Templeton's Master of Debt and Currencies

For Michael Hasenstab, manager of the top-rated and best-selling Templeton Global Bond (TPINX) fund, Greece is the latest example of why investors should avoid countries that rely too heavily on borrowed money. Hasenstab shunned debt-laden nations including the U.S., Japan and much of Europe before the Greek debt crisis erupted. He favors the debt of Asian and Latin American nations with fast-growing economies and small budget deficits.

The 36-year-old fund manager, who started at San Mateo (Calif.)-based Franklin Resources (BENW) fresh from college in 1995, boasts an outstanding record: Templeton Global Bond returned 12 percent annually in the 10 years ended Apr. 30, the best in the world bond category, according to fund-research firm Morningstar. Hasenstab's fund gained 6.1 percent this year through May 17, better than 97 percent of its peers, according to data compiled by Bloomberg.

Those numbers have helped the $34 billion Templeton Global Bond pull in net deposits of $7.1 billion in the U.S. this year through April, second only to the $15 billion that went into Bill Gross' $225 billion Pimco Total Return (PTTAX), according to Morningstar. The $24 billion version of the fund sold outside the U.S. brought in $5.2 billion in the first quarter, making it the top seller in the rest of the world, according to research firm Strategic Insight.

Hasenstab looks for markets where government bond yields are attractive and credit quality is improving. Right now, he likes countries such as Indonesia and Brazil, which have manageable debt levels and the prospect of stable or declining long-term interest rates. Hasenstab also invests where he sees an opportunity to make money on currency movements. Lately, that means countries where he expects interest rates to rise, such as Norway, Australia, China, and India. "Despite global problems, these economies are robust," he says.

Australia, which represented 9.8 percent of Hasenstab's portfolio, was one of the few nations to skirt last year's global recession. The Australian dollar, which was worth 63 cents in March 2009, currently trades for almost 87 cents, Bloomberg data show.

Hasenstab's strategy of making bets on both bonds and currencies distinguishes him from most rivals, says Kevin McDevitt, an analyst with Morningstar: "He is willing to do things others would not be comfortable doing." Of course, that means the fund can be riskier than one that avoids currency bets.

With debt worries roiling markets everywhere, no fund is exempt from big swings. Templeton Global Bond fell 4 percent in the week before the European plan was announced as bonds tumbled around the world. In times of panic, investors make no distinctions and sell everything, Hasenstab says, adding: "Once things settle out you will see that differentiation return."

The bottom line: Hasenstab's knack for avoiding the bonds of debt-laden countries and spotting undervalued currencies helps him outperform.

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