Opinion on TGBAX=Templeton Global Bond Fund

bee

I noticed that its share price has dipped outside of its normal range. It is now treading well below its 200 dma...actually below its 600dma. I am watching this fund hoping it will find its bottom. Could be a very rewarding time to invest for anyone looking to add exposure to global bonds.

Here's a nice review of the fund:
http://money.usnews.com/funds/templeton-global-bond-fund/tgbax

Any opinions on this fund would be welcome...

bee

DlphcOracl

It has gotten too large and can no longer invest in many of the smaller, "off-the radar" countries and bonds that accounted for its outperformance for nearly a decade. Happens all the time ---- e.g., Fidelity Magellan, Dodge and Cox, Fairholme, etc.

catch22

Hi bee,

Actually, and I say this obviously without knowing where market sectors are headed in the next 6 months and beyond with any certainty; that all or some of this fund may be sold near the year's end. We hold the twin fund of TEGBX.

D.O's reply may indeed point to problems steering this fund.
I will note the same for our LSBDX holding; although doing better for 2011 to date.

I took a quick peek at TGBAX on a chart and found the price to be just below a 100 day average. I am curious as to your note about a much larger deviation.

One thing with TGBAX, is that there may a decent distribution near mid December; if this is of value and not being offset with continuing declines. There was a large down move this week and I suspected an early or special distribution; but I find no info about this.

Regards,
Catch

bee

Reply to @catch22:

Maybe my references are off but using M* chart tool it seems to be trending across 600dma. A distribution would be one thought.

bee

Reply to @DlphcOracl:

Thanks for that perspective...

catch22

Hi bee,

I linked TGBAX from here and looked at M*'s chart. I have not used their charting before, but did set for a 200 SMA and the layout and lines looked a bit weird.
This link is at StockCharts, set for 3 years, weekly pricing basis, 50, 100 & 200 day simple moving average.
I am going to look around, but Templeton's web site does not indicate any special distribution (these things do happen) for this fund. Being the fund shows a - 2.83% for the week; and if there is not a distribution; then in my opinion, the fund has its money nose stuck into some nasty areas of bonds....and/or some very bad calls about the direction of bond movements.

http://stockcharts.com/h-sc/ui?s=TGBAX&p=W&yr=3&mn=0&dy=0&id=p18371682948

bee..................added note. When the link page is open, just to the right of the ticker box is "weekly". You may use the arrow for the menu to change this to "daily" and then click the UPDATE icon. A much different chart to view.

Take care,
Catch

msf

-2.83% is total return:

Morningstar's calculation of total return is determined by taking the change in price, reinvesting, if applicable, all income and capital gains distributions during the period

In short, it is unaffected by distributions, special or otherwise.

catch22

Hi msf,

You are correct. In review of my wording, I did not perform well with the message.
The hazard of writing too late at night, while being too tired.

The most important fact remains as to what is this fund doing to obtain such poor performance for this one week period?

Thank you for helping to keep us on the straight and correct path of proper thinking.

Take care of you and yours,
Catch

AndyJ

I was curious about GIM, the cef near-cousin of Tgbax, and its rare fall to a discounted price from NAV recently, and found in the most recent report that Asia Pacific constituted 61% of the long positions in the portfolio, with a 23% short on the yen - the combination of which means it's been facing into a hurricane lately. I'd guess that's one of the main reasons it's fallen - and not just over the past week.

No idea how flexible MH's funds are these days ... but if there's a further global downturn in the cards and the portfolio stays the same, it could be tough sledding for a while longer. (Nice mixed metaphor, eh, sledding in a hurricane?)

AJ

bee

Reply to @catch22:

I follow you on the weird looking lines.

What I realized is that the dma chart lines on M* are impacted by the time frame of the chart you have selected. So a 600dma will not show up until you are looking at at least a 3-5 yr chart. The details of the chart are a little hard to make out but it does look like it is touching or below a 600dma.

Looking for information (news) on this fund is hard to find. I would love to understand reasons for its recent under performance.

catch22

Hi AndyJ,

Thank you. I suspect you have hit upon some of the problems. One may consider, that if the fund was short the yen; that the fund may have also been long on some EU countries bonds. This could provide a double wham-o.

