Saturday, Jun 11, 2016

Dubai: Franklin Templeton is starting to see an inflection point in terms of value over growth and urges investors to be there ahead of time to maximise returns.

“We are starting to see an inflection point in terms of value over growth, and I think it was long overdue,” Dylan Ball, Executive Vice President, Portfolio Manager for the Templeton Global Equity Group, part of Franklin Templeton told Gulf News, adding “investors need not be worried about timing of this inflection point, but to be there ahead of time, and catch the maximum returns.”

The margin of safety for buying into value strategy remains very tempting. “In a certain valuation matrix, we were looking at quality of growth companies versus value companies, we are some 2 standard deviation below the long-term average, which is very abnormal, which tends not persist for long and may reverse anytime,” Ball added.

Themes

“As a long-term value investor, we feel investors should only target on long-term investing. It has been very unusual first quarter for the market. We look back to our track record and look at how we performed in previous cycle, and when we extrapolate that how that cycle could play out in the next cycle. We are reasonably optimistic about the excess returns that we would make for our clients,” Ball said.

And he is finding values through energy companies, financials along with certain themes in emerging markets. Franklin Templeton has a significant overweight on energy stocks in its global fund.

“We have been building positions in oil for the last 12 months when oil fell from its highs of $60 to high $20 lows. We are now starting to make some money on our energy exposure,” Ball said.

Oil has recovered more than 80 per cent after nearing $20 per barrel in February due to supply disruptions in many oil producing countries like Venezuela, Iraq, Nigeria, Canada among others. On Thursday, Brent crude traded way above the $50 per barrel mark.

“Based on marginal cash cost, we think demand is growing at 1-2 per cent, and we see limited disruptions from say renewables and electrification of vehicles certainly from our 5 year time horizon,” Ball said, adding “we completed our buying in these stocks and holding for further upside.”

The group is also positive on various themes like European energy and financials, and insurance companies, in emerging markets like China, and India, among others.

“We are looking at assets in China, India within technology, and consumers discretionary, which still remain at elevated valuations,” Ball said.

Risks

Investors need to also watch out for risks going ahead. One such risk is the Brexit referendum slated later in the month along with Federal Reserve meeting in this week.

“It is very difficult to benefit from Brexit at the moment, and we are trying to profit from volatility, without falling ourselves in outside position which is wholly dependent on referendum,” Ball said.

The run-up to Britain’s unprecedented vote on June 23 has driven brokers to price in the highest one-month implied volatility since 2009. They’re seeing the pound liable to swing higher or lower by an annual 22 per cent.

As far as Fed rates is concerned, investors have priced out a possibility of a hike in June, but Ball feels the second rate hike could trigger bout of weakness in the dollar, as history suggest, again helping oil, and thereby energy companies, which Franklin Templeton has placed bets on as part of its value strategy.

Weakness in dollar could also result a bout of correction in Emerging markets, which could again provide them opportunity to bet on select themes in emerging market.

By Siddesh Suresh Mayenkar Senior Reporter

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