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 In recent weeks, Ukraine bond prices have plummeted to less than 60
cents on the dollar on some issues. Analysts at Goldman Sachs say
the market is now pricing in a high default probability with
potential for a write-down in 2015.
Franklin Resources Inc, the parent company of Franklin Templeton
funds, downplayed Ukraine's impact on the $69 billion Templeton
Global Bond Fund run by Hasenstab. The main driver of the fund’s
near-term underperformance has been its negative correlation to U.S.
Treasuries, said Franklin spokeswoman Stacey Coleman.
Hasenstab was not available for comment.
"We can’t speak for Michael – but as you can see by how the fund is
managed and the size and diversity of the holdings - the group has
the ability to be patient," Coleman said via email.
Nevertheless, the Ukraine bet, which accounted for 3.86 percent of
fund assets at the end of September, has taken some of the shine off
Hasenstab's otherwise stellar record.
Fund investors made net withdrawals of $2.24 billion from the fund
during 2014, with most of that happening in December, according to
Thomson Reuters' Lipper unit. By contrast, during the four previous
years, investors made net deposits of $36.4 billion in the fund.
The fund's total return of 1.41 percent in the past year lags 53
percent of peer international bond fund managers tracked by
Morningstar Inc. That middle-of-the-pack position is unfamiliar
territory for Hasenstab whose big, contrarian bets have been more
right than wrong. The fund's annualized total return of 7.47 percent
over the past 10 years is better than 99 percent of peers, according
to Morningstar.
In Ukraine, the outlook for repayment on government debt has
worsened amid pressing need for outside financial intervention.
Ukraine’s economy has been pushed close to bankruptcy by a
pro-Russian separatist war in the east. On Tuesday, the United
States said it will provide up to $2 billion in loan guarantees as
part of a broader international aid package.
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Templeton Global Bond Fund owned Ukraine bonds with a market value
of about $2.5 billion at the end of September, the fund's latest
full disclosure of holdings.
Hasenstab, one of Ukraine’s largest bondholders, has been a notable
backer of the new government’s efforts. A video posted by the
company in April showed Hasenstab visiting Kiev and praising
leaders' structural reforms.
One of the biggest single holdings in Hasenstab's fund has been a
Ukraine bond that matures in July 2017. The Templeton fund valued
its position in those bonds at $622.8 million at the end of the
third quarter. Since then, the value has dropped 34 percent to about
58 cents on the dollar, according to Thomson Reuters data.
Meanwhile, Templeton Global Bond Fund's cash position increased
during the second half of 2014, an indication that Hasenstab is
playing more defense against uncertainty in emerging markets. The
fund held 21.59 percent in cash at the end of November, compared
with 17.32 percent at the end of June, according to fund
disclosures.
(Additional reporting by Sujata Rao-Coverley in London; Editing by
Richard Valdmanis and Lisa Shumaker)
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