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Franklin Mutual US Value N acc USD

Analyst Report
Morningstar's Take

by Greg Carlson

Recent team changes, a limited tool kit, and elevated volatility support a continued Morningstar Analyst Rating of Neutral across 10 of Franklin Mutual US Value’s share classes, while the other four earn Negatives.The team behind this fund has seen significant changes of late. Franklin Mutual Advisers CEO and CIO Peter Langerman, lead manager of this fund, retired in early 2021 after three other long-tenured managers left a few months earlier, including comanager David Segal at this fund. Grace Hoefig, the firm’s new director of research, then joined the fund along with Christian Correa, who also took over as president and CIO. While some highly experienced investors remain, including this fund’s associate manager Deborah Turner, the changes represents a substantial loss. The latter three managers all covered securities, so the firm has since hired three analysts, all significantly less experienced. One is covering the industrials sector for the first time, while another is still settling into the financials team. The third covers distressed debt securities, which tend to be a very small part of this fund.Correa’s promotion holds promise. His primary charge before the changes, Franklin Mutual Beacon, has outpaced its siblings by concentrating the portfolio and avoiding value traps. However, this fund is expected to remain more diversified. Coupled with the firm’s loss of analytical firepower, it is not clear that Beacon’s relative success will extend to this fund. This strategy is focused on stocks trading at significant discounts to the team's estimate enterprise values and also includes distressed debt 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%-30% of its assets in non-US stocks, so it typically holds about 50 stocks instead of the 80-plus it previously held. This has contributed to poor showings in downturns and higher volatility. Given these traits, it is going to be difficult for this strategy to beat its Russell 1000 Value Index category benchmark on a risk-adjusted basis.

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Morningstar Pillars
A shrewd acquisition, but some uncertainty remains.
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