his Asian Growth Fund reflects to some extent the gains in Thailand, one of Asia’s best-performing stock markets this year.

For instance, while he is bullish on the volatile energy and commodities sector, he has sought to minimise risks by favouring diversified firms that not only extract oil and minerals but also process them and sell the final product to end-users. “Thailand is a good example of where the team invested when others were frightened. Our long history of investing in Thailand led the team to be confident about investing in specific Thai companies despite the turmoil,” he said, referring to the anti-government protests in Bangkok earlier this year.