Templeton’s Hasenstab Is Doubling Down on Colombia as Bonds Soar

  • Fund is now the biggest holder of the country’s peso debt
  • Oil’s rebound has helped propel gains in Colombia’s notes

Franklin Templeton, manager of one of the world’s biggest bond funds, didn’t own any local-currency debt from Colombia six months ago. Now, it’s the single-biggest foreign holder of the notes.

The dramatic change comes as the securities have surged 18.4 percent this year -- almost four times the average gain in emerging markets -- buoyed by a rebound in oil prices and the peso. Franklin Templeton has plowed $1.6 billion into Colombian debt through the second quarter, according to data compiled by Bloomberg. That’s equal to about 10 percent of the total held by overseas investors.

Colombia, whose biggest export is crude, has emerged as one of the biggest beneficiaries of oil’s 63 percent jump since reaching its February low. The country seized the attention of Franklin Templeton in the first quarter, when the money manager piled into peso debt for the first time since at least 2011. The move came after Chief Investment Officer Michael Hasenstab praised Brazil and Mexico in what he called a “once-in-a-decade opportunity in emerging markets.”

“We’ve been focused on local-currency bonds with compelling yields” in Colombia, he said by e-mail last week. “We find the risk-adjusted returns highly attractive.”

At the end of June, Colombia debt was equal to 2.64 percent of the flagship Templeton Global Bond Fund. That compares with 18.06 percent for Mexico and 16.97 percent for Brazil. 

While Hasenstab is betting that there are more gains in store in Colombia, others aren’t so sure.

Sean Newman, a money manager at Atlanta-based Invesco Ltd., says given the risk of lower oil prices in the near term and a weaker peso, the bond rally may have largely run its course.

“We don’t think there’s a lot more juice in this trail,” he said.

Last week, Fitch Ratings followed S&P Global Ratings in revising the outlook on Colombia’s investment grade to negative from stable, citing the risk lower oil revenue may cause the budget deficit to swell further. The government targets a shortfall of 3.9 percent of gross domestic product this year, which would be highest since 2010.

Still, Hasenstab points to fiscal rules that cap spending and Colombia’s efforts to trim debt as reasons that he remains bullish. A soon-to-be signed peace deal between the government and the biggest rebel group “should have a significantly positive influence on the economic future of the country,” he said.

“Colombia’s creditworthiness remains strong,” Hasenstab said.

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