Templeton’s Hasenstab Lost $3 Billion In Q3

There is a saying around trading desks: bull markets make geniuses out of the biggest idiots, and when it comes one of the world’s most famous “traders”, we just saw that in saying in action.

Two months after we reported that Templeton’s “investing wudnerkind” Michael Hasenstab, who for nearly a decade during the most artificial bull market in history had a knack of investing in the crappiest bonds around the globe and betting they would get bailed out by one or more central banks – which is precisely what happened… until this summer, lost over $1 billion as a result of the spectacular implosion in Argentina bonds, Bloomberg today writes that the flagship Global Bond Fund of the $720 billion mutual fund Franklin Templeton, lost $3 billion in the third quarter as two of its biggest investments soured.

Total net assets in the fund managed by star investor Michael Hasenstab dropped from $33 billion to $30 billion in the three months through September, an analysis of public filings showed.

As we reported previously, Hasenstab was heavily invested in Argentinian local-currency bonds which defaulted in August. Adding insult to injury, the fund also held a huge short position on U.S. Treasuries as yields dropped to a three-year low.

As Bloomberg notes, it’s not the first time Hasenstab who inexplicably oversees more than $100 billion, and who as we said in 2015 “‘Famous’ Bond Investor Turns Out To Be Nothing More Than A Glorified BTFDer” – has been wrong-footed. But he’s rarely been caught in two poorly-performing bets at the same time.

Even more inexplicably, and confirming its entire fund rating system is one giant farce, Morningstar said in August it would stick to its top analyst rating for his fund despite the barrage of bad news because of its track record of picking winners in the long term. We wonder if they will change their mind now.

The fund has returned a dismal 2.4% in the past three years, as Hasenstab has been chronically wrong on most big picture wages, so wrong in fact one wonders how on earth he got to manage $1 million, let alone $100 billion: for one, he has consistently argued that economic strength in the U.S. will make today’s low-yielding bonds less attractive, despite 10Y yields recently dropping to all time lows, amid speculation the US economy is headed for a recession. He also predicted that former Argentinian President Mauricio Macri would win re-election this year and continue to pursue policies aimed at curbing the budget deficit and stabilizing the currency. He was dead wrong, and it cost his investor plenty.

So just how bad is Hasenstab’s track record now that the tide is going out and it is clear to everyone he was naked all along? So bad that one of the world’s “best known” fixed income investors is underperforming more than 80% of peers this year, losing 1% compared with a return of about 7% from Treasuries.

Meanwhile, as US rates remain near all time lows, the Fed remains short Treasurys: the fund’s average duration fund increased fractionally, but remained negative (i.e. short) at minus 1.39 years as of the end of September. At the end of June it was a record low of minus 2.82 years. Which means that absent some massive inflationary impulse, for Hasenstab’s clients the record Q2 loss is just the beginning.