Tags: bonds | Russia | Ukraine | Franklin

Templeton's Hasenstab Selling Russian Bonds While Adding Ukraine

Friday, 02 May 2014 02:28 PM

Franklin Templeton sold Russian bonds while adding to its almost $8 billion position in Ukrainian debt amid conflict between the neighboring countries.

The asset manager, whose $190 billion global bond group is managed by Michael Hasenstab, cut holdings of dollar debt from Russia’s government and state-owned companies with a face value of about $29 million in the first quarter, part of a more than $200 million reduction in Russian securities over a six-month period to $1.2 billion, the company’s latest filings show. Franklin Templeton boosted Ukrainian dollar and euro bond holdings by $62 million in the first quarter to $7.6 billion.

As the rising threat of war spurs bond losses on both sides of the border, Hasenstab, known for making contrarian bets on nations including Ireland and Hungary, is favoring Ukraine over Russia after visiting Kiev last month and touting the country’s long-term economic potential. Ukrainian dollar bonds lost an average 8 percent this year and Russian notes dropped 4.4 percent, JPMorgan Chase & Co. indexes show.

“People are underestimating the likelihood that this conflict could extend beyond Crimea,” Peter Lannigan, a managing director at broker-dealer CRT Capital Group LLC, said in a telephone interview from Stamford, Connecticut. “Investors aren’t being compensated enough for the threat.”

Franklin Templeton is the world’s largest mutual fund investor in offshore debt from Ukraine and among the largest in Russia, according to data compiled by Bloomberg.

Franklin Templeton spokeswoman Stacey Johnston Coleman didn’t respond to telephone and e-mailed requests for comment.

Growing Conflict

The U.S. and Europe are accusing Moscow of fanning unrest in Ukraine’s east, a region that is slipping out of the government’s grasp amid separatist unrest, and are threatening more sanctions if President Vladimir Putin doesn’t ease tensions.

“If the conflict doesn’t stop here and now, it is likely to expand,” Eric Fine, a New York-based money manager at Van Eck Global, said in an e-mailed response to questions. “Ukraine itself has few natural borders, and there are other ethnic Russian communities in other countries that could invoke similar tensions.”

Losses on Ukrainian debt have limited returns on Hasenstab’s $71 billion Templeton Global Bond Fund to just 0.85 percent this year, trailing 94 percent of peers, according to data compiled by Morningstar Inc. Investors pulled an estimated $570 million from the fund and $4.8 billion from its European counterpart in the first quarter, part of $8.8 billion in withdrawals from Franklin’s global and non-U.S. bond funds in the period.

Top 1%

The U.S.-based fund has returned 8.98 percent annually over the past decade, ranking in the top 1 percentile versus like funds. Hasenstab was named the Top Global Bond Fund Manager in 2010 by Bloomberg Markets magazine.

The crisis in Ukraine came “and what encouraged us was the response of crisis management,” Hasnstab said in an April 5 video posted on Franklin Templeton’s website. “The current government has done an exceptional job of tackling not just the short-term issues but really setting the stage for Ukraine to flourish over the next 5 to 10 years, putting in place very difficult, but very important, structural reforms.”

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Franklin Templeton sold Russian bonds while adding to its almost $8 billion position in Ukrainian debt amid conflict between the neighboring countries.
bonds, Russia, Ukraine, Franklin
Friday, 02 May 2014 02:28 PM
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