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Is Templeton Global Smaller Companies A (TEMGX) a Strong Mutual Fund Pick Right Now?

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There are plenty of choices in the Small Cap Value category, but where should you start your research? Well, one fund that may not be worth investigating is Templeton Global Smaller Companies A (TEMGX - Free Report) . TEMGX bears a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Small Cap Value mutual funds is an area filled with options, such as TEMGX. Small Cap Value funds invest in small companies with stock market valuation less than $2 billion. These funds offer more bang for an owner's buck, providing low P/E ratios, high dividend yields, and better-than-average P/S ratios.

History of Fund/Manager

Franklin Templeton is responsible for TEMGX, and the company is based out of San Mateo, CA. Since Templeton Global Smaller Companies A made its debut in June of 1981, TEMGX has garnered more than $1.08 billion in assets. Harlan B. Hodes is the fund's current manager and has held that role since December of 2007.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 1.7%, and is in the bottom third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 5.98%, which places it in the middle third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of 9.42%, the standard deviation of TEMGX over the past three years is 12.66%. Over the past 5 years, the standard deviation of the fund is 12.86% compared to the category average of 9.84%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

It's always important to be aware of the downsides to any future investment, so one should not discount the risks that come with this segment. In the most recent bear market, TEMGX lost 62.2% and underperformed comparable funds by 9.58%. This means that the fund could possibly be a worse choice than its peers during a down market environment.

Nevertheless, with a 5-year beta of 0.95, the fund is likely to be less volatile than the market average. Alpha is an additional metric to take into consideration, since it represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which in this case, is the S&P 500. Over the past 5 years, the fund has a negative alpha of -6.77. This means that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Expenses

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, TEMGX is a load fund. It has an expense ratio of 1.32% compared to the category average of 1.13%. So, TEMGX is actually more expensive than its peers from a cost perspective.

While the minimum initial investment for the product is $1,000, investors should also note that there is no minimum for each subsequent investment.

Bottom Line

Overall, Templeton Global Smaller Companies A ( TEMGX ) has a low Zacks Mutual Fund rank, weak performance, average downside risk, and higher fees compared to its peers.

Your research on the Small Cap Value segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.


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