Franklin Templeton Cuts Polish Bond Stake to Five-Year Low

  • Fund sold all of April 2016 holdings in first quarter
  • Poland isn't attractive against EM peers: Union Investment

Franklin Templeton joined the ranks of foreign investors cutting their holdings of Polish bonds this year following the country’s first-ever downgrade.

The $51 billion Templeton Global Bond Fund reduced ownership of zloty debt to 3.5 percent of its portfolio at the end of March, the least since at least 2010 and down from as much as 14.4 percent in the middle of 2012, according to the fund’s quarterly data and figures compiled by Bloomberg. The fund, run by high-profile manager Michael Hasenstab, sold all of its holdings of government bonds maturing on April 25 in the first quarter, the data show.

International investors cut their exposure to Polish bonds by 10 percent in the first two months of the year after S&P unexpectedly lowered its investment-grade rating in January at the same time local banks scooped up government debt to avoid a tax on the industry. While the yield on Poland’s 10-year bonds trade at a premium of more than 2.5 percentage points to similar-maturity German bunds, they’re at least 6 percentage points less than those for lower-rated Turkey and Brazil.

“It makes sense to reduce exposure to safe-haven emerging markets like Poland and Hungary and invest into high-yielding ones like Brazil, Turkey or Russia,” Dmitri Barinov, a money manager who oversees $2.6 billion of assets at Union Investment Privatfonds GmbH in Frankfurt, said on Thursday. “Poland is attractive against the euro-land, but within emerging-market space -- not at the moment.”

Data on any changes to the fund’s holdings since March isn’t yet publicly available. Franklin Templeton spokeswoman Dorine Johnson declined to comment when contacted by Bloomberg News. The Polish Finance Ministry didn’t have an immediate comment.

Buying Brazil

The fund has been increasing ownership of Brazilian debt in the past two quarters, raising it to 14.8 percent of its portfolio by the end of March, making it the second-biggest holding after Mexico. Templeton, which began reducing its stake in Hungary last year, cut the holding to less than 1 percent in the first quarter.

Assets in the global bond fund dropped by $3.8 billion in the first three months of 2016 and the fund has returned 0.4 percent this year, underperforming 81 percent of its peers, according fund data and Bloomberg figures. Still, the fund has bested more than 70 percent of its peers in the past five years, returning an average 1.6 percent a year over that span.

The yield on Poland’s 10-year zloty government bond rose four basis points to 3.02 percent by 12:50 p.m. in Warsaw. While that’s down from a peak of 3.24 percent after the S&P decision, the rate is up 18 basis points in April. The zloty extended losses, dropping 0.8 percent to seven-week low 4.3544 per euro, bringing this month’s loss to 2.6 percent, the worst performance among 24 emerging-market peers tracked by Bloomberg. Poland’s main stock index WIG20 fell 1.1 percent, taking its drop this month to 3.5 percent.

Still, Polish bonds are up 1.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Poland is the only country whose index never suffered an annual loss.

“Foreign investors are much more cautious about Polish securities since Law & Justice took power,” Piotr Matys, a foreign-exchange strategist at Rabobank International in London. “And growing demand for Latin American bonds is a signal that appetite for risky assets is improving. Compared to Latin America, the yield on Polish bonds is much lower.”

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