Fund Description

The fund seeks to provide a high level of current income consistent with prudent investing, while seeking preservation of capital. The fund primarily invests in debt securities, which may be represented by derivatives that provide exposure to debt securities. The fund focuses on government and corporate debt securities and mortgage- and asset-backed securities. The fund targets an estimated average portfolio duration of three years or less.

Strategy Statement

"By focusing on low duration, high-quality investments across various sectors of the fixed income market, we strive to offer a competitive yield, while maintaining a relatively stable net asset value."

Management

Sonal Desai, Ph.D

Sonal Desai, Ph.D

  • Joined Franklin Templeton in 2009
  • Managed Fund Since 2018
David Yuen, CFA

David Yuen, CFA®

  • Joined Franklin Templeton in 1988
  • Managed Fund Since 2016
Tina Chou

Tina Chou

  • Joined Franklin Templeton in 2004
  • Managed Fund Since 2019
Kent Burns, CFA

Kent Burns, CFA®

  • Joined Franklin Templeton in 1994
  • Managed Fund Since 2004

INVESTMENT PHILOSOPHY, STRATEGY AND APPROACH

Investment Philosophy

Franklin Templeton Fixed Income believes that integrating top-down macroeconomic views, bottom up fundamental research, and quantitative science provides us with a competitive edge to navigate challenging investment environments, pursue consistent alpha, and better serve our clients.

Investment Process

Our investment process marries independently-derived macroeconomic and fundamental sector-specific research with quantitative insights.

Research

The Quarterly Research and Strategy Forum is the starting point for our investment process. Investment teams present and debate independently derived macro, fundamental, and quantitative research, establishing key investment themes.

Individual sector teams dedicated to global sovereigns, corporate credit, securitized debt, and municipal bonds are responsible for preparing and presenting independent research which culminates in a fundamentals-driven outlook and recommendation for their sectors.

Investment Themes

Our proprietary model provides unbiased forecast of spreads in each sector. Applying economic forecasts and machine learning, the model maps this forecast to an historic economic regime/environment considering how spreads in different sectors have behaved.

We perform a reconciliation between the macro views, quantitative input, fundamental views, and cross sector considerations to arrive at high conviction spread forecasts across all sectors.

Comparing expected spreads with prevailing market spreads identifies which sectors look expensive relative to our forecast ‘fair value’ and which sectors have more promising relative value and expected return.

The goal of this process is to provide the investment team with a high conviction view of expected spreads, to aid in the portfolio optimizing process.

Portfolio Construction and Implementation

We use a sophisticated portfolio optimization in our aim to maximize expected excess return for a given level of risk. Sector allocation, coupled with our top-down macro views, drive the final allocations for each strategy.

We conduct a ‘neighborhood analysis’ to determine optimal allocation bands. This process seeks to ensure that risk is efficiently allocated to our highest conviction views in a way that is consistent, repeatable, and designed for accountability.

Each sector allocation is then populated with the highest conviction securities of each sector team. This process brings together factor-based quantitative security rankings and active fundamental credit recommendations into prioritized, potential buy and sell lists at the security level.

Material environmental, social, and governance (ESG) issues are an integral component of our bottom-up research and risk/return forecasts. Analysts have access to multiple ESG data sources to help build a qualitative view of each issuer and security.

Risk Management

Throughout the portfolio construction process, portfolio managers collaborate with our independent Investment Risk Management Group, using a mosaic of risk metrics, to monitor and evaluate the level and sources of risk in each portfolio, and to ensure the allocation of risk is commensurate with the forward-looking views of the investment team, level of conviction, and the portfolio’s investment objectives and guidelines.

Rating

Overall Morningstar Rating As of 08/31/2020

Rating Category: Short-Term Bond

Morningstar
The fund's overall Morningstar Rating measures risk-adjusted returns and is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) rating metrics.

Historical Morningstar Rating [further-information] As of 08/31/2020

Years Ratings Funds
in category
3
2 Stars
513
5
3 Stars
459
10
3 Stars
294

Morningstar Style Box As of07/31/2020

Strategy, Benefits, Results

Strategy

  • We target an estimated average portfolio duration of three years or less.
  • We invest across multiple investment-grade debt sectors, including government and corporate debt securities, and mortgage- and asset-backed securities.
  • Some of our investments may include securities issued by government-sponsored entities, such as Fannie Mae and Freddie Mac.i

Benefits

  • Low Duration. The fund's low average duration, targeted at three years or less, may potentially make the fund less sensitive to interest rate changes than funds with higher average durations.
  • Sector Diversification. We have the flexibility to allocate investments across multiple fixed-income sectors to maximize income and capital appreciation potential.
  • High Credit Quality. We invest primarily in investment-grade debt.
  • Investment Expertise. With access to research resources of the Franklin Templeton Fixed Income Group® and the perspective provided by Franklin equity research analysts, our combined "top-down" macroeconomic and "bottom-up" fundamental analysis helps identify bonds we believe have the best prospects for income and capital appreciation.