Manager Monitor: Martin Cobb, Franklin Templeton Investments Corp.

With markets in a vulnerable state, Cobb has dusted off a few models on various businesses that he’s followed, in particular some severely beaten-up European small-caps.

Indeed, it reminds Cobb of the same malaise that prevailed in 2011, when European markets sold off on fears of the European Union breaking up, but subsequently rebounded in 2012 and 2013. “It’s unusual for markets and currencies to be weak at the same time. Three years ago, we had that scenario. And we see it again. For me, that throws up opportunities.”

One representative holding that reflects Cobb’s investment approach is Leoni AG, the world’s leading maker of cabling systems for cars, based in Germany. “It’s a solidly managed company with a double-digit return on equity,” he says, adding that the firm benefits from long-term contracts and is gradually growing its global market share.

“There’s nothing sexy about it. Just a well-run, simple business, trading at 10 times earnings, slightly over book value, and paying a 4% yield,” says Cobb. “It’s an example of a business we can buy today, but three months ago was 50% higher.”

Born close to St. Andrews, Scotland, Cobb has been in the industry since 1992, when he graduated from the University of Edinburgh with a degree in mathematics and mathematical physics. “I loved the rocket-science part of my education,” says Cobb, recalling that he studied under the eminent scientist Peter Higgs. Yet Cobb had also developed an interest in investing and decided to pursue a career in finance.

Cobb began working as an equity analyst at Gifford Baillie and covered areas such as UK small-caps and global banks. “Being the analyst for Citigroup, it was difficult to figure out how these guys made money because the businesses are so diverse,” recalls Cobb. “Now I look at fairly simple industries. It doesn’t mean they don’t have risks. But they are fairly quantifiable. Small-caps lend themselves to the type of investor that I am. I like to know what I’m buying — and buy it at a big discount to what it’s worth.”

In 1998, Cobb was hired by Stewart Ivory, as it was known, and managed their flagship UK equity fund. Four years later, he joined Scottish Value Management, where he spent 18 months managing a hedge fund. In 2003, Cobb joined Templeton’s Edinburgh office and within a year began managing the firm’s first UK equity fund. After about three years, he moved to the global equity side and became a global energy analyst.

In 2009, Cobb was transferred to Toronto. Two years later, he assumed responsibility for Templeton Global Smaller Companies when its manager, Brad Radin, left the firm. It’s been a trying period for the 2-star rated fund, which has been in the fourth quartile for the last one and three years ended Oct. 31.

Cobb attributes the lagging performance to two key factors. “The sector allocation and concentration was not where I wanted them to be,” he says, noting that he unwound a number of illiquid positions and broadened the sector exposure.

“I’m very happy to put my name on the performance for the last two years, but not the first 15 months,” says Cobb. Turnover has settled down and was 12.6% for the six months ended June 30.

On an aggregate basis, the fund was up about 55% from May 2012 to February 2014, which was comparable to the benchmark MSCI All Country World Small Cap Index. However, the fund has lagged since that time, Cobb admits, because markets have favoured growth stocks. For the 12 months ended Oct. 31, the fund returned 2%, versus 13.3% for the median fund in the Global Small/Mid Cap Equity category.

“My focus is on having an adequately diversified portfolio, and making sure I don’t have a concentration of bets,” says Cobb. “And to be honest, since the summer of 2013 it’s been difficult to find good values. The types of companies I’ve been buying have been more defensive, with lower beta and valuations, in areas such as Europe and Asia — and less in the U.S.”