Templeton Emerging Markets Investment Trust's (TEM) lead manager, Carlos Hardenberg, is leaving at the end of March. He will be replaced by Chetan Sehgal, who has been a portfolio manager on the trust since late 2015 and is also director of global emerging markets and small-cap strategies at Templeton Emerging Markets Group.
Mr Hardenberg has run TEM since October 2015, before which the trust had a period of poor performance under previous manager Mark Mobius. Since Mr Hardenberg took over, performance has been strong – the trust made a 95.5 per cent cumulative share price return over the two years to the end of December 2017, against MSCI Emerging Markets Index’s return of 67.5 per cent, according to Franklin Templeton.
However, the trust’s board says that since October 2015 “Mr Sehgal has been a key contributor to driving the trust’s outperformance through in-depth research and investment execution decisions. He will continue to adhere to the time-tested Templeton investment philosophy of bottom-up, long-term, value oriented emerging markets investing”.
Mr Sehgal is based in Singapore and supported by more than 80 emerging markets analysts in 20 offices around the world. He is also manager of funds including Templeton Emerging Markets Smaller Companies (LU0768361320) and Templeton Asian Smaller Companies (LU0976565415).
He has worked at Franklin Templeton since 1995, before which he was senior ratings analyst at Credit Rating Information Services of India.
Following the announcement of Mr Hardenberg’s resignation on 1 February, the trust’s discount to net asset value (NAV) widened from 7.7 per cent to 10 per cent as of close of play on 5 February. Its share price trended down over that period from about 815p to 776p. However, some analysts argue that investors should not panic and sell.
David Liddell, chief executive of IpsoFacto Investor, said: “I would hold on and see how the performance pans out. There’s a certain amount of continuity. As there has been a bit of a sell-off, it might be an interesting time to buy into the trust.”
And Jason Hollands, managing director at Tilney Group, said: “Mr Hardenberg’s departure so soon is disappointing, especially given the turnaround in performance and the fact that some of the greatest opportunities in emerging markets in the near term could be in value stocks, which this trust has historically tilted towards. However, Chetan Sehgal was already co-manager and so is very familiar with the portfolio, which should give investors some comfort. This makes TEM a hold and watch for now, rather than a sell, although I would expect the discount to widen a little as new investors look elsewhere.”
Emerging markets look set to continue doing well, with Asia particularly well placed for long-term growth where TEM has over 60 per cent of its assets. It also has considerable exposure to growing domestic consumption via sectors such as information technology, financials and consumer discretionary.
“TEM has much to commend it, particularly its size, liquidity, strong long-term performance record and board’s commitment to an active buyback policy,” said analysts at Winterflood.
Now may also not be a good time to sell the trust as its share price has fallen.
“The change in management inevitably raises some concerns,” said analysts at Numis Securities. “However, we understand that there will be no significant change in investment approach given that Carlos and Chetan worked closely together, and they have been jointly managing a number of portfolios. The similarity in approach is highlighted by TEM having an investment overlap of more than90 per cent with Templeton Developing Markets, a US-listed fund of which Chetan is lead manager. While there may be some volatility in the short term, TEM’s board has typically been active in buying back shares when the discount exceeds 10 per cent.”
However analysts at Winterflood are concerned by recent personnel changes at Franklin Templeton. These include the retirement of Mark Mobius and the appointment of Manraj Sekhon as chief investment officer of emerging markets equity. “It is difficult to gauge how great the impact of the potential changes to the wider team and process will be,” they said. “Although we do not expect any significant changes to the trust’s portfolio or investment process in the short term, we have decided to remove it from our recommendation list until the future direction of Franklin Templeton and its emerging markets equities team becomes clearer.”
Numis also argues that the trust “could now be vulnerable to a setback in the rating of technology stocks that have surged over the past year”. TEM has 31 per cent of its assets in technology shares.
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