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Author: Zinj Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 30  
Subject: Re: Franklin Resources (BEN) Date: 8/24/1998 2:09 PM
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<<capplegate asked:

Performance at Templeton and Mutual Series has deteriorated significantly since acquisition by Franklin. Does anyone have insight into structural or organizational problems with this company?>>

Franklin Resources has had the good sense to let the portfolio mananagement remain independent at both Mutual Series and at Templeton. They've even gone to the extraordinary measure of implementing a "Chinese Wall" between the research departments at the three main famililes (Franklin, Templeton and Mutual Series). This means that not only do the research departments not COOPERATE with one another, they're legally PROHIBITED from sharing information at all.

This obviously leads to a duplication of investment resources at each site, but it also keeps intact the spirit and identitity of each research department, which is important in maintaining the credibility of the brand names Franklin paid for when buying the other two companies.

What important management shakedowns have there been at Templeton and Mutual Series since their acquisition? Well, Sir John Templeton retired (as expected), but Mark Holoesko and Dr. Mark Mobius are two of the ablest stock pickers in all of international investing -- although the field is certainly much more crowded than when Templeton was single-handedly champioining it decades ago.

Mutual Series - Michael Price is stepping down from active day to day management of the funds. This was planned and is exactly on schedule (2 years after acquisition). The man Forbes called "The Scariest SOB on Wall Street"will still remain closely involved with Mutual Series, and indeed is legally bound to be (and have a ton of cash parked there) for another three years yet. I'm not as familiar with his lieutenants, but most have been there for near a decade or more, and all practice Max Heine's/ Michael Price's value approach to investing.

I think the stock/ bond pickers are not the problem. If the funds' performance has lagged (and we should post some specific numbers to determine if there actually is a before/after discrepancy -- I'm not so sure) it is most likely due to the following:

Developing Markets: This one has been beaten like a red-headed stepchild. The bottom fell out of the market and took Mobius with it. He's still very sharp however, and I'd also say he's rather proud. He's not pleased, but this kind of thing happens in Dev. Mkts. He's buying the "bargains" that will put him on all the investment shows looking like a superhero once again 5 years from now.

All of the Mutual Series funds: these are decidedly value-oriented, perhaps overly so, and USUALLY lag bull markets while being quite a bit less volatile and risky over the long-term. Recently they've lagged in part because they've parked so much in cash, waiting to find something worthy of investing in. There was the Sunbeam disaster, that really hurt the funds, but I'm not sure their performance is so unusual since Franklin bought the company.

Actually, Mutual Discovery seems to be doing pretty well--

Figures are as of JULY 31, 1998 (OUT OF DATE!!!)

Mutual Discovery (Z shares) has continued to beat the tar out of the MSCI EAFE index over the past two years. Over just 1 year: Discovery: 13.09% EAFE: 7.34%

So in response to your question, if there are structural or organizational problems at Franklin, they're not of the sort that affect investment decisions. The fund managers are the same ones that have been there for a long time.

On the other hand, IF there are problems on the *operational/corporate* side, you'd see it in the company's financials, not the performance of its funds. That's an entirely different question, and one that's harder to get a handle on without asking questions inside the company.

Hope this was at least a little helpful,

Zinj
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