Monday, November 23, 2009

Mobius rejects open-ended funds

* Story by: Nick Rice
* Magazine: InvestmentAdviser

Mark Mobius has faulted open-ended structures for causing underperformance, a year after his outspoken attack on the investment trust format.

Franklin Templeton’s veteran emerging markets manager said mistimed inflows and outflows in open-ended funds forced managers to sell when they would prefer to be buying and vice versa.

He said it was incorrect, for instance, to compare his underperforming Templeton Global Emerging Markets fund with his outperforming Templeton Emerging Markets investment trust (Temit), due to the different demands made in running the two vehicles.

“While open-ended funds must redeem money when clients demand it and accept money when clients want to invested, Temit as a closed-end fund is not subject to these flows of money,” he said.

“Unfortunately for open-ended funds there is a tendency for clients to withdraw money at the bottom of the market, when the managers would like to be purchasing more stocks, and then clients put more money into the fund when prices have moved higher.

“The open-ended funds are thus forced to sell at the worst time and purchase at the worst time. Closed-end funds have the luxury of not having those pressures.”

Mr Mobius said he had found it “impossible” to reweight positions within an open-ended buy-and-hold strategy to benefit from market rises and market falls.

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