The portfolio managers of the Templeton Income Fund Ticker:(TINCX) are bullish on global equities. How bullish? They've upped their allocation to the sector from 60% to 65%.
That's something of a surprise. Historically, the fund has been more heavily weighted in fixed income, which helped its performance during the financial crisis. But now the managers are returning to equities, said Lisa F. Myers, a portfolio manager with the Templeton Global Equity Group, a unit of Franklin Templeton Investments. Ms. Myers co-manages the $1 billion Income Fund with four other managers.
The gap between dividend yields and yields on the 10-year Treasury bill are wider than ever — a good sign that equities are attractive, she said
“Equities, related to bonds, are cheap,” Ms. Myers said.
Specifically, she believes there are good long-term-value opportunities in the technology sector. For example, Ms. Myers likes Oracle Corp. and SAP AG, as well as Microsoft Inc. “Technology has always trended close to GDP and it's been sub-trend since 2000,” she said. In the past, the fund held 5% to 9% in technology. As of Dec. 31, that weighting was 14%.
Templeton expects life to return to the financial sectors. “We have been underweight in financials since before the crisis, but more recently, we are starting to dip our toes back in selectively,” she said. Since early 2009, the fund has upped its exposure to financials from 13% — which was a low for the fund — to 17%.
Specifically, the fund's portfolio managers favor underleveraged banks in underleveraged countries, where consumers are underleveraged, Ms Myers said.
“We like countries where banks have an opportunity to grow,” she said.
Examples of banks that the fund owns are DBS Bank Ltd. and HSBC Holdings PLC. That's not to say that Templeton doesn't like some U.S. banks as well. Ms. Myers said the fund has stakes in JPMorgan Chase & Co. and Bank of America Corp. “In the U.S. we like banks that have a strong balance sheet, have taken the pain, and where we can see the franchise growing,” she said.
The four-star fund has outperformed its category for the past one-, three- and five-year periods, according to Morningstar Inc.