Franklin Strategic MortgageFSMIX

Morningstar Rating

Fund Research and Analysis

by Katie Rushkewicz

Franklin Strategic Mortgage won't always be on such a roll.

The housing market has stayed afloat during the past year thanks to the government's unprecedented intervention. The Federal Reserve has already spent nearly $1 trillion buying mortgages backed by government agencies Fannie Mae and Freddie Mac. Read more

Kudos

Experienced management.

Low volatility.

Above-average yield.

Low expenses. Read more

Risks

The fund's exclusive mortgage focus makes it vulnerable to spikes in interest rates and mortgage prepayments, or when this sector underperforms others. Read more

Strategy

Manager Roger Bayston primarily invests in mortgage-related securities here, but within that mandate he has the freedom to range broadly. The fund can invest not only in the plain-vanilla mortgage pass-through bonds issued by government-supported or -sponsored agencies (such as Ginnie Mae, Fannie Mae, and Freddie Mac), but also in commercial mortgage-backed securities and CMOs, home-equity and manufactured-housing asset-backed securities, and nondollar foreign mortgage securities. Read more

Management

Seasoned manager Roger Bayston has led the fund since its 1993 inception and is now assisted by comanagers Paul Varunok and David Yuen. Bayston also ably manages venerable Franklin U.S. Government Securities FKUSX, as well as other mortgage-related funds and accounts at Franklin. Read more

Inside Scoop

This fund differs from many intermediate-term bond peers with its near-exclusive mortgage focus. It tends to have a higher credit-quality profile than peers, though prepayments are a significant risk. Read more

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