Franklin Templeton lifts Ukraine bet by over $250 million

Asset manager is the country's largest debtholder; growing violence spurs unprecedented losses

Feb 21, 2014 @ 10:03 am

Franklin Resources Inc.'s biggest funds purchased Ukrainian bonds in the fourth quarter, adding to holdings that made the asset manager the country's largest debtholder before growing violence spurred unprecedented losses.

The U.S. versions of the Templeton Global Bond (TEMGINI) Fund and the Templeton Global Total Return Fund (TGTRX), overseen by Michael Hasenstab, increased holdings of Ukrainian international dollar debt by $252 million in face value to about $3.8 billion, according to data compiled by Bloomberg through Dec. 31. Along with their European counterparts, the funds hold about $6.4 billion, more than a third of the country's external dollar bonds, their most recent filings show.

Ukrainian securities suffered the worst selloff on record Wednesday as concern the country is plunging into civil war escalated after clashes between police and anti-government activists killed at least 25 people. The yield on the government's $1 billion of notes maturing in June increased 19 percentage points to 42% Wednesday, an all-time high, before falling 7.5 percentage points to 34.1%.

“Ukraine is going to go down this darker route, and from a foreign bondholder perspective, this is the point you need to see the sources of foreign financial support maintain themselves,” said Michael Roche, an emerging-markets strategist at Seaport Group.

'CONTRARIAN APPROACH'

Franklin's fourth-quarter increase adds to the $1.4 billion bet on Ukraine the asset manager made in third quarter, Bloomberg data show. The Templeton Global Bond Fund (TPINX) added $215 million of Ukraine's 9.25% notes due 2017 in the three-month period through December, boosting holdings of the securities to $690 million in face value.

The $69 billion fund has returned 8.24% annually over the past decade, ranking in the top percentile among its peers, according to data compiled by Morningstar Inc. The fund has lost 0.52% over the past 12 months.

Mr. Hasenstab, who oversees Franklin's $190 billion global bond group, was named the Top Global Bond Fund Manager in 2010 by Bloomberg Markets magazine.

Stacey Johnston Coleman, a spokeswoman at Franklin Templeton, declined to comment on the fund's Ukrainian bonds holdings. The Global Bond group “often takes a contrarian approach to investing” and can buy and hold “investments that are out of favor,” she wrote in an e-mail yesterday.

The government of President Viktor Yanukovych and opposition leaders planned to continue talks Friday to stop the bloodshed after a new wave of deadly clashes broke out on Independence Square, the hub of demonstrations.

(Bloomberg News)

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