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Michael Hasenstab’s global bond fund loses another $3B

Franklin Templeton CEO Michael Hasenstab has been waiting since at least 2016 for his wager on rising U.S. interest rates to come good. Now he’s adding to the position.

A global bond fund managed by star investor Michael Hasenstab saw assets drop by $3 billion for a second consecutive quarter, even after he backtracked on two loss-making investments.

Total net assets in the Templeton Global Bond Fund (TPINX) declined from $30 billion to $26.9 billion in the three months through December, according to public filings. Total holdings were down by a similar amount in the third quarter.

The fund manager announced a move into haven currencies after two of his biggest investments flopped in August. A massive holding in Argentina was pummeled by the country’s default, and a short position in U.S. bonds was hit by the drop in bond yields.

Once a top-performing fund with assets well over double today’s value, Templeton’s flagship bond fund has also been diminished by the march of passive investments. It underperformed almost 90% of peers last year, returning 0.6% compared with a return of 6.9% for Treasurys.

In a shift designed to offset loss-making positions, Hasenstab doubled exposure to the yen to more than 40% in the third quarter and added long positions in the Norwegian krone and Swedish krona. He said he expects the yen to appreciate against the dollar as monetary-policy divergence narrows between the Federal Reserve and the Bank of Japan. He also increased liquidity by boosting cash across his funds.

Nearly all of the fixed-income funds held short term debt.
January 15

The fund is holding on to its Treasury short, but Hasenstab said last year he is turning the focus to longer maturities. He has argued for years that markets are overvaluing long bonds given rising deficit spending and rising debt.

Average duration in the fund, a measure of sensitivity to shifts in rates, increased to minus 1.01 years as of the end of December, the filings show. At the end of June it was a record low of minus 2.82 years.

A spokesman for Franklin Templeton didn’t immediately comment when contacted by Bloomberg.

Bloomberg News