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Recommended For Those With A Head For Heights October 16, 2000
Check out Franklin Templeton's US Aggressive Growth Fund - if you can tolerate volatility.
Author : Wong Soo How


Untitled Document
Good Timing?

(Fundsupermart.com) Most people would think this is hardly the time to introduce a US aggressive growth fund - what with last week's near death experience at the markets. From an investment viewpoint, however, the tempestuous state of things couldn't have come at a better time, Mark Browning notes. "Logically, people should be investing when the markets are low and sell when the markets are high. But historically, people in Singapore buy mutual funds when sentiment is positive and not when sentiment is low." The country manager at Franklin Templeton believes that the market nervousness last week was exaggerated and urges investors not to be sidetracked. "The whole sell-off was completely overdone. October has always been volatile because the third quarter is the worst earnings period. And traditionally in the US, alot of mutual fund companies have their year-end closing in October, and the fund managers are doing their window dressing by selling off their losing positions. That also contributes to the volatility in the market."

Even then, looking forward, what about the uncertainty over where the US economy is heading? The plethora of theories has been confusing - ranging from the economy grinding to an abrupt halt to a gradual slowing down. The prognosis at Franklin Templeton is that a soft landing is the likely scenario, says an upbeat Browning at the media conference to launch the new fund. "We believe the US economy is still expanding. We expect the economy to steady around 3-4% next year. High growth is not necessarily good for the stock market. We believe investors like to see consistency and we believe what we'll see next year is the consistent growth rate of 3 to 4%."


Technology Heavy For Now

The Franklin US Aggressive Growth Fund is a feeder unit trust, and the Luxembourg-registered mother fund is a mirror of a similar product introduced in the US last year. Over a one-year period ending 29 Sept 2000, the US-based fund returned 107.66% and was ranked 10th in a field of about 280 funds (source: Micropal). It also outperformed its benchmark index, the Russell 3000 (which tracks the performance of the 3,000 largest US companies representing about 98% of the investible equity market). Over shorter periods, its ranking has oscillated between the first and third quartiles, but the returns have been better than the sector average most of the time.

Performance of US-Based Aggressive Growth Fund As At 29 Sept 2000

Period
1-month
2-month
3-month
4-month
5-month
6-month
1-year
Returns (%)
-4.42
6.07
2.66
7.12
11.58
-4.87
107.66
Rank (out of some 280 funds)
132
102
121
85
55
161
10
Sector Average (%)
-4.14
4.59
1.52
3.46
4.10
-3.92
41.12

Source: Micropal
The US-based Franklin Aggressive Growth Fund is a US mutual fund and is not available in Singapore. It is referred to only as an indication of the investment style, and the performance of the feeder fund is not guaranteed to be comparable.

The mother fund homes in on firms with at least 20% revenue growth over a 3 to 5 year period, and invests in companies across all market caps and growth sectors. For the moment, it's technology heavy with a focus on what the company calls the "arms merchants" or infrastructure providers like Cisco and Applied Micro Circuit. It stays away from high-risk tech plays with an unclear profitability path, like business-to-consumer e-commerce companies.

As at 31 July 2000, 70% of the portfolio were in technology stocks. Investors will be forgiven if they think it's just another technology fund. However lead manager Michael McCarthy argues that while it may look like it, there are definite advantages over a pure technology unit trust. "I think the key is really we can go where the growth is. Today it happens to be technology. I won't be surprised a few years from now, there'll be a few other areas showing better growth characteristics. Certainly today it looks like a technology fund, but the benefit of this fund versus a technology fund is that if technology stocks go down, we can invest in other areas." (click here to read Fundsupermart's interview with McCarthy).


Intelligence Gathering

The fund manager has about 70 stocks in the bag at any one time with the view of holding on to most of them for 1 to 2 years. McCarthy's backed by 35 analysts who keep their ears cocked for the latest, particularly in the technology sector. Not surprising, given that some 45 percent of the companies they invest in are located within a radius of 30 miles from the Franklin office in Silicon Valley!

That's a big plus, McCarthy points out, as they get the inside track before the news makes it way to Wall Street and rattles the market. "Certainly we don't target any percentage but it just happens. It's a huge advantage. The obvious one is that we can visit these companies very easily. Much more importantly, we are part of this community which is a very dynamic area to be in these days. Our friends and family work for these companies and we pick up a lot of great information from them, in addition to the local papers. So we are very early in identifying the key technology trends affecting the market place. Most of our research is also done speaking to suppliers, customers and competitors, not necessarily just talking to the management team of a company."

The CPF approved unit trust is available at most distributors from 16 Oct 2000. If you have any comments, send them to soohow@fundsupermart.com.


FUND FACTS

Launch Period - 16 October to 10 November 2000
Launch Price - 10 Singapore Dollars per unit
Minimum Initial Investment - 1000 Singapore Dollars
Minimum Subsequent Investment - 500 Singapore Dollars
Regular Savings Plan - a minimum of 100 Singapore dollars every month

Initial Sales Charge - 5%
Discount - up to 2% will be offered during the launch period with an additional 0.75% for investment made by 31 Oct
Annual Management Fee - 1.9%
Switching Fee - 1%
Realisation Charge - currently nil
CPF Approved - Yes

Sector Breakdown (indicative based on mother fund as at 30 Sept 2000) -
37.06% in Data Processing
29.72% in Electronics And Components
11.90% in Telecom
8.34% in Healthcare
4.45% in Business Services
2.30% in Financial Services
2.03% in Banking
1.83% in Energy
1.27% in Broadcasting And Publishing
1.10% in Utilities

Main Region Allocation (indicative based on mother fund as at 30 Sept 2000) -
86.06% in US
3.32% in Canada
0.20% in UK (fund manager is allowed to invest up to 10% outside the US)
10.42% in Cash

Top 5 Holdings (indicative based on mother fund as at 30 Sept 2000) -
2.87% in Siebel Systems Inc.
2.70% in Polycom Inc.
2.67% in Applied Micro Circuit
2.43% in BEA Systems
2.23% in Predictive Systems