The Hindu Business Line : Templeton Growth, Franklin Growth: Value scores over growth

THEIR stated investment strategies are complementary to each other. Going by the performance of the two funds over the past three years, the two investing styles have indeed provided divergent returns.

"Value" has delivered significantly superior returns to the "growth" style of investing over the past three years.

How the performance compares: Both the Templeton and the Franklin growth funds are from the Franklin Templeton stables (albeit managed by different managers).

The Templeton India Growth Fund (TIGF) picks stocks on the basis of "value"; the Franklin India Growth Fund (FIGF) was to stick to stocks that offer high "growth" potential. Since its launch in February 2000, the FIGF has registered a value erosion of 40 per cent having under-performed a host of diversified equity funds. The TIGF has, in contrast, got away with a value erosion of just 2.5 per cent in its net asset value over the same period.

The FIGF's unimpressive showing has a lot to do with the unfortunate timing of its launch.

Starting out as it did in February 2000, the fund started investing in the conventional "growth" stocks in the IT, FMCG, pharma triad, just before the tide turned in favour of "value" investing.

This appears to have impacted its performance and made it difficult for the fund to stage a recovery.

What to do now: Given the recent interest in mid-cap stocks, the recent upsurge in select commodity prices and the possibility of a cyclical upturn in the economy, "value" may continue to be the winning theme in the markets over the medium term.

Given its reasonable long-term track record, investors may thus invest in the Templeton India Growth Fund. Investors may pare exposures to FIGF.

What made the difference:

Given that it was launched in February 2000, FIGF probably made a later start on IT stocks than the TIGF.

It also maintained a higher IT exposure over a longer time frame, which made it all the more vulnerable to the meltdown in IT stocks.

About a third of FIGF's portfolio was invested in IT by December 2000, compared to 21 per cent for TIGF.

While TIGF cut back its IT exposure to 11 per cent by December 2001, FIGF effected a sharp reduction in IT exposures only in the first quarter of 2003. This suggests that it is likely to have borne the brunt of the fall in IT stocks to a greater extent than the TIGF.

The FIGF also appears to have stuck too long to the traditional definition of growth stocks, investing mainly in the IT, pharma and FMCG triad. In December 2001, nearly half of the assets were invested in these sectors.

By 2003, the exposure to the triad was still at 38 per cent. These sectors have under-performed cyclicals over the past two years, because of their relatively high valuation levels.

The TIGF appears to have entered sectors such as auto, engineering and banking earlier than the FIGF. For instance, the TIGF had a 8.1 per cent auto sector exposure in December 2000, against 4.6 per cent in the FIGF.

In December 2001, TIGF had higher exposures to banks, oil and engineering stocks than the FIGF. This may have helped it capitalise on the sharp rally in these stocks to a larger extent than the FIGF.

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