| Fund Company | Franklin Templeton Balanced Fund |
| Fund Type | Canadian Neutral Balanced |
| Rating | $$ |
| Style | Quantitative |
| Risk Level | Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Jason Hornett since February 2011 |
| MER | 2.46% |
| Code | TML 3304 – Front End Units TML 3306 – DSC Units |
| Minimum Investment | $500 |
Analysis: What makes this fund unique is that it is a quantitatively managed balanced fund that uses a computerized security selection process based on Bissett’s proprietary model. It looks primarily for North American stocks that exhibit fundamental factors that indicate the likelihood of stock price appreciation.
It is a well diversified portfolio, holding more than 145 positions. It holds about 58% in equities and 40% in bonds, with approximately 87% invested in North America. In general, the portfolio’s holdings have a lower than market beta, low levels of valuation and attractive growth rates.
Within the equity sleeve, the focus is on large caps with some mid cap exposure. Given the uncertainty of the global economy, it is defensively positioned, holding overweight positions in the defensive sectors such as consumer defensive, healthcare and utilities. The fixed income exposure is also conservatively positioned, and is tilted towards government bonds over corporates. This will hurt in a flat or falling rate environment given the lower relative yields offered by government bonds. However, in the event that we experience a significant period of volatility, this positioning will definitely help by providing better downside protection.
The risk adjusted performance has been decent, gaining 5.7% for the three years ending September 30, outpacing most of the category. Volatility has been low, particularly when compared to many other funds in the category.
Despite this, we cannot give it our full recommendation. Our reasons for this are that given the very conservative nature of the equity holdings that we expect that the fund will lag if markets move sharply higher. Another concern is the high weighting in government bonds within the fixed income sleeve. While government bonds will hold up well during periods of extreme market uncertainty because of their safe haven status, they will also largely underperform when interest rates are flat or rising. Another reason that we are reluctant about this fund is that in our analysis, we have found that many quantitative funds tend to be less reactive to market movements than some more fundamentally driven funds. We are continuing to monitor this fund.
We would suggest that investors consider one of the more fundamentally managed balanced funds over this one.