Franklin Mutual US Value N acc USD

Analyst Report
Morningstar's Take

by Greg Carlson

An investment team shakeup and a truncated tool kit limit Franklin Mutual US Value's Morningstar Analyst Rating to Neutral for nine share classes and merit a downgrade to Negative for the most expensive four.The team behind this strategy has seen upheaval. In March 2021, CEO and CIO Peter Langerman, longtime lead manager of this strategy, gave up his duties and will retire around midyear. Three other long-tenured managers left as well, including this strategy’s comanager David Segal. Christian Correa has taken over as CIO and president and joined this strategy as a comanager in November 2020 along with firm veteran and new research director Grace Hoefig. (Longtime assistant manager Deborah Turner remains on board.) While highly experienced investors remain, this exodus represents a substantial loss. The three departed managers other than Langerman all covered stocks, so coverage has been reshuffled. And though the firm is hiring a few new people, they are expected to be far less experienced.This strategy is focused on stocks trading at significant discounts to the team's estimate of companies' enterprise values and also includes distressed debt, cash stakes if compelling alternatives are lacking, and a few merger-arbitrage plays. However, this strategy lacks the ability to sell stocks short, a key piece of the team's merger-arbitrage strategy in its other portfolios. Also, since mid-2016 the strategy has focused solely on US stocks after previously investing 20% to 30% of its assets in non-US stocks. The portfolio has since been more concentrated; it recently held less than 50 stocks compared with the 85-120 it previously owned. As a result, volatility has since been a bit higher than the category average. Also, before both the late 2018 and early 2020 downturns, the strategy owned an above-average equity stake relative to its history, leading to poor performance in the declines. Given these traits, it is going to be difficult for this strategy to beat its Russell 1000 Value category index on a risk-adjusted basis.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleThis portfolio has become more concentrated in recent years as it's become U.S.-focused, but it can serve as a core holding for patient investors.
Morningstar Pillars
A new leader and several senior departures.
A shrewd acquisition, but some uncertainty remains.
A limited tool kit and increased concentration reduce this strategy's appeal.
A disappointing record.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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