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Templeton Growth Fund's 50th a downer

Despite its strong historical performance, it continues to lose investment dollars

MUTUAL FUNDS REPORTER

It's a bittersweet 50th birthday today for Franklin Templeton Investments Corp.'s Templeton Growth Fund.

Despite strong historical performance, the global equity fund continues to lose investment dollars. In June, the fund reported net redemptions of $41.5-million for a total of $6.75-billion in assets under management, down steeply from close to $12-billion at the end of 1999. The fund has lost its ranking as Canada's largest mutual fund, measured by assets, to Investors Group Inc.'s $7.7-billion Dividend Fund.

"I don't have a concocted answer," said George Morgan when asked about redemptions in an interview. The Nassau, Bahamas-based executive took over management of the fund in January, 2001, making him the fourth man to oversee the company's marquee fund since its inception.

Mr. Morgan and a long list of Templeton fund managers are in Toronto today to take part in the firm's annual forum for unitholders. Speakers include Mark Mobius, manager of the Templeton Emerging Markets Fund, and Donald Reed, president and chief executive officer of Franklin Templeton Investments and manager of the Templeton International Stock Fund.

The value-driven growth fund scours the world for bargains, analyzing 1,000 stocks and paring them down to an action list of about 150. As of June 30, the fund held positions in 102 equities. The fund aims for a gain of 70 per cent to 100 per cent on its purchase price of securities, which are usually held for three to five years.

The fund has been a consistently solid performer. For the 12-month period ended June 30, the fund reported a return of 27.6 per cent, besting the group average of 21.3 per cent and the Morgan Stanley Capital International Inc. international equity benchmark of 23.2 per cent. Over five years, the fund is up an average of 0.66 per cent, again beating negative returns posted by its competition and the MSCI index.

But the bottoms-up approach means the fund tends to outperform in poor markets and lag in strong ones.

In 1999, the fund reported a respectable return of 21.1 per cent, a gain that pales when compared with the Nasdaq Stock Market's staggering 84-per-cent return that year.

"People just went 'Ho hum. I can get 60 per cent in a rising tech stock,' " Mr. Morgan said. "I think at that stage, momentum turned against us. It's hard to bring it back."

The fund was also hurt by weak equity markets, an investment climate in which "money shifted genuinely out of stocks and into houses," he said. In addition, Mr. Morgan believes the fund's fortunes have diminished at the hands of Templeton's own Quotential program, launched in August, 2002. Quotential, a conservative, goal-oriented portfolio of funds, has proven popular, growing to 30,000 accounts and more than $1.3-billion in assets.

Rudy Luukko, investment funds editor at Morningstar.ca, expects the Templeton fund has also been hurt by what he describes as the "Brandes factor." In 2002, well-regarded Brandes Investment Partners & Co. parted ways with partner AGF Funds Inc. and launched its own international funds. The Brandes Global Equity fund has grown quickly, amassing close to $1.6-billion in assets. But perhaps most importantly, the Toronto value manager has bested Templeton's returns, reporting a 32.7-per-cent gain for the 12 months ended June 30.

"Undoubtedly, some of those [Brandes] assets are coming from Templeton redemptions," Mr. Luukko said. "It's so ironic that in its 50th year [the Templeton growth fund] is bleeding assets even as it's delivering top quartile, double-digit returns. It's really strange."

And it's clear Mr. Morgan's job won't get any easier. Today's choppy and uncertain markets make investing decisions "harder," he said. The fund is avoiding many high-priced U.S. stocks and looking to undervalued European markets for bargains. One recent exception to the rule is Templeton's recent purchase of shares in Seagate Technology, a troubled computer disk drive maker with operations in Scotts Valley, Calif. The stock has slipped about 40 per cent in value so far this year.

Templeton Growth Fund

Despite strong historical performance, the venerable global equity fund continues to lose investment dollars.

As of June 30, '04

Portfolio

Manager..........................Franklin Templeton Investments

Fund type.........................Open-ended

Asset class.......................Global Equity

Rating.............................*****

RRSP eligibility..................Foreign

Total assets......................$6.75-billion

Sales fee type....................Optional

Management expense ratio.....2.37%

Closed.............................No

Minimum investment (initial)...$500

Returns.................................%

1-month rate of return..............0.57

3-month rate of return..............2.08

6-month rate of return..............7.69

1-year rate of return................27.63

5-year compound rate of return...0.66

10-year compound rate of return..6.62

15-year compound rate of return..9.18

20-year compound rate of return..10.8

Top holdings.......................% weighting

Albertson's Inc.....................2.08

BAE Systems PLC.................1.96

Cheung Kong Holdings Ltd........1.87

Akzo Nobel NV.....................1.87

Lloyds TSB Group PLC............1.82

Michelin SA.B......................1.79

Abbey National PLC...............1.76

Bristol-Meyers Squibb Co.........1.73

Sony Corp...........................1.70

Nintendo Co. Ltd...................1.68

Sectors

Current weighting of top sectors, %

Diversified Telecommunication Services...9.9

Oil & Gas.......................................8.1

Banks...........................................7.7

Pharmaceuticals...............................7.7

Food & Drug Retailing........................4.5

Chemicals.......................................4.2

Industrial Conglomerates.....................4.1

Paper & Forest Products.....................4.0

Computers & Peripherals.....................3.3

Household Durables...........................3.2

Regional weightings

Europe: 43.3%

North America: 28.2%

Asia: 20.3%

Cash: 6.3%

Latin America: 1.2%

Australia, New Zealand: 0.6%

SOURCE: GLOBEINVESTOR.COM; COMPANY REPORTS

© 2007 The Globe and Mail. All rights reserved.

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