Franklin Templeton Investments has launched Franklin K2 Long Short Credit Fund (FKLSX), a multi-manager fund that invests in a variety of credit strategies sub-advised by institutional-quality hedge fund managers.
The fund provides investors with access to a select group of hedge fund managers in a single diversified portfolio, while providing daily liquidity.
Building on Franklin Templeton's strategic acquisition of hedge fund solutions provider K2 Advisors in 2012, the US-registered Fund expands the firm's liquid alternative fund offerings. Like the Franklin K2 Alternative Strategies Fund launched in 2013, this new Fund seeks to provide investors attractive risk-adjusted returns, while providing a tool that may help dampen portfolio volatility, with a lower correlation to traditional long-only fixed-income strategies.
"We are excited to introduce the Franklin K2 Long Short Credit Fund as it provides retail investors access to further alternative sources of total return, using the investment and risk management process K2 Advisors has employed on behalf of its institutional clients worldwide for more than two decades," says David Saunders, the Fund's co-lead portfolio manager and founding managing director of K2 Advisors, part of Franklin Templeton Solutions. "For investors looking to complement their overall portfolios with a diversified, multi-manager approach with less correlation to traditional long-only fixed-income holdings, we believe this Fund can be an important tool."
Franklin K2 Long Short Credit Fund's goal is to provide total return over a complete market cycle through a combination of current income, capital preservation and capital appreciation by investing in a broad range of credit-related investments through experienced alternative strategies managers. K2 Advisors continually adjusts the Fund's allocations to these strategies and sub-advisors to reflect the team's top-down market views, with underlying managers possessing the flexibility to execute high conviction positioning though the use of both long and short strategies.
"In a potentially rising rate environment, US investors who invest in fixed income for diversification and risk mitigation purposes are potentially taking on more interest rate risk than their goals would dictate and may be open to looking for new ways to diversify their portfolio," says Rick Frisbie (pictured), EVP, head of Franklin Templeton Solutions. "With credit spreads tight relative to historical averages, investors may not want as much credit risk exposure by being long-only high yield or investment grade debt, and may want a more flexible long/short approach."
The Fund will allocate to a variety of hedge fund managers selected by K2 Advisors through a rigorous, proprietary due diligence process. The strategies employed by the initial underlying hedge fund managers may include Credit Long Short, Structured Credit, and Emerging Market Fixed Income. The underlying managers may invest in, among other investments, corporate bonds; mortgage-backed securities and asset-backed securities; US Government and agency securities; collateralised debt and loan obligations; foreign government and supranational debt securities; loans and loan participations and derivatives with similar economic characteristics. The fund may also invest in mortgage dollar rolls, repurchase agreements, reverse repurchase agreements, mortgage real estate investment trusts (REITs) and other similar transactions.
In addition to Saunders, the Fund's management team includes co-lead managers Robert Christian, senior managing director and head of investment research, Jeff Schmidt, managing director of portfolio construction and Charmaine Chin, managing director at K2 Advisors.
