Michael Hasenstab can crunch numbers with the best of them. And the lead manager of the Templeton Global Bond Fund has a doctorate in economics to prove it.
But number crunching is only part of the story behind the success of the 37-year-old bond expert, who was named the 2010 Morningstar Fixed Income Manager of the Year. Through the end of October, the fund took in $15.2 billion in new investor money — the largest inflows for any fund in any investment category this year, according to Eric Jacobson, Morningstar Inc.'s director of fixed-income research. That's on top of inflows of $17.6 billion last year. The fund now has total assets of $61.2 billion.
He also manages the smaller Templeton Global Total Return Fund, which has $3.3 billion in assets.
“Crunching the numbers is important, but there's no substitute for in-person research, meeting with policymakers and walking the streets,” said Mr. Hasenstab, a dual citizen of the U.S. and Australia. “It's critical to a good understanding of what's happening in countries.”
Recent trips to Ireland, for example, convinced Mr. Hasenstab that the country is committed to getting its fiscal house in order and that its sovereign debt, currently yielding more than 8%, is a good investment.
“They've implemented tough fiscal tightening and they've absorbed a 30% cut in unit labor costs in the manufacturing sector,” he said. “They're experiencing the pain now, but they'll see the benefits of dealing with their problems upfront rather than putting them off.”
The inability of Congress to deal with deficit issues now is one reason Mr. Hasenstab currently has no exposure to U.S. Treasuries. That has hurt his performance this year.
Despite the low yields that Treasuries now pay, investors have continued to flock to them as a safe haven in the volatile markets this year. The Asian and emerging markets that Mr. Hasenstab favors, on the other hand, have suffered this year, with local currencies declining in many cases.
As of Dec. 7, the fund's return was -1.22% for the year, versus 6.02% for the Citigroup World Government Bond Index — a commonly used benchmark for the fund sector.
Mr. Hasenstab's longer-term track record, however, is stellar. Average annual returns over the last three years were 11.03%; over the last 10 years, they were 11.09%, putting it among the top 1% of the 122 funds in the category with a 10-year record.
Whether the underperformance this year slows the enormous inflows to the global bond fund remains to be seen.
“He's not going to be on top in 2011, but I don't think that's going to change his investing thesis,” Mr. Jacobson said. “We still like the deep and broad analytical framework behind the fund's decision making.”
Mr. Hasenstab has been a trailblazer in terms of investing in global and emerging-markets debt, and confirmed that he has no plans to alter his strategy. “There is a lot of short-term volatility. If you focus on three-month returns, you'll get whipsawed,” he said.
Instead, he will continue to focus on the Asian markets and emerging global markets that exhibit greater value than the developed economies of Europe and North America. As of the end of the second quarter, the fund had 43% of assets invested in Asia, and 35% in Europe and Africa, with most of the European exposure in non-eurozone bonds. He's keeping his interest rate risk low by investing in shorter durations, but he is sticking with his beliefs.
“There has been an 11th-inning rally in U.S. Treasuries, but we think that's near an end,” Mr. Hasenstab said. “Globally, we still like Asia and emerging markets. Their economic fundamentals are stronger, they have less debt, stronger growth and offer higher yields.”
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