Continuity proves key to longevity

Launched in 1954, the Templeton Growth fund has a 50-year history of going against the herd. The investment philosophy, unchanged for the last five decades, is to find value in cheap stocks, buying when everyone is selling and vice versa.

The history of the fund is one of continuity. Since its launch it has only had three managers. Murdo Murchison, the current manager, moved to Nassau, The Bahamas, four years ago to look after the fund’s portfolio and that of its Luxembourg-registered Sicav sister, the Templeton Growth Europe fund.

Mr Murchison’s job is to follow the same investment principles as his predecessors. “My mandate is not to come in and change things,” he says. “I operate within Templeton’s philosophy, one of stock-picking, patience, long termism and buying during times of maximum pessimism.”

However, the asset allocation of the fund, that today manages $17.7bn (€13.5bn), has significantly changed over the last few years. From his base in Nassau he concentrates on buying what others are selling “First of all, the portfolio I inherited was in very good shape, I was very happy with it, but over time you expect the portfolio to change,” he explains. “If you think about it in simple terms, our average holding period is 45 years, but every year you would expect around 20 to 25 per cent of the portfolio to disappear and another 20 to 25 per cent to come in. So four years later you would expect the portfolio to have a very different list of names.”

Under a value management style, the fund invests in stocks across the world, but its exposure to the various different regions has changed through the years. A good example of this is the steady reduction of the fund’s exposure to the US during the last four years, moving from some 35 per cent of total assets to the current 19 per cent.

On the other hand, exposure to the UK has increased to 19 per cent and holdings in continental Europe have also grown. Japan, which only represented 2 to 3 per cent of total investments four years ago, now attracts around 8 per cent of the fund’s assets.

“This is interesting because during the 1990s we had almost no exposure to Japan. We thought it was a expensive market where we couldn’t find cheap stocks,” says Mr Murchison. “In general I think it still is a fairly expensive market but we are finding more and more individual companies that are cheap.”

Technology shy

In terms of sectors, when Mr Murchison took over there was a significantly low exposure to technology stocks. “Today we are still underweight in technology and we believe tech stocks are still too expensive relative to history and potential growth rates.”

This often happens, he says, when industries dramatically outperform in a given period and experience a bubble. “It takes many years for that bubble to disappear.”

Up until last year the fund had a high exposure to metal stocks that has been reduced at the same time as investments in pharmaceutical companies has increased. The pharma sector, historically a growth sector, has been derated massively resulting in emerging value opportunities. “Media is another ex-growth sector where we are starting to find value,” he adds.

All these changes in the portfolio have not altered the fund’s investment strategy. “Individual stocks change but the process and philosophy remain the same. I can’t go and buy a company that is not in our bargain list. I can’t wake up tomorrow and say ‘I like Walmart, it’s interesting, I’ll buy it!’ My traders cannot execute that trade because we can only buy stocks that come on to our database through our bargain list.”

For Mr Murchison, the fact that the Templeton Growth fund has just celebrated its half century is very important. “As an investor, it is great to have 50 years of data we can look back at. We know when the fund outperforms and when it doesn’t.”

The fund tends to outperform during a bear market and the first few years of a bull market. “On the other hand we tend to dramatically underperform in the final stages of a bull market, when you get into bubble territory.”

Investors need to be aware of this and think about the long-term opportunities. “Any day during the last 50 years you could have found things to worry about, and in many ways some of the risks were much higher [than today’s]. But there were tremendous opportunities [associated with] those risks, whether it was the Vietnam War or the oil price [shocks of the 1970s].

“We’ve got a 50-year track record of 13 to 14 per cent per year compound through all these difficult times. And that’s comforting to us and to our clients.

“The problem with the industry today is that it’s too short termist. People unreasonably expect that they buy a product that will give them outperformance every quarter and that’s the wrong way to look at investments.”

Murchison: long-termism and patience