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Mutual benefits of portfolio management

Mutual benefits of portfolio management

Templeton Global Advisors president Cindy Sweeting extols virtues of patience, world view when investing

The Bahamas Investor Magazine
June 21, 2010
June 21, 2010
Steve Cotterill

Being a portfolio manager you have to wear a lot of different hats. Especially if the portfolios you manage are worth $45 billion. “Templeton’s flagship mutual funds–the World Fund, Growth Fund and Foreign Fund–are all run out of the Nassau office, which I am directly responsible for,” says Cindy Sweeting, president of Templeton Global Advisors Ltd, which across its entire global equity group manages approximately $100 billion. “So we have to be stock pickers, accountants, communicators and behavioural psychologists all at the same time.”

It’s a challenging task, but one at which Sweeting was always likely to excel. Investing was in her blood, and her maternal grandfather, who worked on the Chicago Board of Trade and traded commodities and options, instilled in her an understanding of the principles when she was in her teens.

“I was on that track from an early age,” she recalls. “While my friends were reading Seventeen, I was reading Forbes.” She was “on track” to such an extent that she turned down a place at Yale University because it didn’t have a business school and she wanted to study finance and business rather than pure economics.

Graduating summa cum laude from Georgetown University with a BS degree in business administration specializing in finance, the choice Sweeting made of coming to The Bahamas to pursue her career was both a professional and a personal one. Married to a Bahamian, US-born Sweeting thought that Nassau offered “not only the possibility of a very challenging career but also a great environment in which to bring up a young family.”

Work, life balance
Sweeting moved to The Bahamas in 1980 and began her career as an investment analyst in 1983 after an early stint in the import/export business with a local firm. She had a chance to join Templeton several years later, which was something she had aspired to do since she was a student. “One of the cases we studied at college was [founder] Sir John Templeton’s World Fund,” says Sweeting. “He was one of the only truly global investors at that time and he was a pioneer in that area.”

However, at that point she was realizing another one of her dreams–having a family–and she felt the timing wasn’t ideal to take on a new venture.

But although she delayed joining Templeton, Sweeting’s career continued to go from strength to strength, whilst she remained mindful to strike a balance between her work and family life.

“This is not the type of job you leave at the office, so you have to be able to compartmentalize. When you have time to spend with your children, you focus entirely on them. It was hardest when they were in grade school and in their teens, because by then I was a single parent,” says Sweeting, whose daughter Ashley is now 25 and working in publishing in New York, and whose son Ryan, who is now 22, is a professional tennis player. “Keeping the mix of being motherly and bringing discipline without overcompensating was hard. I wasn’t sure if I could do that at all well at first. But they are grown up now and pursuing their own careers.”

At home in Bahamas
During that period, Sweeting worked for McDermott International Investments Co, Inc, in Nassau, advancing from analyst to the position of senior vice president of investments over her 14-year tenure there. She ultimately was responsible for the investment department, encompassing portfolio management and pension administration.

A chartered financial analyst (CFA) charterholder, Sweeting went on to serve as vice president of the board of directors of the International Society of Financial Analysts (ISFA), which has now merged with the CFA Institute. She also helped found the Bahamas Chapter of ISFA.

She eventually joined Templeton in Nassau in 1997 as an equity analyst and portfolio manager. In 2000 she relocated to Templeton’s Ft Lauderdale office and took on the management of several large institutional equity portfolios, as well as the co-leadership of Templeton’s small cap team. In 2003, she became the director of research for Templeton’s worldwide investment team. She came back to Nassau in January 2008 to assume her current position as the lead and co-portfolio manager of Templeton’s flagship retail mutual funds.

This coincided with the start of one of the most traumatic times in economic history. “Certainly 2008 was a tumultuous year,” says Sweeting, referring to the global financial crisis that precipitated the dramatic fall-off in economies around the world. “You would sleep with your Blackberry on your pillow to check the markets in Asia at 3am and know that what was happening there would be happening here the next day. It was gut-wrenching at times.”

Excess leverage, speculation in property and real estate markets with a lot of derivatives and securitizations tied to them all lead to systemic collapse and, as Sweeting notes, “the dominoes just toppled one after another.”