The yen, not unlike the $ continue to be hiding zones in times of economic stress; and the yen has been a strong traveler much of this year.

Thank you again for your digging.

Regards,
Catch

DlphcOracl

Reply to @AndyJ:

Being short anything, especially to this degree (23% position), is a risky proposition indeed. With shorting a currency you have to get two things right: you have to select the correct currency to short and your timing has to be impeccable. Being intellectually correct on a short position but initiating it too early can make your poorer very quickly.

I cannot remember how many people I know that scoffed at amazon.com (AMZN) in the mid-to-late '90's and shorted it with abandon, only to lose nearly every time (until 2000, that is).

msf

Reply to @AndyJ:

I'm looking at the Oct 31 data, it's not quite an exact match for your data (e.g. it shows 24% short the Yen, not 23%), so I'm not sure what your source or freshness of data is.

One of the great things about this fund is that its currency and interest rate (bond) positions are all but decoupled. It seems like you were talking about currency positions, not asset (bond) positions.

In terms of currency positions, the fund is 160.8% long and 60.8% short. Of long currency positions, the fund is 53.9% long in Asia and 12.8% long in Australia, totaling 66.7% long in Asia Pacific (coming somewhat close to your 61%), but that's out of 160.8% long, so Asia Pacific long positions constitute "only" 41.5% of the fund's long currency positions.

In terms of country interest rate (bond/cash) exposure, the fund is almost pure long (except for -0.4% in derivatives). It's 34.9% in Asia, and 8.9% in Australia, for 43.8% Asia Pacific exposure. Or if you want to normalize by the 93.9% in bonds to get the percentage relative to the bond portfolio, Asia Pacific constitutes 46.6% of bonds.

Two things stand out to me. One is, as you said, the currency shorts. The Yen short does go far in explaining the underperformance, though he may be early, not wrong. I expect the Yen to drop, albeit slowly, but what do I know? The other major short is the Euro, which seems reasonable, as the Euro is in danger of imploding.

The other is that the fund is very heavily into emerging markets. Not only Asia. Europe, e.g. 10% in Poland (and what does one consider Ireland these days. Latin America 18%. Middle East/South Africa 5% (although more than half of that is Israel, which is considered a developed country). In fact, the largest developed country is Australia, which I think you were including in generating the Asia Pacific figures.

Regarding the discount - M* reports a 2.32% premium, which is in line with the 3 year average (though well below the six month average). CEF Connect has a graph (and tabular data) which show the price consistently above the NAV (i.e. trading at a premium) since the middle of last year (except for one day, Oct 7, when the fund traded at a 0.11% discount). Don't know where your data is coming from. A discount for this found would be one rare bargain.

Regarding the fund being too large - the turnover rate is 21%; it should be able to handle a pretty large asset base.

AndyJ

Msf - Just fyi, the figures I quoted were currency positions, from the most recent fund report, as of Aug. 31. I see now that M* has a news tidbit with the Oct 31 data, so apparently the portfolio has changed little in those two months.

Yes, it did dip to a discount in October, a rare event. M* posters, some of whom have owned the fund in one or the other of its incarnations for a long while, went wild when that happened. I've never owned it.

BobC

It is a rather bold stretch of the imagination to think that Michael Hasenstab has suddenly taken dumb pills. He has guided this fund to top-notch numbers since he took the reins, largely by doing exactly the kind of sometimes unorthodox things that are currently going on with the fund. He has demonstrated a rather keen knowledge of how currencies work in the past few years, so I am more than willing to give him plenty of slack right now. There were a ton of naysayers dumping on Loomis after they had a nasty 2008. And the same thing has happened to all great managers...all of them have periods of time when they underperform. This is a good reason to be diversified in your bond holdings, too. While I think TGBAX is run by a great manager, it does not mean you should put all your fixed-income dollars in that one fund. There is nothing wrong with owning a bond fund that owns bonds bought in U.S. dollars along with TGBAX. That just makes sense to me. PFODX or LSGLX or IVSYX are ways to do that. And GSDIX and FNMIX use dollars in their emerging market bond funds.

msf

Reply to @BobC:
Concur completely. And would go a couple of steps further.

