Morningstar’s analyst looked at three corporate credit funds from Franklin Templeton. He assigned each of them a Silver rating. That’s not all the similarity. Currently, each fund has a 5-star rating and all are managed by Santosh Kamath, the CIO - Fixed Income.
Kamath is a seasoned manager and has extensive credit research experience. He is the key decision-maker on investments in sub-AAA rated bonds or any form of structured debt across funds from the fund house. Worth noting is that he runs a top-notch team on the credit side.
In 2016, one of the funds’ holdings, Jindal Steel & Power (JSPL), defaulted on its interest payment and the parent--Franklin Templeton Asset Management Company--had to buy this holding from the fund but with a haircut, resulting in a loss to the fund. But it must be noted that such a risk is inherent to the strategy plied here, which entails going down the credit ladder. In our opinion, it is only a blip in the manager’s otherwise impressive track record in security selection. In fact, the way Kamath managed to bring back the fund from the bump in the road caused by the JSPL default is noteworthy. Hence, this instance hasn't caused our conviction in the funds, its manager, and his investment approach to dither.
Kamath draws on fundamental, company-specific research to identify securities offering attractive yields. In particular, the investment process emphasizes identifying companies with robust business models and capable management teams. Another aspect Kamath focuses on is the collateral backing any structured debt. Kamath’s pursuit of underpriced securities and those offering attractive yields often takes him down the credit ladder, and the allocation to sub-AAA rated securities tends to be significantly higher than the norm. However, we believe the research-intensive process helps mitigate the risks inherent to such an approach.
Factors such as a skilled manager, strong team, a proven investment process, and one of the best asset managers give these funds an edge over its competitors. Hence, all merit a Morningstar Analyst Rating of Silver.
Read more about each fund, its returns and portfolio.
Franklin India Corporate Bond Opportunities
Franklin India Income Opportunities
Franklin India Short Term Income
