Michael Hasenstab, the manager who runs the Templeton Global Bond fund, suffered the biggest outflow among U.S. fixed income funds in 2020 as he lost money in a disastrous bet on falling bond prices.
Customer Exodus reduced its flagship fund’s assets by an additional two-fifths last year to less than $ 15 billion, far from a peak above $ 70 billion at the height of its success in 2014 .
The fund posted net outflows of $ 10.5 billion at the end of December, according to Morningstar. It has returned minus 4.2 percent in the 12 months and has returned only 1.6 percent in the past five years.
The fund’s benchmark, the FTSE World Government Bond Index, gained 10% in 2020, according to Bloomberg.
Mr. Hasenstab has managed the fund since 2001 and has become known for his large and timely bets on a number of emerging market economies which have rebounded from deep recessions and financial turmoil.
But this manual has not worked recently for the fund manager, especially in 2019 when Mr. Hasenstab had significant exposure to Argentina’s public debt as he headed for the fault.
In another error in judgment, Mr Hasenstab’s belief that long-term bonds do not reflect the threat of inflation and rising levels of government spending led him to a disastrous bet against US Treasuries . It backfired when yields declined steadily in 2019, then plunged to record levels just above zero as the coronavirus pandemic intensified last year.
Morningstar recently noted that the move to possession of the Japanese yen as a hedge against market turbulence in 2019, “did not work as well in the early 2020 sell-off as the team had hoped.”
Mr. Hasenstab and Franklin Resources, the asset management group that manages the fund, did not comment on this article.
The persistent exits of the Templeton fund are a reminder that investing in fixed income securities can be a ruthless profession, as other fallen star managers such as Bill Gross and Neil woodford can attest.
“One of the attributes of the investing industry is that you can become a victim of your own success,” said Robert Lee, analyst at KBW. “You almost always come across situations where managers are good for a long time and then they run into headwinds that hamper performance.”
Stopping an underperforming fund is a challenge, added Lee. “You find that a recovery in performance generally moderates redemptions, rather than encouraging new capital in the fund. Better performance doesn’t tip things over to inputs. Even in the best of circumstances, there are buybacks. “
The share price of Franklin Resources, where Mr. Hasenstab became the most important fund manager at the height of his success, has rebounded from its March low and is up 4% from the last year, but the stock is currently trading at half of its 2015 value.
The company has seen persistent exits in recent years outside the Templeton Global Bond fund, including massive buybacks of its Indian mutual funds following the pandemic of last April.
The buyback pressure continued after its acquisition Add Mason last year, which more than doubled its assets under management to $ 1.4 billion and brought in Legg Mason’s subsidiary Western Asset Management, a fixed income specialist.
Mr Hasenstab – who has managed the Templeton Global Bond fund jointly with Calvin Ho since 2018 – is far from the only star fixed-income investor to experience cash outflows last year.
The DoubleLine Total Return fund managed by Jeffrey Gundlach recorded $ 5.4 billion in net outflows as it generated a total yield of 4.1% Last year.
the Pimco Income Fund, managed by Daniel Ivascyn and Alfred Murata, fell by $ 7.5 billion net. The fund posted a total return of 5.5% last year, with a gain of 7.5% against its benchmark, the Bloomberg Barclays US Aggregate Index.