Holding the nerve on mid-cap focus about to pay off for Franklin Global Growth Fund
Franklin Global Growth Fund’s Patrick McKeegan foresees promising signs for stock pickers as the market breadth widens beyond the tech giants.
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When the Franklin Global Growth Fund’s returns began lagging its benchmark in early 2022, portfolio manager Patrick McKeegan didn’t waver from his investment convictions.
Now, as the investment landscape shifts amid trade wars and a new conflict in the Middle East, McKeegan says the fund’s concentrated portfolio of mid and large-cap companies is poised for a resurgence.
“With mid-caps now standing at more of a valuation discount, as opposed to a premium … things feel primed for areas of the market like ours,” the New York-based fund manager told The Australian while visiting clients this week.
Like many active funds, the Franklin Global Growth Fund – run by Franklin Equity Group, which is part of Franklin Templeton – has lagged its benchmark since 2022 due to the outperformance of the so-called Magnificent 7 US tech stocks, led by Nvidia.
Since 2018, the 12-month forward PE valuations of the MSCI World mid-cap index went from a 7 per cent premium to a 15 per cent discount to the MSCI World large-cap index.
But McKeegan now foresees a compelling opportunity, particularly as the stock market has shown signs of broadening beyond the narrow leadership which has characterised recent years.
However, while maintaining its mid-cap focus, the fund recently made a notable exception by initiating a position in Amazon – one of the Mag 7 stocks.
McKeegan points to the e-commerce giant’s resilience amid potential tariff disruptions.
“People were concerned about that 145 per cent headline tariff amount and how that would impact that,” he said.
About 70 per cent of goods sold on Amazon in the US are made in China, according to a survey by researcher Jungle Scout.
Last month, US President Donald Trump cut the US tariff rate on China to 30 per cent for most goods and to 54 per cent for de minimis shipments of 90 days, pending a lasting agreement.
“During the pandemic, Amazon was very quickly able to reorientate what it was selling to consumers … We were confident that as supply chains realigned, Amazon’s supply chain strength and ubiquity of its marketplace would continue to make it highly relevant for US consumers,” McKeegan said.
The fund has also found opportunity in the cybersecurity sector with Zscaler, which has benefited from consistently strong demand despite global conflicts and uncertainties.
Another recent addition is HubSpot, a customer relationship management software platform that McKeegan believed has potential as a disrupter to Salesforce.com.
“We’re also excited about what they’re doing … to harness the productivity gains of gen AI with agentic AI, and in particular their breeze platform, which assists their customers in producing marketing content,” he said.
The portfolio maintains exposure to medical technology through Intuitive Surgical, whose latest Da Vinci 5 robotic surgery platform features a 10,000-fold increase in computing power over its predecessor. This positions the company to incorporate advanced technologies like augmented reality, which will require artificial intelligence capabilities.
McKeegan’s approach to market disruptions – whether from trade tensions or geopolitical conflicts – follows a methodical process developed during previous crises like the pandemic and the global financial crisis. When tariff tensions escalated in April, his team evaluated portfolio holdings for potential capital impairment risks and structural changes to growth opportunities.
“We came to the conclusion that nothing was structurally impaired,” he said.
Regarding the current Middle East conflict, McKeegan’s fund doesn’t have direct exposure to energy sectors but monitors oil prices for their indirect impact on consumers.
The portfolio does capture some benefit from energy market volatility through holdings like Intercontinental Exchange, which operates an energy derivatives franchise.
As he prepares to assume leadership as group head following a retirement on the team, McKeegan is confident about the portfolio’s positioning.
“Some of those market style headwinds are now looking more balanced,” he said.
“We’ve been focused on sector optimisation with some of the new hires that we’ve had recently, including a healthcare analyst.”
For Australian investors seeking global exposure, McKeegan’s message is clear: the era of market narrowness dominated by a handful of mega-caps may be giving way to a broader opportunity set – one that could favour skilled stock pickers with differentiated insights into the mid and large-cap universe.
Originally published as Holding the nerve on mid-cap focus about to pay off for Franklin Global Growth Fund
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