Templeton Global Smaller Companies

Analysis: Martin Cobb took over the management duties of this fund in March 2011 after longtime manager Brad Radin left the firm. In managing the fund, they follow a multi step, bottom up, value focused process that looks to identify undervalued companies that have a market cap of less than $2.5 billion.

At Templeton, while it is the lead managers who are 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.

The portfolio is well diversified holding close to 90 names, with the top ten making up just over a quarter of the fund. Sector allocations are the result of the bottom up approach. Consumer discretionary stocks make up just under 30% of the fund, followed by financials and industrials, which are about 15% each. The U.S. is the largest country holding, followed by the UK and Canada. Portfolio turnover is expected to be modest. It was 30% for the year ending June 30.

The portfolio transition from the old manager to the new one was slow, taking more than a year to complete. While we understand the need to make changes gradually, that was pushing things, in our opinion.

It had a rough 2011, losing 23% during the year, well below the Dow Jones Global Small Cap Index and its peer group. In 2012 the fund gained 11.5%, but lagged the index, which rose 16.5%. This performance was strong enough to finish in the top half of the category.

While there have been some growing pains initially, there have been some signs of an improvement in performance, but not enough to give us the comfort level we require. It is still too early to make a definitive call on Mr. Cobb’s management and we would suggest that investors remain cautious with this fund.