Personal Finance acting editor Laura du Preez (left) and Ernie Alexander, managing director of ProfileData, with Tanya King, business development manager for Templeton Asset Management, who received the Raging Bull Award on behalf of the Franklin Global Small-Mid Cap Growth Fund.


Raging Bull Award for the Best Offshore Global Equity Fund – the top-performing fund on straight performance in ProfileData’s offshore global equity general sector over three years to December 31, 2012

A fund that focuses on the shares of smaller companies and is not afraid to buy good companies where others have sold them provided the best performance over the past three years out of all the offshore-domiciled global equity funds that can be marketed to South Africans.

The Franklin Global Small-Mid Cap Growth Fund returned 14.32 percent a year over the past three years, beating the other global equity funds that have been approved by the Financial Services Board as suitable for South African investors.

The fund is registered in Luxembourg, denominated in United States dollars and managed by Franklin Templeton’s US-based manager, Edwin Lugo.

Lugo says the fund chooses its shares based on their valuations and fundamentals, and as if it were buying the business. Companies must have a long-term competitive advantage and a strong balance sheet. This bottom-up stock-picking drives the fund’s exposure to countries, rather than any top-down decisions on a particular country.

The portfolio is concentrated, with between 30 and 60 shares.

Despite holding fewer shares, Lugo says the portfolio has low volatility. This is a result of a strong focus on protecting the fund from companies that could get into financial difficulty.

As a result of its rigorous selection process, none of the companies whose shares the fund held in 2008 went bankrupt.

Lugo says shares are held on average for five years, and the fund aims for an annual return of 10 percent over five years.

The bottom-up selection of shares on the basis of their valuations has led the fund to be heavily overweight in certain regions and underweight in others relative to its benchmark, the MSCI Small Cap Index. Franklin Templeton is not scared to deviate from the benchmark, Lugo says.

At the end of December last year, the fund had 51 percent in Europe, whereas the index had 14 percent. It had 24 percent in the United Kingdom, whereas the benchmark had nine percent. And the fund had only 11 percent invested in North America, whereas the index was 62 percent invested in that region, Lugo says.

Lugo says in 2009 and 2010 the fund built up an exposure to small- and mid-cap companies in the UK, Switzerland and Germany. Investments in these countries were in companies such as Savills, the commercial real estate broker in the UK, and Schindler, the elevator group based in Switzerland. These companies did well for the fund, but exposure to the UK has now been reduced from 35 percent to 24 percent, and all Swiss and German shares have been sold.

Lugo says more recently the fund has been moving into the eurozone’s peripheral countries (Spain, Portugal, Greece and Ireland) and has in particular increased its allocations to Ireland (now 15 percent) and Greece (now seven percent). By contrast, the MSCI World Capital Small Cap Index has 0.5 percent and 0.35 percent invested in Ireland and Greece respectively. Lugo says because shares in these countries were cheap, the fund was drawn to them.

In September last year, European Central Bank governor Mario Draghi said he would support the euro by buying government bonds in countries on the eurozone’s periphery. This news caused shares in these countries to shoot up in the last four months of 2012, Lugo says.

Small-cap shares that had been sold down heavily during the flight to safety after the financial crisis in 2008 did particularly well – and so did the fund.

Lugo says shares in the eurozone’s peripheral countries are still undervalued and, as a result, remain attractive.

He says although nobody knows what is going to happen in the eurozone, the fund is finding more ideas in the region, as great companies are trading at low prices.