| Fund Company | Franklin Templeton Investments |
| Fund Type | Global Small/Mid Cap Equity |
| Rating | $$$ |
| Style | Value |
| Risk Level | Medium – High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Martin Cobb since February 2011 |
| MER | 2.90% |
| Code | TML 707 – Front End Units TML 737 – DSC Units TML 694 – Low Load Units |
| Minimum Investment | $500 |
Analysis: In March 2011, Brad Radin, long time manager of the Templeton Global Smaller Companies Fund left the company. He was replaced by Martin Cobb, who has been with Templeton since 2003 and has been in the industry for the past 18 years.
Naturally, our biggest concern with any portfolio manager change is what impact it will have on the investment management process and how the investment management team functions. According to Martin Cobb there has been “no major change in the way the team operates.” They are still following the same disciplined, multi step, value focused process and they are still selecting names from the same database of buy candidates. At Templeton, while it is the lead manager who is ultimately responsible for the names in the fund, they are supported by a dedicated team of analysts, as well as the entire 36 member Templeton Investment Management team. On the Global Smaller Companies Fund, there are 7 dedicated analysts involved, including the funds back up PM, Harlan Hodes.
But despite this consistency in process, the fund had a very rough 2011. The fund was down 23% during the year, well below the MSCI World Index and its peer group. Some of the underperformance to the benchmark is attributable to the fact that in 2011, many investors eschewed small and mid cap stocks in favour of the higher quality large cap names. But the underperformance relative to the benchmark is due to the manager.
The fund was a relative poor performer because of a number of factors. These factors include the fund’s underweight to the U.S., which was by far the best performing market in the fourth quarter, the fund’s relatively high exposure to the emerging markets, and the fund’s exposure to U.S. and Asian financial stocks.
The fund continues to be significantly underweight the U.S., with just 18% of the fund invested in the country. The fund holds approximately 7% in cash.
The manager continues to take advantage of the lowered valuations in small cap names to improve the quality of the portfolio. The manager is also able to add some select mid cap names that were previously unavailable to it.
Despite that, we expect that 2012 will be a tough year for small cap stocks and this fund. Looking out medium to long term, we expect that investors will be rewarded.