Philippe Brugère-Trélat has made few significant changes in the holdings of the $531-million Mutual Discovery 
since taking over the fund late last year, but he's had a more positive outlook for the markets than his predecessor, Anne Gudefin.
"Anne took a dim view of markets in late 2007 and early 2008 and moved substantially into cash. It was well over 30%," says Brugère-Trélat, executive vice-president, Franklin Mutual Advisers, LLC, a Short Hills, N.J.-based affiliate of Franklin Templeton Investments Corp.
This very cautious approach served the fund well in 2007, when the Canadian version returned 3.8% versus the median 4.3% loss for the Global Equity category. It also helped the fund in 2008 when its 26.3% loss was less severe than the median loss of 29%.
However, cash was a drag on performance last year when markets turned. The fund returned 13.9%, lagging the 16.7% median return of its category peers.
By the time Brugère-Trélat and co-manager Peter A. Langerman, CEO of Franklin Mutual, took over on Dec. 7, cash had fallen to the high 20s. They made no changes to the portfolio construction of the fund, which has about US$22 billion in all of its versions and constitutes more than one-third of Franklin Mutual's US$59 billion in assets under management.
"We all wear the same glasses when we look at stocks," says Brugère-Trélat. He notes, for instance, that the European names were the same as those in the European portfolio that he has run for five years. "There was, excuse the pun, no discovery process. Ninety-nine per cent of the portfolio was very well known to us."
Still, the managers began to invest the cash, which is now down to less than 10%. "There were more new names than existing ones," says Brugère-Trélat. "I've been asked, 'How could you do this in a very strong market, between December and Easter'? I said, 'The nature of the rally was a high beta-driven market.' The market left behind value stocks that had a much lower beta, but were quality names that were not fashionable."
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Brugère-Trélat and Langerman added to or acquired food, beverage and tobacco stocks, as well as a few financials. Consumer-staple names meet their value criteria: consistent cash generation, established business models, strong balance sheets, and shareholder-friendly managers that return excess capital to shareholders. "These are the boxes we like to tick," he says, adding that Langerman chooses American names, while Andrew Sleeman selects Asian holdings.
British American Tobacco PLC is one holding they added to. "It's one of the rare tobacco companies that is growing its top line because of its emerging-markets exposure," says Brugère-Trélat, adding that the stock has a 5% dividend yield. "It's an 'eat well, and sleep well' kind of stock."
In co-managing the 5-star-rated Mutual Discovery, Brugère-Trélat limits single holdings to 3%. Portfolio turnover has been low, at 20% in 2009. So far this year, through the end of July, the fund has returned 0.6% in a declining market, outperforming the median 3.7% loss in the Global Equity category.
A native of Madagascar, Brugère-Trélat is a 38-year industry veteran. After studying law and political science at the University of Paris, where he graduated with a master's degree in 1972, he landed his first job as a trainee at Banque Worms, in Paris.
Between 1976 and 1984, Brugère-Trélat worked for the bank's London office, arranging European-currency syndicated loans. After the bank was nationalized by the French government, he accepted an offer to join Mutual Shares.
At the time, the boutique firm was run by Michael Price and founder Max Heine. The two wanted to apply their value methodology in choosing European stocks, and hired Brugère-Trélat as an analyst.
Ten years later, Brugère-Trélat moved to the New York-based hedge-fund manager Omega Advisors Inc., where he managed a European portfolio. Between 1996 and 2004, he was president and portfolio manager of Eurovest. From his New York base, he managed a French-registered mutual fund that was invested exclusively in European stocks.
In 2004, Brugère-Trélat rejoined Franklin Mutual, as it came to be known. Since then, he has managed both U.S. and Luxembourg-registered versions of Mutual European.
While Brugère-Trélat is reluctant to forecast markets, he acknowledges that global economies face serious head-winds. "But most important for me, the situation is not all bad at the company level. The message from companies is still positive."
One example is Daimler AG. Besides building luxury cars, the German firm is also the world's largest truck manufacturer. Although that unit has been unprofitable, Brugère-Trélat is optimistic about Daimler's re-structuring program. He added that name to the fund last winter because it represented good value. "What we expected (in the re-structuring) has started to happen," he says.
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