Glenn Freeman: I'm here on the sidelines of the Morningstar Investment Conference. I'm joined today by Michael Hasenstab from Franklin Templeton.

Now, Michael, you had a lot of very interesting things to say today. You were talking about the macro environment and your outlook for US interest rates. Can you just cover off there what your outlook is for the remainder of 2018?

Michael Hasenstab: Our outlook for 2018 and likely beyond is for US interest rates to go meaningfully higher. We have a perfect storm of reasonably supportive growth that's likely to accelerate later in the year because of deregulation and tax cuts. We have rising inflationary trends that are both cyclical because of a tight labor market and structural because of trade tariffs and anti-immigration dynamics. We have rising fiscal deficits and we have the Fed no longer financing 25 per cent of our net debt per year. So, all of those factors are now converging and that's why we have seen rates higher, but they need to go meaningfully higher.

Freeman: So, do you see, say, another three rates rises for the remainder of 2018, or…?

Hasenstab: We don't focus as much on the number or speed of rate hikes because that controls the front end of the curve. Our positions are short 10 and 30-year treasuries, which are more driven by funding, supply/demand dynamics as well as inflationary trends. But certainly, the Fed is on a tightening path. Two, three, it really doesn't affect us.

Freeman: And ESG is something that we hear a lot about at the moment and it's just building. You were talking about some markets that are probably outside investors' sort of areas of knowledge in terms of ESG, Argentina for one, India for another. Can you just reiterate what you were saying there?

Hasenstab: The traditional and conventional wisdom on ESG is using a screen. Ranking countries, good environmental, social and governance dynamics versus bad. But what that really does is select high-income countries that look good because they have the resources to do those factors and it excludes the poor or middle income countries. We don't think that is consistent with where to get returns. So, for example, Denmark is one of the highest ranked ESG countries. However, Denmark doesn't need more money. And the returns to lending to Denmark are almost negligible.

Conversely, we have taken an approach of using a proprietary model to project ESG scores. We don't exclude any country no matter where they rank on a level basis. We are looking for where countries will be in three years. So, in that respect, a country like Argentina, which ranks fairly low today, but is projected to improve dramatically, both will be consistent with better investor returns, but also a better welfare for the country.