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Franklin lightens holdings
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February 22, 1999: 4:56 p.m. ET
Franklin Mutual sells 40 percent of its stocks after Michael Price's departure
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NEW YORK (CNNfn) - Less than four months after famed value investor Michael Price stepped down as head of the management team at Franklin Mutual Advisers, the fund family has shed about 40 percent of its stocks.
Franklin Mutual sold stakes in 140 companies like retailer Venator Group (Z) and British bank Barclay's (BARC) in the last quarter of 1998 as part of a decision made last fall to focus on fewer stocks, Robert Friedman, chief investment officer, said Monday.
The New Jersey-based fund group also reduced key holdings in companies like RJR Nabisco (RN), Chase Manhattan Bank (CMB) and General Motors (GM) because the stocks "weren't as cheap as they used to be," he said.
"We've been saying from the beginning that we wanted to get the number of positions down," Friedman said. "It waters down the portfolio too much."
The fund group went from 330 stocks to 190. Despite its large stock sales in the last quarter of 1998, the fund group has not increased its cash holdings. At 15 percent, Franklin Mutual's cash assets are a smaller portion of its portfolio than in the past.
The funds, with $23 billion in assets, include Mutual Shares, up 0.46 percent for the year as of Feb. 19, according to Morningstar Inc., a Chicago fund-tracker.
The other funds are: Mutual Beacon, up 0.38 percent in the same period; Mutual Qualified, down 2.07 percent; Mutual Discovery, down 0.47 percent; Mutual European, up 1.20 percent; and Mutual Financial Services, down 2.95 percent, according to Morningstar.
Friedman took the helm from Price on Nov. 1.
Franklin Mutual is managed by a team of "value" investors who hunt for cheap stocks that get overlooked by Wall Street.
"For individual investors, this is probably the most optimal time to buy value stocks because growth stocks are so over-the-top expensive," Friedman said.
The S&P 500 has been skewed by the performance of about 35 big-name stocks that are "grossly overvalued," Friedman said. As a result, the market has been overlooking some medium-sized companies.
Among Friedman's recommendations are Owens-Illinois Inc. (OI), a maker of plastic and glass containers; and Lear Corp. (LEA), a producer of interior systems for cars and trucks. He also holds shares of American Standard (ASD), which makes air conditioning systems and bathroom fixtures; and Federated Department Stores (FD).
"We think the value universe has opened up some tremendous opportunities," Friedman said.
Scott Cooley, equity fund analyst at Morningstar, said it's too soon to say whether the scaled-back portfolios will produce better returns.
"There are a lot of value funds out there and some execute it better than others," Cooley said. "It remains to be seen how they'll fare over the long term, but so far they seem to be doing all right in a pretty difficult environment. Compared to other mid-cap value funds, they're in the middle of the pack."
While the management team worked with Price for some time, and Price hadn't been as involved in day-to-day operations in recent years, Cooley advised investors to be cautious after the leadership change.
"I'd take a wait-and-see approach," Cooley said. "I'm not sure I'd hop into these funds right now."
-- by staff writer Martine Costello
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