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Templeton era featured dramatic change

John Templeton's name is still attached to the mutual fund he established in 1954 and turned into a bright, shining example of how funds democratize investing.

But the obituaries written about Mr. Templeton following his death at age 95 earlier this week failed to note a salient detail about the Templeton Growth Fund as it exists today. Even with the Templeton name attached, it's just another fund among thousands sold in this country.

The glory days for Templeton Growth are long over and the decline is worth noting because it coincides with the rise of the fund industry as big business. Running funds today is all about gathering assets, not making money for investors.

Mr. Templeton was already a successful investor in his own right when he started up the Templeton Growth Fund in 1954. In the decades to follow, he led the fund to outstanding returns that were routinely highlighted through descriptions of how much an investment made at the outset would have swelled over the years.

Even today, tells us that $10,000 invested in the fund back in November, 1954, would now be worth $5.8-million. That's based on a compound average annual return over the years of 12.8 per cent, which is simply an outstanding number.

Too bad it's disconnected from today's reality. For a variety of reasons, some of them to do with the strong Canadian dollar and weak global markets, the fund over the past 10 years has averaged just 1.9 per cent annually. Go back a couple of decades, though, and the Templeton Growth Fund was still flying.

Mr. Templeton was often quoted back then for his views on the markets, and his appearances at the annual meeting of the Templeton Growth Fund were widely covered by the financial media. Reports from the day describe an almost evangelical feel to these events, which isn't surprising given Mr. Templeton's deep interest in religion and spiritual matters.

In 1987, Mr. Templeton handed the job of running his eponymous fund to his research assistant, Mark Holowesko, who did solid work during a tenure that lasted until 2001. Below the surface, however, events were taking shape in the fund industry that would have a negative effect on the fund.

To attract more clients, fund companies began to expand the offering of fees and commissions to investment advisers who sold funds to clients. The cost of these inducements was borne by investors through increases in the fees they paid to own funds.

Templeton Growth at first resisted this trend by keeping its fees the same as they were from the very beginning. The management expense ratio for the fund was 0.93 per cent, which may look like a misprint to an investor of today because it's laugh-out-loud low. Prior to the 1992 annual meeting, Templeton caved. The company announced a plan to raise the MER to just over 2 per cent and it was easily approved despite anger on the part of some investors.

Just about a week later, Mr. Templeton sold his fund empire to U.S. money manager Franklin Resources Inc. Call it a precursor to the dozens of fund industry mergers and acquisitions that followed.

Templeton Growth continued to deliver good returns after the buyout and, with the fund paying industry-standard fees and commissions to advisers, assets grew to more than $10-billion in 2000 from roughly $1-billion in 1992. But the size of the fund wasn't the only thing that was growing. The fees investors were paying rose, too.

The fund industry experienced boom times in the bull market that ran through much of the 1990s and many fund companies cranked up fees even as they enjoyed increasing economies of scale thanks to the new money pouring in. Templeton Growth's MER had risen to 2.21 per cent by early this decade and it has stayed in that area ever since (it remains below average for its category, however).

Templeton Growth tried to keep up with fund industry growth and it ended up being diminished by the competition. Never mind that the fund is no longer the top brand in the Canadian fund universe or the largest fund by assets. Today, having shrunk to an asset base of $3.3-billion, it doesn't even crack the Top 30 biggest names.

Maybe the decline of Templeton Growth was inevitable. Money management is a more demanding game than it was in 1954 and, in any case, it's near impossible to maintain market-beating returns indefinitely. And yet, the fund was also a victim of what passes for progress in the fund world. As the fund industry became bigger and stronger, Templeton Growth got smaller.


Bank of Montreal has a credit card that fits in with a theme examined in Tuesday's column - card loyalty programs that help cut the cost of buying gasoline. The BMO Shell Mosaik MasterCard (with the premium cash back reward option) offers 3-per-cent cash back on all card purchases at Shell gas stations in Canada, and 1 per cent on other purchases.

© 2007 The Globe and Mail. All rights reserved.

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