Personal Business: FUNDS
THE TITANS OF TEMPLETON
Around the airy Nassau offices of Templeton Worldwide, they're known as the Marks Brothers: Mark Holowesko, 38, and his Hong Kong-based colleague, Mark Mobius, 61, heirs to John Templeton's fabled global value-investing formula. While Sir John left fund management 11 years ago, investors still turn to Templeton's 65 funds when they want global exposure.
Plunging Asian markets have caused some Templeton funds to stumble lately. But over the long haul, investors have fared well. Over the past 3, 5, and 10 years, total returns for the group's flagships--Templeton Growth and Templeton Emerging Markets Funds--have ranked among the top third in their sectors despite their relatively high expenses. Franklin Resources, which bought Templeton in 1992 for $786 million, has helped bring in new assets by turbocharging the group's marketing.
In Asia, Franklin capitalized on Mobius' globe-trotting ways, spotlighting his shaved head in full-page newspaper ads that promote his three decades of emerging-market experience. Franklin has even dropped the Templeton open-end funds' 5.75% load for investors who patronize selected financial advisers. The stepped-up sales effort--plus bull markets in the U.S. and Europe--have helped assets rise more than fivefold since 1992, to $107 billion. Holowesko's global-equity portfolios account for $80 billion of that, with Mobius managing $14 billion in emerging-market stocks.
The cash deluge hasn't diverted them from Sir John's stock-picking strategy: Buy cheap companies that boast strong balance sheets and look ripe for change; don't worry about country allocations and currencies; and hold for at least five years.
After Asia's collapse, will a strict value formula let Holowesko and Mobius find bargains? How about the U.S. and Europe, where prices are sky-high? Personal Finance Editor Toddi Gutner and Asia correspondent Mark Clifford met with the Marks Brothers to divine their strategies.EDITED BY AMY DUNKINReturn to top
MARK MOBIUS: GLOBAL PIONEER
Some international investors make a few trips a year to far-flung countries in search of new ideas. Then there's Mark Mobius. With a corporate Gulfstream IV jet as his personal vehicle, Mobius spends 300 days annually shuttling from one exotic locale to another in search of emerging-market values. But lately, investors might be wondering if Mobius, a Massachusetts Institute of Technology economics and political science PhD who manages about $14 billion, has lost his touch.
An aggressive, bottom-up value manager, Mobius was blindsided by Asia's collapse. He started an offshore Thai fund on June 20, just 12 days before the country's currency devaluation triggered Asia's financial crisis. By Mar. 31, the fund was down 53%. His Indian and Japanese offshore funds have each lost 27% since their launch last June. And a Korean fund introduced in '96 had fallen 67% by the first quarter's end. "It has been rough," he says.
But nobody's writing Mobius off yet. Declaring that Asia offers "once-in-a-generation bargains," he's moving back into Thailand, Malaysia, and Hong Kong--as well as Mexico, Argentina, and Brazil, which have drifted this year. Indeed, over the long term, Mobius' perennial optimism about emerging markets has paid off. His flagship $285 million Templeton Emerging Markets Fund, one of the few funds of its kind with a long-term record, has produced a 23.4% annual return for the 10 years ended on Feb. 28, despite losing 12.4% in the past six months.
Mobius buys stocks with the idea of holding them for five years. He says investors in emerging-market funds should adopt the same time horizon. "Mobius is one of the best, because he has been in emerging markets longer than everyone else," says Kevin McDevitt, a Morningstar analyst.
Perhaps Mobius' long-term success has contributed in part to his recent comedown. As emerging-market investing gained respectability, assets in Mobius' funds exploded. That prevents him from taking meaningful positions in small-cap stocks that may have the greatest hidden values. Instead, he is forced to buy big caps. For example, a quarter of his China Fund's assets are in five Hong Kong blue chips, including HSBC Holdings, parent of Hongkong & Shanghai Bank. As Asian flu has swept Hong Kong, the offshore China Fund has ended up losing 25% of its value since its 1994 debut.PROXY FIGHT. Franklin's drive to expand its global empire has also pushed Mobius to start several single-country funds that so far have been washouts. Take the New York Stock Exchange-listed Vietnam Opportunities Fund. Angered that the closed-end fund did not invest in Vietnam as promised, shareholders have sued Mobius and Templeton in U.S. District Court in Florida. Mobius says the suit is without merit and the company will "vigorously contest" it. He says the problem arose because Vietnam failed to open a stock market as expected. Mobius beat a proxy fight to liquidate the fund, and shareholders approved a change in the fund's mandate to include Southeast Asian stocks. The fund is down 34% for the year ended Mar. 31, making it the worst performing of the four Vietnam funds in existence.
Mobius is snapping up Thai stocks, including a chunk of Thai Farmers Bank, in hopes of a turnaround in the sector. He also placed a big bet on a beaten-down Thai telecom provider, Advanced Information Service. His Emerging Markets Fund has taken large Malaysian positions recently, including power producer YTL and Malaysian Airline System. And recently, Mobius' old friend Philip Tose, co-founder and former chairman of bankrupt Hong Kong-based Peregrine Investments Holdings, joined Templeton to help expand its Asian business.
Mobius' record suggests he has a good chance of restoring his luster. In emerging markets today, "the opportunities are there--amazing, incredible opportunities beyond anyone's reckoning," says Mobius. But will his investors have the patience to wait for these opportunities to pay off?EDITED BY AMY DUNKINReturn to top