Franklin Templeton bond funds managed by Michael Hasenstab have reportedly lost a total of almost $1.8bn (£1.5bn) in a single day as a result of the manager’s exposure to Argentinian government bonds, which were hit will with a sell-off in the wake of President Mauricio Macri primary elections defeat over the weekend.
Hasenstab has been one of the biggest buyers of Argentine debt, having purchased more than three-quarters of $3bn "Bote" made available in May 2018, with six of his funds building significant exposure to the country's bonds.
However, after the weekend's news investors have fled the assets on fears of a return to populist Peronist rule in October's presidential election, driving the peso down more than 20% against the dollar and the yield on shorter-dated Argentine bonds up to distressed levels.
The likelihood of a debt default in the next five years has also spiralled to 75%.
In the wake of the rout, Hasenstab's $11.3bn Templeton Emerging Markets Bond fund, which has more than 10% exposure to the debt, fell 3.5% cent on Monday (12 August) for a loss of about $400m (£330m), according to FT calculations.
The $17.4bn Templeton Global Total Return fund Class A fell by 2.5% as a result of its 6% exposure for a loss of around $440m (£365m), and the $33.1bn Templeton Global Bond fund saw a decline of 1.8% for a loss of around $592m (£491m). Three of the other funds managed by Hasenstab lost approximately $362m (£300m).
Franklin Templeton is not the only group suffering losses in the sell-off of Argentine debt, with Ashmore Group and Fidelity also being hit with large declines.
JPMorgan analysis shows that "overweight Argentina" was one of the most popular trades at the end of July. Other holders of significant levels of Argentina's dollar-denominated debt include BlackRock, T Rowe Price and Pimco, according to Bloomberg.