HASENSTAB: INVESTING WHERE OTHERS FLEE TRANSCRIPT

June 13, 2014

Global bond fund manager Michael Hasenstab, Templeton Global Bond Fund, speaks on his contrarian investment strategies.

Consuelo Mack: This week on WealthTrack, a world traveling Great Investor who treks to unusual out of favor places to find value in shunned bonds and currencies. Why has Templeton Global Bond Fund’s Michael Hasenstab visited China, South Korea and even Ukraine recently? His contrarian views are next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack, I’m Consuelo Mack. How does a global bond fund deliver equity like returns over the long term and stay ahead of its peers and bond markets in a low interest rate environment? By avoiding those low interest rate countries and investing in currencies and debt of faster growing emerging markets. That partially describes the strategy of next generation Great Investor Michael Hasenstab at the Templeton Global Bond Fund which he has managed for more than a decade. Hasenstab, Morningstar’s Fixed Income Fund Manager of the Year in 2010 and winner of numerous other awards oversees close to $200 billion worth of fixed income assets. Known for making sizable and prolonged contrarian investments Hasenstab is acting true to form today. At a time when many investors are fleeing emerging markets he is investing in them. When much of the world is concerned about deflation he is worried about inflation. While the federal reserve is completing its quantitative easing policy, by gradually ending its bond buying program Hasenstab is convinced another central bank, the Bank Of Japan, will more than fill the void and flood the world with inflationary liquidity. And while much of the investment community is worried about how much China is slowing he is encouraged by how much it is growing. While other investors were buying U.S. Treasuries for their safety and liquidity several years ago, Hasenstab was an early seller, a bearish position he maintains to this day. I asked him why.

Michael Hasenstab: Well, it’s a combination of factors. On the one hand we just don’t see value in the U.S. Treasury market. We have from an economic standpoint reasonably good growth, growth coming in at around three percent, inflation coming in around two percent. That is very inconsistent with a 10-year Treasury yield that is below three percent. So if you look throughout history, those type of growth and inflation dynamics would imply a 10-year Treasury yield that’s closer to four to five percent. So from a valuation standpoint it doesn’t make sense, and the reason it’s distorted is that the largest buyer of Treasuries is our own government. So because there’s an artificial buyer in place, we just don’t know what the clearing rate is. So from our standpoint we don’t see value there, and we just need to see the Fed back away and see where a real price settles out, but our inclination is that that real price will be at a yield much higher than it is today.

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