Templeton International Stock Fund

Analysis: Investing in companies located outside of North America, the Templeton International Stock Fund relies very heavily on the 26 member Templeton global equity team. Using a disciplined, bottom up value driven approach, they look for companies that have strong fundamentals, yet are trading below their true value.

The portfolio is quite diversified, holding approximately 60 names. The top ten make up about a quarter of the fund. From a country standpoint, again, it is quite diversified, with the largest weighting, 17%, being in the UK, followed by Switzerland and Japan with 11% and 10% respectively. It is heavily tilted towards financials and industrials, which combined represent 40% of the assets.

The managers use a very patient approach, with a long term time horizon. When considering a potential investment, they are looking out over the course of a business cycle. As a result, portfolio turnover has been in the low double digits for the past five years, and was only 4.6% in 2012.

While the process is sound, unfortunately the results have been largely disappointing. For the year ending April 30, it gained 14.5%, underperforming the 22.2% jump in the MSCI EAFE Index. Longer term, the results have been more encouraging, outpacing most of the peer group, but still lagging the index.

Part of the reason it has consistently underperformed can be attributed to the 2.61% MER, which is above the category average. Combine that with volatility that has tended to be higher than average and it becomes very difficult to recommend this fund to investors. It is our opinion that there are definitely better international equity fund choices available.