Franklin Templeton allocates to funds, from the top down
Matthias Hoppe, portfolio manager with Franklin Templeton’s $30bn multi-asset unit, discusses why asset allocation is about more than just ‘bottom-up’
A ‘big picture’ view of the global economy, and of how asset classes react in it, will be crucial to investing funds successfully over the coming years.
This was the central message last November from independent analysts Fitch, which warned in its prognosis for fund management that traditional, fundamental, bottom-up investing will not be enough in future.
“Managers need to develop thematic, sector and country views which requires developing a new mind-set, or hiring staff with more macro backgrounds,” Fitch said.
Macro factors, politicians and their decisions generally had a larger effect than underlying entities on the relative performance of asset classes since 2008. Few practitioners expect this to change soon.
At the fund of funds level, Franklin Templeton’s $30bn multi-asset investment unit, led by CIO Brent Smith, already includes a large element of top-down analysis in its investment process.
Franklin Templeton formed the unit in 2007 to unify its various multi-asset groups under one investment process and philosophy.
Multi-asset strategies have actually been run at what is one of the world’s top ten diversified asset managers for 25 years, even though Franklin Templeton has perhaps been better known for its emerging markets expertise under Mark Mobius, and its fixed income management.
Nevertheless, the unit’s 24 members run 87 off-the-shelf multi-asset funds, plus separately structured mandates for individual clients in regions such as Eastern Europe and Italy. Some strategies target returns, while others aim for specific volatility and risk levels, or focus on specific geographies.