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With $1.5 trillion in assets, Franklin Templeton is among America’s top 10 asset managers, and growing. Over the last few years, the firm has acquired asset manager Legg Mason, custom index provider O’Shaughnessy Asset Management, and secondary private equity investor Lexington Partners, among others. President and CEO Jenny Johnson says it doesn’t end there. She’s focused on bolt-on acquisitions in technology and alternatives to fill product gaps in Franklin Templeton’s business.
Johnson sat down with CNBC’s Delivering Alpha newsletter in an exclusive interview where she also discussed the firm’s active management strategy and made the case for implementing blockchain technology.
(The below has been edited for length and clarity. See above for full video.)
Leslie Picker: I want to kick things off on the macro front, because there are a lot of questions out there. With such an inflection point for inflation and for monetary policy for factor-based investing, volatility, what are you seeing within your vast, diverse portfolio right now?
Jenny Johnson: It’s no question, it’s a difficult time. And I would say the good news is, in times of great volatility, active management pays off. And we’re really an active management – 1.5 trillion – really an active management. So, it’s times like these that you find value. I think the challenge is, there is a lot of mixed signals. You have the obvious headwinds of inflation. The 50 basis points Fed raise has been the highest in 20 years and we’re looking at a couple of more coming up. I think they indicated today that we’re probably [looking at] two more increases, maybe even three, and then take a pause. So, you’re going to have this great rise in rates, you have with the war in Ukraine. I was at the Milken conference last week and sort of the scary part of that was kind of the message was the best-case scenario is almost a frozen war, which means you’re going to have an impact on energy prices for a long period of time. Food supply is going to be another headwind. And then of course, we have China’s lock down and the zero COVID policy which is affecting supply chain. So those are your big kind of headwinds.
And then the tailwinds is [the] consumer’s still pretty flush, probably more flushed than they were pre-COVID. So that’s good. You’ve got the big tailwinds of the demographics in Asia, you have technological innovation. And so, to be honest, what I say to people is it’s easier to swim with the tide, the way it’s flowing. So, find areas where there’s opportunity, things like as people are doing nearshoring of supply chain, trying to figure out where there’s opportunities there. I think that the technological innovation, I think things around genomics is really impressive. I think things around precision farming, as people are trying to take more control over their food supply chain, as we see it. Now, those are not in the immediate term. It’s going to take some investment, but I think you want to get behind where the opportunities are. I think Web 3.0 is another big opportunity.
Picker: I’m curious what you’re seeing with regard to flows right now, given all of those confounding factors affecting investing right now. Are you seeing greater interest in the active products or do you see more interest in passive where people just kind of want to ride out the tide, pay a lower fee and then kind of turn back to the market maybe in a couple years or so and see how it’s done?
Johnson: I think flows are down across the board. I think what we’ve seen is active outperforming more. Part of that is you just look at the shift to it. I mean, the NASDAQ is down more than twice as much as the Dow, so, sort of your value growth switch…but I think across the board, people are nervous. And so, you see people holding back on the fixed income side. You see people doing bank loans, floating rate, short duration, because they know rates are going to go up and obviously that’s a really difficult time for fixed income. So, to the extent they can stay, keep flexibility. Credit really matters now. Companies that have good balance sheets, good cash flow. Again, that’s why I think you don’t see the Dow down as much because they tend to be more […]
source Franklin Templeton CEO Jenny Johnson says active management pays off during extreme volatility