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‘Do we even need QE3?’ asks top bond manager

‘Do we even need QE3?’ asks top bond manager

The need for the Federal Reserve to turn on the printing press again is very much up for debate and the media fixation obscures the positive impact low interest rates is having on US growth.

That is the view of Eric Takaha, portfolio manager on the Templeton Fixed Income group and co-manager on two of the firm’s leading bond funds.

Talk of a third round of QE3 has gathered pace in recent weeks with leading managers, such as Bill Gross, suggesting the policy announcement is nearly upon us. However, Takaha questioned this.

‘Could QE3 have an impact if it does or doesn’t happen? It’s possible. Frankly, the bigger impetus is really the low short-term rates, and that’s been in place for some period of time,’ said Takaha in a market commentary.

‘The Fed has been pretty clear that’s going to remain in place at least until 2014 - maybe even past 2014. And we think that’s been very supportive for the overall financial markets, particularly the fixed income markets, by keeping that overall weight on the very low side in terms of short-term rates.’

The fund manager added this preference for low rates also holds true in Europe, as well as other developed markets, given their economic issues and very low inflation.

‘We don’t see a lot of impetus for raising short-term rates in those areas, either. So, we feel, even without QE3, the financial markets can continue to move forward. It would probably be a slight positive if it occurred, but we don’t know necessarily if it’s a high likelihood at this stage.’

Takaha co-manages the $519 million Franklin Strategic Income fund alongside Citywire AA-rated duo Chris Molumphy and Kent Burns. He also co-runs the Templeton Global High Yield fund alongside Michael Hasenstab.

Real impact

While Takaha believes short-term interest rates are currently a good thing, he questioned the actual, real impact of QE on the US economy.

‘Everyone talks about QE1 and QE2 and what QE3 may or may not do. Well frankly, it’s hard to decipher what the real impact from the first two quantitative easing measures was on the overall economy and on the financial markets.’

‘They certainly were positive, but in terms of the actual impact, it’s little bit harder to really parcel that out,’ he said.

The Franklin Strategic Income fund is largely focused on the US market, with 58% of the fund allocated here. It has returned 42.11% over the past three years while its benchmark, the Citigroup WGBI TR USD, has risen 19.54% in the same period.

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