Chris Siniakov

The latest Franklin Templeton fixed income webinar saw investment experts share their perspectives on managing fixed income portfolios in an era characterised by both heightened volatility and changing inflation dynamics.

The speakers shared their insights on timely topics for fixed income allocators to cover:

• diversifying duration
• credit risk allocations
• elections and geopolitical impacts.

Excerpts from discussion by Chris Siniakov, Managing Director and Portfolio Manager, Franklin Templeton Fixed Income and Carol Lye, Portfolio Manager and Senior Research Analyst Brandywine Global Investment Management, are below:

Chris Siniakov, Managing Director and Portfolio Manager, Franklin Templeton Fixed Income, said: “Although the U.S. presidential election is still in its early stages, we believe that the key issue for the U.S. and the globe is the increasing focus on fiscal considerations in global financial markets. The U.S. is running a budget deficit, and this difficult and challenging environment may require continued government support. Fortunately, being a reserve currency allows the U.S. to offset higher funding costs. Nevertheless, we see opportunities for investors in shorter dated bonds vs longer-dated bonds.

“In Australia, we are experiencing a different interest rate cycle where the Reserve Bank of Australia (RBA) has not responded to the policy tightening as expected. As a result, interest rates will likely decrease abruptly by around 100 basis points. The pacing of rate adjustments is influenced by unique economic conditions in each state. While global inflation pressures play a role, the domestic housing market’s supply-demand imbalance is a significant issue that will lead to a more cautious and gradual pace of interest rate reductions.

“Active management is crucial in today’s complex and volatile fixed income environment. Duration can provide a hedge against market volatility, and short-dated bonds have experienced lower volatility in recent quarters. Overall, it is important for investors to navigate these dynamics in fixed income investments.”

Carol Lye, Portfolio Manager & Senior Research Analyst Brandywine Global Investment Management, said: “U.S. exceptionalism has been a major theme driving markets, but I think we are at a juncture where growth expectations in the U.S. are starting to come down, there is less fiscal spending, the labor market could be slowly softening and volatility could start increasing again.

“Although volatility in the fixed income markets will not be as high as what we experienced late last year, we think it makes a lot of sense to be more in the belly of the curve and we prefer more to be in the five-year part of the curve, which would benefit from the Fed cutting rates one or two times.

“From a credit perspective, we are constructive on high yield, especially when it comes to generating income. Yields in the U.S. high yield market are around 9%, which is very compelling, and this is supported by strong fundamentals as defaults are still relatively low, and recovery rates in different scenarios are still looking good.

“Additionally, we are also seeing opportunities in emerging market debt, particularly in some Latin America and central European markets.”

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Angela Guan has been appointed as a Portfolio Analyst. She has previously worked as a researcher, an econometric modeller and data analyst at the Department of Finance at the University of Melbourne.

Guan holds a Bachelor of Commerce with first class Honours from the University of Melbourne. She is currently studying for a PhD in Finance at the University of Melbourne.

George Lim has joined the Franklin Australia Fixed Income team as a Credit Analyst. He will be responsible for researching corporate credit issuers across Australia and Asia Pacific. He is also part of the Franklin Templeton Fixed Income global credit research group.

Lim joins Franklin Templeton from MUFG Bank, where he managed the end-to-end process for new transactions, from credit analysis to deal closure. He holds a Bachelor or Commerce and Bachelor of Finance from Monash University, with majors in Finance, Economics and Actuarial Science.

Felicity Walsh, Managing Director and Head of Australia and New Zealand, Franklin Templeton said: “We are delighted to have Angela and George join our growing team. They will add depth to our analysis of fixed income markets. They join our experienced local fixed income investment team and will contribute valuable insights to the Franklin Templeton’s well-established global fixed income research platform.”

Chris Siniakov, Managing Director, Franklin Templeton Fixed Income added: “The investment environment has rarely been more challenging and the opportunity in fixed income is very compelling. The addition of these two talented professionals to our team positions us to expand our reach and serve our clients.”

Andrew Canobi, Portfolio Manager, Franklin Templeton Fixed Income said: “The volatility in fixed income markets over the past six months now presents outstanding opportunities and we are looking forward to working with Angela and George to realise those opportunities for Franklin Templeton’s clients.”

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Closing in on a three-year performance track record and managed by local co-portfolio managers, Chris Siniakov and Andrew Canobi, the fund is an absolute return focused strategy that primarily invests in fixed income opportunities in the domestic market, with select exposures to the broader global universe of securities, and has a strong focus on protecting against capital volatility.

“In an environment where we are seeing potentially rising global yields and yet declining yields in Australia, taking an absolute return approach can help restore the defensive characteristics of the fixed income asset class”, says Siniakov.

According to Lonsec, “The two co-portfolio managers are seasoned investment professionals with a long history of working together. The investment team leverages the significant resources of the manager’s global fixed income platform and has demonstrated an ability to adhere consistently to their investment process.”

The fund’s investment team draws on the expertise of Franklin Templeton’s fixed income group, a global platform with over 170 investment professionals and more than 30 years of experience managing bond strategies.

Lonsec also noted: “The two investors have created a strategy that leverages their specialisation in macro and credit opportunities. The portfolio managers’ successful history of collaboration has helped Lonsec to gain confidence in their ability to effectively manage an investment team.”

Maria Wilton, Managing Director said: “We believe this upgrade recognises the deep experience and expertise of the team, the significant global resources of Franklin Templeton as well as the successful track record of the strategy since its inception in 2014.”

“Importantly, the fund provides a potential solution for the challenges facing many advisers and their clients today as they seek regular income and capital preservation in the fixed income sector,” Ms. Wilton added.

The fund also has an ‘Approved’ rating from Zenith and 4 Stars from SQM Research.

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