Whether the massive monetary and fiscal response globally was the right thing to do is still open to debate, says Sweeting, but something had to be done. “There was a real chance that confidence would have been totally shattered. So they had to act aggressively. But simply replacing private leverage with public money is not a perfect solution. Once the juice starts to return to the monetary system and banks start to lend again, then we had better hope that the stimulus is withdrawn quickly enough to stem the excess liquidity and avoid inflation.”

But the general consensus is that Armageddon has been avoided and growth in absolute terms will pick up. “So equities are anticipating that this will be successful. Companies have cut costs and streamlined, putting them in good stead so that when they start to get top-line revenue growth, they’ll have great earnings growth. Would that herald a massive bull market? Right now, it’s hard to say.”

Opportunity through adversity
But Sir John built his fortune during times of adversity, and his theory of contrarian investing–with the focus on buying undervalued, unpopular stocks and holding on to them until the markets revived–has held true through past economic upheavals and still forms the basis of the company’s investment strategies today.

“We have an investing process that has been in place for more than 50 years, and if you can stick with it, it will pay dividends. Our stock picking and investment management philosophy is, in a nutshell, about building portfolios stock by stock. We are long-term investors looking for companies that are trading at a discounted value but where we think price to future earnings is still looking very attractive. The biggest overweights in our portfolio right now are in technology, with some cyclical consumer stocks such as media, health care and pharmaceuticals.”

Sweeting says it is also a good time to get quality upgrades to the portfolio as a lot of world-class companies’ stocks have been decimated along with everybody else’s, so opportunities arise to purchase stock in companies that suddenly have very low evaluations.

“We try to keep emotion in check and execute our philosophy. Times of crises usually present opportunities, if you can keep your head and have the guts to make the right decisions. The main thing is to convince the clients of that.”

Face to face
This is especially true with retail mutual funds where investors can pull their money out quickly. “There are times when you would love to be in the position to have cash flows because you have great buying opportunities, but you have to fund redemptions, so you have to sell against your better judgment.”

Here relationships become key, and it is necessary for wealth managers to get out on the road and meet with the clients to keep confidence levels sustained. To this end, Sweeting took a team on a US roadshow last year, on top of her usual four or five international trips a year, which included one-to-one meetings as well as speaking at key events.

“There’s a lot of getting out in front of our clients and trying to give them a sense of perspective, of history and the need for patience,” she says. “We have been through many cycles like this before and although they are not exactly the same, they have a lot of the same elements–everything from euphoria to absolute fear.”

One of the hardest things, she says, is to build a long-term track record in portfolio management and you can’t do it on your own. On the global team there are 35 analysts and 10 junior analysts who assist Sweeting with research.

Finding the right people and, as importantly, keeping hold of them is also a key element in the success of Templeton’s funds.

“You need to have a team that is collegial but competitive and keep them. You need type A personalities who are not prima donnas. But they are hard to find.”

As well as having the above attributes, her team has to be able to communicate the benefits of the Templeton investing strategy. “You cannot teach someone to be a value investor. It is the way you think about the stock market and the way you think about life.”

Industry change
Templeton’s clients are a 50-50 split between institutional and individual retail investors, but the thing they have in common is that they understand the long game.

“Turnover on our portfolios is around 20 per cent on average, which is extremely low compared to the average mutual fund turnover, which is 100 per cent plus. We are value investors, fundamentally oriented investors, not momentum traders or technicians. We understand companies and how industries work. So we attract clients who understand a patient approach and what it means to build a portfolio.”

But Sweeting notes that the patient approach is now a rarity in an industry that has seen a major shift to momentum and short-term investing. “A majority of companies are being trained by investors to think about earning results over the next three months, and so much asset management has been based on that. But we have a competitive advantage by standing back and not getting caught up so much in the technology, mathematics and quantitative strategies that have gone a long way to making investing become more like speculating.”

Sweeting sees massive continued growth in asset management as emerging markets in Asia expand, most notably China. “Within five, most definitely 10 years, China will supersede Japan as the world’s second-largest economy. There is massive potential for development from an investment management point of view.”

The variety and emphasis on analysis in her job, says Sweeting, means that she is constantly developing professionally and personally. “It has always intrigued me that you could read for a living, study and learn. It has taken me 25 years in this profession to put together a world view, one where you could understand so many disparate things. You absolutely learn something new every day in this job.”

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