Franklin Mutual European Fund
The Franklin Mutual European Fund Class A (TEMIX) “invests at least 80% of its net assets in securities of European companies that the investment manager believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value).” What this means is that fund managers look for undervalued securities by arriving at an intrinsic value of that security and seeing whether it’s trading below that value. The fund also invests in merger arbitrage securities and stocks and bonds of distressed companies.
In normal circumstances, fund managers will spread the assets of the fund across companies from at least five different countries. The fund can also invest up to 20% of its assets in instruments issued by companies located in the United States, Middle East, emerging markets, and other regions.
The fund’s assets were spread across 78 holdings—stocks, bonds, and currencies—as of September 2015. It was managing assets worth $3.2 billion as of October’s end. As of the September portfolio, its equity holdings included Nokia (NOK), Deutsche Telekom (DTEGY), XL Group (XL), and UniCredit (UNCFF). The top ten holdings of the fund made up 23.2% of the fund’s assets.
We’ll consider holdings as of September 2015 as that’s the latest available sectoral breakdown we have. The holdings after September reflect the valuation-driven changes to the portfolio, not the actual holdings.
Financials are the biggest sectoral holding of the TEMIX, making up over 30% of the fund’s portfolio. A distant second and third are the consumer discretionary and industrials sectors, respectively. The two form a combined 25% of the fund’s assets. An interesting aspect of the fund’s portfolio is its high exposure to the stocks of telecom services. This sets it apart from its peers, with some avoiding the sector altogether. Further, the fund holds ~10% of the portfolio in cash and equivalents.
On a year-over-year basis, the fund’s portfolio hasn’t undergone a major change, except in the information technology sector. Stocks from the sector used to form a quarter of a percent of the portfolio in October 2014 but now stand at a little over 3%. However, intra-year, the portfolio saw some changes. Consumer discretionary, materials, and financials were sectors whose weights had been increased intra-year, but now stand reduced from those levels. On the other hand, healthcare and telecom services were sectors that saw reduced exposure intra-year but have firmed up since then.
Let’s see how the TEMIX performed in October in the next article.