1) Why would one believe that one knows more about the international currency and interest markets than Hasentab? (There is sometimes an argument to be made that one can trade more efficiently on one's own than relying upon a fund manager to do so, but that's a different issue, and also a harder case to make in when discussing (a) bonds, (b) currency, and (c) international investing.)

2) How would one go about managing bonds and currency separately (let alone efficiently)? I think people are mistaken if they expect the new "unconstrained bond" funds to come anywhere close to doing what Hasentab does (though they have that freedom). Sometimes there really are unique funds/managers.

AndyJ

The funds in question are largely, in effect, a leveraged bet on emerging markets. The strategy will work sometimes, and won't work sometimes. Individual investors can decide themselves if that's what they want in their portfolios, and if they do, in what percentages, plus what role the fund(s) play in the overall investment plan - buy & hold, strategic, or tactical. Of course those decisions should be based on what else they hold in said portfolios.

Thanks for everyone's contribution to this thread. There's one a mile long about these Templeton funds on M*, if it's of interest:

http://socialize.morningstar.com/NewSocialize/forums/p/293882/3150413.aspx#3150413

msf

Let me offer a somewhat simplistic perspective on the current portfolio (recognizing that this is only a snapshot and does not represent the a fundamental strategy), the fund is essentially positioned in two pieces:

1) A fairly basic unhedged bond fund (there is minor hedging like 0.7% exposure in Vietnam, with no currency exposure; 3.6% exposure in Hungary with minimal - 0.9% - exposure to the Hungarian Forint; 10.1% exposure in Hungary with "merely" 9.4% exposure to the ploty, etc. - but basically with the bonds, it's what you see is what you get, with limited hedging - see below).

2) A fairly basic bet on the US dollar vs. the two other major developed market currencies (euro, Yen).

Viewed this way, it is not a leveraged bet on emerging markets. If anything, it is a leveraged bet on the US currency market. And Hasentab is not making any leveraged bets in the bond markets - he is simply long in emerging market country bonds.

---

This is a simplistic view, because it deconstructs interrelated markets - interest rates and currencies. Since that's what you seem to be doing by focusing on the currency side of the ledger, that seems like fair game. (It's not a perspective I agree with, but I will play the game):

I'll list the net currency exposure above or below the bond exposure (i.e. the currency bets outside of a vanilla international bond fund that is completely unleveraged, completely unhedged). For the sake of argument, I'll classify cash and supranational instruments as developed nation assets (denominated in dollars, so that it will appear that there's less of an overweight in dollars relative to US assets). I'll also credit Ireland bond exposure against the Euro (a whopping 1.8% of bonds, all in Ireland, are in EU countries).

(In terms of bonds, slightly over 70% of the bonds are in EM, with no shorts; thus it is fair to start with the idea that in terms of debt, i.e. interest rate exposure, the fund is currently positioned as a vanilla EM fund.)

Emerging markets:
India: +3.9%
Indonesia: -1.8%
Malaysia: +9.0%
Philippines: +5.7%
S. Korea: +1.1%
Sri Lanka: +0.0%
Vietnam: -0.7%
Hungary: -2.7%
Lithuania: -2.2%
Poland: -0.7%
Russia: -0.5%
Argentina: -0.9%
Brazil: +0.0%
Chile: +7.1%
Mexico: +1.8%
Peru: +0.0%
Venezuela: -0.5%
Egypt: +0.0%
S. Africa: -1.8%
-------------
EM: +16.8%

Seems like a small percentage of the Euro and Yen short (60%), but I'll work the developed market figures:

Japan: -24.0%
Singapore: +2.0%
Australia: +3.9%
Euro: -35.0% (considering 1.8% in Ireland)
UK: +5.0%
Norway: +7.7%
Sweden: +7.8%
Israel: +2.5%
US: +17.0%
--------------
Developed: -13.5%

Okay, I've got a 3% error in there somewhere. Not worth tracking down. The point is that, once one detaches the bond portfolio to look at pure currency bets, one sees bets on every developed nation in the fund that doesn't use Euros or Yen. Net +46% on developed countries outside of EU/Japan, net 17% on EM currencies.