Franklin Income Rewarded Faithful Investors in 2016
The fund’s exposure to high-yield bonds and small-value stocks helped push it to a 16.3% gain for the year after a disappointing 2015.
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Franklin Income rewarded faithful investors in 2016 following 2015’s struggles. The same value bias in equities and reliance on high-yield bonds that caused this multiasset income fund to lose 7.3% in 2015 played to its favor in 2016, when it climbed 16.3% for the year. The fund has seen similar performance swings in the past. While this rocky path may not suit all income-hungry investors, those willing to stick with the fund through hard times still have much to like here. The fund retains its Morningstar Analyst Rating of Bronze.
Lead manager Ed Perks continues to uphold the fund’s decades-old legacy of pursuing income via multiple asset classes, which he has done since taking the helm in 2002. The fund’s 12-month yield has averaged roughly 6.4% during his tenure. True, Perks has additional responsibilities, most recently becoming the chief investment officer of all Franklin Templeton equity teams in October 2015, but this flagship fund still has his attention. Plus, he has ample research support, including two comanagers--Alex Peters and Matt Quinlan--and various equity and fixed-income teams across the firm.
An enormous asset base--$79 billion in assets as of November 2016--hasn’t prevented Perks from making sizable portfolio shifts here. Perks still managed to quickly add to the fund’s equity exposure during 2015's third-quarter stock market dip. This lifted its equity stake to nearly 60% of assets as of September 2015--the fund’s highest level under Perks and notably higher than the roughly 40% average during his tenure. Subsequently, he trimmed equity exposure to 50% by June 2016, including the sale of strong-performing utilities stocks, and shifted toward high-yield bonds that he found attractive because of tightening credit spreads. High-yield bonds still represented more than 90% of fixed-income exposure as of September 2016.
The fund has met its two objectives--maximize income and capital appreciation--but investors should be aware of the potential for deep losses. The fund lost 39.1% from November 2007 through February 2009 amid the economic crisis.
Jeff Holt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.