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Fund's new manager won't rock the boat

Templeton flagship has mixed returns

MUTUAL FUNDS REPORTER

Franklin Templeton Investments Corp. is changing the lead manager of its flagship Templeton Growth Fund -- but don't expect a radical portfolio overhaul to improve mediocre returns.

Lisa Myers, a rising star at the U.S.-controlled fund company, will assume the role of lead manager of the $4.8-billion fund later this summer. She will take over the reins from George Morgan, manager of the global equity fund since 2001.

"When I look at George's fund, we are very much of one mind," Ms. Myers said. The fund will continue to be managed with a bottoms-up, team-analysis approach, she said. "After looking over the portfolio with a fine-tooth comb . . . there are very few stocks in the portfolio I scratch my head about."

The appointment is a mixed blessing for Ms. Myers, a former corporate lawyer who joined Templeton's Bahamas office 10 years ago. Templeton Growth holds a near-sacred place at the Toronto-based company and was launched 52 years by Sir John Templeton himself in Canada. Since inception, it has had only four lead managers.

But the fund is shrinking. At the end of 1999, Templeton Growth was Canada's largest fund, holding close to $12-billion in assets. Today, it is less than half that size as investors continue to embrace domestic equities and shun international markets. Despite widespread industry advice to diversify, only a handful of global funds report strong sales.

"I call it investor disenchantment or, at minimum, apathy," Mr. Morgan said. Later this year, the fund manager will leave Franklin Templeton for good to make "a trade between mountains and ocean" and move his family from his Bahamas post to Calgary.

Canadian markets "have done phenomenally well and we've been in the dog house in a relative sense," Mr. Morgan said.

Indeed, the fund's performance has been less than spectacular. For the period ended May 31, the fund is flat over five years and up an annual average of 11.5 per cent over three years. The returns are a fraction better than the fund's global equity rivals and the MCSI World Index for both periods.

A mix of factors are behind the middling returns, Mr. Morgan said. Wall Street returns have been anemic and, as of March 31, the fund had a 27-per-cent U.S. equity weighting. In addition, the strong Canadian dollar has hamstrung any U.S. gains. (In contrast, Ms. Myers' Templeton International Fund does not hold U.S. equities and posted double-digit gains in 2004 and 2005.) More significantly, the value-driven Franklin team continues to shun the red-hot commodity cycle. Many Franklin funds sold energy, metals and mining stocks many, many months ago. The Templeton Growth Fund has a slender 8.4-per-cent weighting in energy and holds a single mining and metals stock -- Alcan Inc. of Montreal.

"It is very difficult for us to justify valuations based on normalized commodity prices. . . . We sold many of our mining and metals positions. They looked expensive," Ms. Myers said. "I'm not smart enough to tell you that metals [stocks] won't be strong. But what I can tell you is that based on our valuations, you can find better value in other places."

Keith Damsell is editor of GlobeinvestorGOLD.

Changing of the guard

Lisa Myers will assume the role of lead manager of the $4.8-billion Templeton Growth Fund later this summer. She will take over from George Morgan, manager of the global equity fund since 2001.

Templeton Growth Fund

CATEGORY: Global equity

TOTAL ASSETS: $4.83-billion

FUND TYPE: Open-ended

INCEPTION DATE: November, 1954

Returns to May 31, 2006

3-year compound annual return: 11.54%

5-year compound annual return: 0.37

10-year compound annual return: 4.96

Top 10 holdings, As of May 31, 2006

1-Koninklijke Philips Electronics NV: 2.48%

2-Sony Corp.: 2.15

3-Cheung Kong Holdings: 2.01

4-Royal Dutch Shell PLC: 1.98

5-Banco Santander Central Hispano SA: 1.94

6-Akzo Nobel NV: 1.93

7-Bristol-Myers Squibb: 1.89

8-GlaxoSmithKline PLC: 1.86

9-ING Groep NV: 1.81

10-Hitachi: 1.70

SOURCES: GLOBEFUND.COM AND FRANKLIN TEMPLETON

© 2007 The Globe and Mail. All rights reserved.

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