SOURCE: Franklin Templeton

Franklin Templeton

September 29, 2015 10:15 ET

Franklin Templeton and K2 Advisors Introduce Liquid Alternative Long Short Credit Fund for US Investors

Diversified Offering Seeks Total Return With Lower Portfolio Volatility

SAN MATEO, CA--(Marketwired - Sep 29, 2015) - Franklin Templeton Investments today announced the launch of Franklin K2 Long Short Credit Fund (NASDAQ: FKLSX) (Class A), 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 upon 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," said 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," said Rick Frisbie, 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 Income1. The underlying managers may invest in, among other investments, corporate bonds; mortgage-backed securities and asset-backed securities; US Government and agency securities; collateralized 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.

The Fund's initial set of sub-advisors2 includes:

  • Apollo Credit Management LLC
  • Candlewood Investment Group, L.P.
  • Chatham Asset Management, LLC
  • Ellington Global Asset Management, L.L.C.

Important Information about the Fund
All investments involve risks, including possible loss of principal. The market values of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. The Fund's performance depends on the manager's skill in selecting, overseeing, and allocating Fund assets to the sub-advisors. The Fund is actively managed and could experience losses if the manager's and sub-advisors' judgment about particular Fund portfolio investments prove to be incorrect. Some sub-advisors may have little or no experience managing the assets of a registered investment company. Bond prices generally move in the opposite direction of interest rates. Changes in the financial strength of a bond issuer or in a bond's credit rating may affect its value. Lower-rated or high yield debt securities ("junk bonds") involve greater credit risk, including the possibility of default or bankruptcy. Liquidity risk exists when securities become more difficult to sell, or are unable to be sold, at the price at which they've been valued. Investments in derivatives involve costs and create economic leverage, which may result in significant volatility and cause the Fund to participate in losses (as well as gains) that significantly exceed the Fund's initial investment. The Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Please see the prospectus and summary prospectus for information on these as well as other risk considerations, including the risks of foreign investments.

Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN /(800)342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money.

About K2 Advisors
K2 Advisors provides integrated hedge fund and alternative investment products and solutions covering multiple strategies to institutional and high net worth investors as well as liquid alternative fund offerings for retail investors worldwide, with over $10 billion in assets under management as of June 30, 2015. Products and services offered include single investor custom-tailored investment programs, commingled funds of hedge funds, and strategic advisory relationships. The Stamford, CT-based company has a global presence with 120 dedicated personnel based in New York, London, Tokyo, Hong Kong and Sydney. For more information, please visit www.k2advisors.com.

About Franklin Templeton Investments
The Fund's principal underwriter is Franklin Templeton Distributors, Inc., a wholly-owned subsidiary of Franklin Resources, Inc. (NYSE: BEN), a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management to retail, institutional and sovereign wealth clients in over 150 countries. Through specialized teams, the Company has expertise across all asset classes -- including equity, fixed income, alternative and custom solutions. The Company's more than 600 investment professionals are supported by its integrated, worldwide team of risk management professionals and global trading desk network. With offices in 35 countries, the California-based company has more than 65 years of investment experience and approximately $806 billion in assets under management as of August 31, 2015. For more information, please visit franklintempleton.com.

Connect with Franklin Templeton on Twitter (@FTI_US), Facebook and YouTube (FranklinTempletonTV).

1. The principal investment strategies to be used by the sub-advisors include, but are not limited to, the following:

  • Credit Long Short strategies are designed to profit from pricing inefficiencies in corporate fixed income and related securities. The strategies focus on total return through current income, capital preservation, and capital appreciation. Sub-advisors take long and/or short positions in debt securities and other related instruments based on a fundamental analysis of the creditworthiness of a specific issuer or sector. By utilizing both long and short investments, sub-advisors seek to isolate issuer-specific exposure while limiting general market risks. A sub-advisor that employs this strategy may attempt to profit from investing in all aspects of a company's capital structure or by investing in securities of companies undergoing corporate events through both long and short positions.
  • Structured Credit strategies are designed to profit from trading in structured credit and other related securities. Investments include residential and commercial mortgage mortgage-backed securities, REITS, credit default swaps on various indices, including tranches thereof, collateralized loan obligations, asset-backed securities (including those backed by student loans and aircraft operating leases), and interest-rate sensitive securities, such as agency residential mortgage-backed securities. Sub-advisors attempt to take advantage of pricing inefficiencies in specific securities through both primary and secondary markets. Sub-advisors employ both fundamental and technical analysis in identifying mispricings. These strategies typically feature long positions in individual securities and short positions in index products, which are intended to hedge out some portion of the broad market risk.
  • Emerging Market Fixed Income strategies invest in corporate and/or sovereign securities in emerging markets countries with a focus on fixed income. Investments may also include foreign exchange and interest-rate sensitive securities, such as interest rate futures, swaps and swaptions. Sub-advisors combine top-down country analysis with security-specific financial and legal analysis to identify mispriced assets. These strategies aim to manage and exploit the increased volatility characteristic of emerging markets.

2. These sub-advisors are those which are managing the assets of the Fund as of September 28, 2015. K2 Advisors may add or subtract sub-advisors in the future, subject to approval of the Fund's board of trustees.

Copyright © 2015. Franklin Templeton Investments. All rights reserved.

Contact Information

  • Contact:
    Franklin Templeton Investments
    Corporate Communications:
    Craig Allen
    (212) 632-4238
    Stacey Coleman
    (650) 525-7458
    franklintempleton.com