Hasenstab's 'Erin go bond' strategy triggers Templeton turnaround

Templeton Global Bond Fund rejoined the top-performing fixed-income funds following last year's underperformance by scooping up distressed Irish bonds and keeping bets that the Asian currencies will rise. The $57 billion U.S.-incorporated fund, run by Michael Hasenstab and Sonal Desai, has gained 7.3 percent this year through yesterday, beating 98 percent of its competitors, according to data compiled by Bloomberg. The fund lost 2.4 percent in 2011, ranking at the bottom 10 percent among its peers. Hasenstab, 38, turned around the fund after adding to holdings of Irish government bonds, Asian securities and central European currencies that suffered losses in the second half of last year amid the European debt crisis. The Irish notes have gained 9 percent since the end of 2011, while the Hungarian forint rose 11 percent as the European Central Bank's record lending eased a funding shortage in the region. “Our long-term focus allows us to remain patient,” Hasenstab wrote in a Feb. 8 e-mail response to questions. The fund was able to “exploit investment opportunities created by the volatility and panic during the second half of 2011,” he said. The fund returned 10.6 percent annually over the past five years, beating 98 percent of its competitors. Hasenstab, who holds a doctor's degree in economics from the Australian National University, was named the Top Global Bond Fund Manager in 2010 by Bloomberg Markets magazine. He is based in San Mateo, California, and has climbed Alaska's Mount McKinley and Kilimanjaro in Tanzania. Fund Outflows Templeton Global Bond Fund had its first annual losses in six years in 2011 as investors dumped emerging-market assets on concern the European debt crisis would deepen and China's economy would crash. Investors pulled $1.8 billion from the fund in the final two months of last year, the first withdrawal since November 2008, according to Chicago-based Morningstar Inc. (MORN) It attracted a net $15 billion in the first 10 months of 2011, the most of any U.S. mutual fund, the data show. Hasenstab said he maintained a steady hand during the market selloff, keeping the dollar, euro and the yen at a lower weighting than benchmark indexes and maintaining bullish wagers in Asian and Scandinavian assets even as the bets went against him. The portfolio rebounded as concern about an Italian debt default and a hard landing in China faded. “We are not compelled to reverse our positioning due to short-term noises when our long-term conviction remains unchanged,” Hasenstab said. “For example, in September we observed a collapse of Asian currencies despite their long-term value. However, already in January, markets have begun to correct this temporary aberration.” South Korea As of Dec. 31, his fund held 14 percent of its assets in South Korea, its biggest investment, according to data compiled by Bloomberg. It held 10.8 percent of assets in Poland, the second biggest, followed by Malaysia and Australia. Franklin Templeton's funds, including the Global Bond Fund, held 5 billion euros ($6.6 billion) of Irish government bonds, accounting for about 6 percent of the total outstanding, according to data compiled by Bloomberg. The Irish bonds have gained 16 percent since the end of November, according to an index compiled by Bloomberg and the European Federation of Financial Analysts Societies. Irish Prime Minister Enda Kenny said this week in a Bloomberg Television interview that he won't impose losses on holders of the country's sovereign debt. Distressed Debt The yield on its 5 percent debt maturing in October 2020 has fallen to 485 basis points above similar maturity euro benchmark debt from as wide as 1,093 in July 2011. Ireland wants to refinance about 30 billion euros ($40 billion) of so-called promissory notes it used to rescue the former Anglo Irish Bank Corp., now known as Irish Bank Resolution Corp., on better terms and over a longer period. While Greece failed yesterday to win a rescue package, Hasenstab said that the chance of contagion has been reduced as the ECB eased stress on the region's banking system. “The chances that Italy faces a Greece-like stress have become smaller,” Hasenstab wrote. “We remain convinced that China is not going to have a hard landing.” --Bloomberg News--