The investment team’s caliber and a solid investment approach make this value-oriented fund a strong choice in our view.

This fund is managed using a team-based approach under the guidance of Dr. J Mark Mobius. Mobius is a pioneer in emerging-markets investing and leads the Templeton Emerging Markets Research Team, which comprises 30 members. He oversees the investment processes at the group, whereas assistant managers Chetan Sehgal and Vikas Chiranewal are involved in the daily management of this fund. Sehgal and Chinarewal are seasoned investors who are well ingrained in the team’s value investing philosophy. Overall, we are fairly impressed with the caliber and stability of the team.

The investment process is based on Mobius’ philosophy of investing in growth stocks that are trading at a significant discount to their earnings potential. Here, the team prefers issues that are cheaper than their peers, the broader market, and historical valuations. While evaluating companies, analysts study past data for five years and project five years ahead—their price target incorporates the best- and worst-case scenario for a company, and also incorporates a strong qualitative analysis. Inputs from global sector and regional analysts are incorporated into the research. For this fund, foreign equities comprise roughly 35% of the portfolio. The team follows a similar approach for picking foreign stocks, but they typically scout for companies in sectors that may not be well established in India—the fund’s investments in the retail, transportation, and semiconductor sectors in the foreign equity portion are cases in point.

One key risk for value funds is buying cheap stocks that continue to get cheaper--so-called value traps--and this fund is no exception, as illustrated by some of its poor long-term bets such as JK Cement, Hindalco, and Tata Steel. In addition, investing in foreign equities is a lucrative proposition and diversifies the portfolio, but it also carries currency risk—any appreciation in the Indian rupee can hurt the fund’s performance relative to peers focused solely on INR issues. Moreover, funds of this nature can witness prolonged periods of underperformance when the strategy is out of favor. The flip side, however, is reduced valuation risk, which is evident in the fund’s below-average volatility and downside risk relative to peers'.

We are impressed with the disciplined approach and the solid execution of the strategy so far: Under Mobius, from June 2006 to Oct 2011, the fund has delivered an annualised 13%, beating its benchmark index BSE 200 by an annualized 3 percentage points, a performance that ranks in the India Large-Cap category’s 17th percentile. The investment team’s caliber and the presence of an able asset manager in Franklin Templeton only add to the allure. We have no hesitation is giving the fund our Silver rating.