FUND PROFILE: FRANKLIN GLOBAL COMMUNICATIONS FUND
Look at the portfolio of this top-performing utility fund and what you won't find are your father's favorite phone and electric stocks.
During the last quarter of 1999, the Franklin Global Communications fund, (800-342-5236) was up 34.38 percent. For all of 1999, the fund skyrocketed nearly 52 percent, ranking it No. 2 out of 100 similar funds, according to Lipper, Inc. The 1-year total return average for the group was 15.82 percent.
How did this fund rack up such good returns. Perhaps because it has shed the traditional gas, water, and electric utility image for the happening world of global telephone and wireless companies.
"In the 70s, if you said "utility" you could be talking PG & E or FPL. Our definition of is broader, " says Ian Link, portfolio manager of Franklin's Global Communications Fund. "A utility company is any company that provides a life-sustaining service, if you will. Which is electric, gas, water, and now telephone and cellular."
Last year the fund also changed its name. When it originally came out in 1992, it was called the Franklin Global Utilities Fund. Now, this newly named Franklin Global Communications Fund provides investors with a clearer view of where it invest its assets. At year-end, for example, over 67 percent of its assets were invested in telephone services and wireless service companies reflecting management's picks and the changes in the make-up of global utility indices.
"The global utilities index that we look at had migrated over the last five years from roughly 50/50 electric and telephones, to 73 percent telecom and only 27 percent electric," says Link.
Currently the about 88 stocks in the fund's portfolio range in size from household names like AT & T and MCI Worldcom to smaller less familiar ones such as Primus Telecommunications. There are also competitive local exchange carrier companies, (CELEX), in the portfolio too like Mccleod Communications and Nextlink.
Link is big on digital. He said that the cellular penetration rate in the U.S is currently about 30 percent." In Norway and Finland its' almost 70 percent."
One reason for that high usage abroad is quality---cellular network gets so good that people don't use their home phones as much and transfer calls to their cell phones. And cost: The law of large numbers makes it much more profitable to have 70 percent of the people using cell phones with lower bills than 30 percent usage and higher bills. Link sees the US cellular penetration rates growing as high as 40 percent by year-end on its way to 70 percent four or five years from now.
What attracts him to a company is its positioning; management; and how interesting and "sexy" its products are relative to their competitors. Companies Links says are sexy include national digital networks like Sprint PCS or the one AT & T is bringing public within the next few months.
But as hot as the telecom and wireless worlds are today, this fund is best suited for aggressive investors. Emerging companies in any portfolio always add an element of risk and then there's the economy. Good times ahead aren't guaranteed.
Plus, should an old-fashioned recession hit that cell bill might not be the first one to get paid.
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