Templeton Global Growth Fund Ltd

Transcription

1 Investor Briefing March 2018

2 2 Agenda Key Results Update on Company Strategy Market Insights and Investment Portfolio Update Q&A

3 3 Key Results

4 4 Key Results Half Year to 31 December 2017 Earnings Per Share (EPS) for the period ended 31 Dec: Ordinary Profit after tax Comprehensive Income after tax 2017: 0.4 cents 7.6 cents 2016: 0.4 cents 13.8 cents Fully Franked Final dividend of 4.5 cents per share paid 22 September 2017: of which there was a 4.5 cents per share LIC capital gains component No interim dividend was declared by the Directors Dividend policy indicates 4.5 cents per share Retained Earnings Dividend coverage 124%

5 5 Key Results Half Year to 31 December 2017 Post Tax Pre-Tax NTA $1.46 per share $1.53 per share Share Price $1.415 $1.415 Discount (3.1%) (7.9%) Performance 6M 1 YR 3 YR 5 YR TGG Pre-Tax Gross 8.3% 14.4% 10.0% 17.1% TGG Pre-Tax Net of Fees 7.5% 13.1% 8.7% 15.7% Benchmark 9.1% 14.8% 11.0% 17.3% TGG Total Return 9.3% 21.3% 4.7% 17.7% Note: Returns are annualised for 1,3,& 5 years

6 6 Current Position 28 February 2018 POST TAX PRE-TAX NTA $1.47 per share $1.54 per share Share Price $1.405 $1.405 Discount (4.6%) (9.1%)

7 7 Update on Company Strategy

8 8 TGG Company Strategy Mission: To provide Australian investors with a well managed and cost effective investment vehicle to gain access to world equity markets Priorities for the Board: Long term investment performance based on value investment approach Cost effective For TGG shares to trade at or close to NTA over time Minimum Dividend Yield of 3% per annum, with franking and LIC gains to the extent possible

9 9 Shareholder Engagement Program Beginning of 2016, trialled Investor Briefings in Sydney, Melbourne and Perth From 2017, we have held Annual Investor Briefings in all mainland capital cities In 2016, commenced mail-out to all shareholders and brokers/advisers of quarterly investment manager report Teleconference for investors and brokers/advisers following announcement of annual results in August Video of AGM available on Company website

10 10 Buyback During 12 months to February 2018, bought back 4,788,750 shares, representing 2% of capital Shares bought back added 0.2% value to shareholders Board has approved extension of the buyback in 2018

11 11 Market Insights and Investment Portfolio Update

12 Paying a Higher Price for Better Fundamentals All Major Economies are now Growing 12 Number of major economies expanding As of 24 th August 2017 Source: OECD, Wall Street Journal. Note: 2017 is a forecast based off first and second quarter data for most countries

13 Paying a Higher Price for Better Fundamentals Earnings were Strong in 2017, 2018 is Following 13 Global EPS Growth Rate (Estimates) Source: Citi Research, Factset Consensus Data

14 Paying a Higher Price for Better Fundamentals But Price-to-Book Ratios have risen Price to Last Twelve Months Book Value As of 31 st January, 2018 S&P 500 MSCI Europe MSCI Japan 3.4x x x 1.4x 1.9x 1.5x Source: Factset

15 Some Signs of Speculation 15 Bitcoin XIV Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: 1. Bitcoin.com; 2. Factset

16 US Stimulus Arriving At The Wrong Time 16

17 Central Banks are Taking Away the Punchbowl 17 Source: Credit Suisse, the Bloomberg Professional service, DoubleLine

18 18 Investment Portfolio

19 19 Templeton Global Growth Fund As of 31 st December, % North America 17% Eurozone PORTFOLIO GEOGRAPHIC-SECTOR WEIGHTINGS As At 31 st December, % Non-Euro Europe 1% Other 22% Asia Financials Health Care Info. Tech Energy Industrials Consumer Disc Telco. Services North America Materials Eurozone Non-Euro Europe Consumer Staples Asia Real Estate Other Utilities Weightings as percent of equity. Percentage may not equal 100% due to rounding.

20 Where is the Value? Europe still an Under-valued Market 20 Europe/US: sector adjusted P/B gap As at 31st January % 0% -5% -10% -15% -20% -25% -30% -35% -40% -45% +1 SD -1 SD Recession Recession Today Source: Thomson Datastream, UBS European Equity Strategy

21 Where is the Value? There are Still Opportunities in Financials (but you need to look harder) 21 U.S. Banks Price-to-Book Value 1 As of 31 December European Banks Price-to-Book Value 2 As of 31 December (Price-to-Book Value) x Long-Term Average = 1.4 (Price-to-Book Value) x 1.4x Long-Term Average = % Upside Potential if P/B Mean Reverts 44% Upside Potential if P/B Matches U.S. LT AVG Source: Anthony Saunders & Berry Wilson, Impact of consolidation and safety net support on Canadian, US and UK banks, (1999). Michael Keeley, Deposit Insurance, Risk and Market Power in Banking (1990). FDIC History of the 1980s. Datastream, SNL. Autonomous Research. * ignores war years, and one-off years at below 1xBV. 2. Source: FactSet, MSCI. Data from January 31, 1995 to September 30, MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.

22 Where is the Value? Growth at a Value Price in Health Care MSCI AC World Pharmaceuticals & Biotechnology Index As of 31 st December, Consensus P/E (N12M) Johnson & Johnson Pfizer Roche Novartis AbbVie % -10% 0% 10% 20% 30% 40% 50% Consensus EPS Growth + Div Yield Source: FactSet, MSCI. Blue dots are portfolio holdings. Green dots are constituents of the MSCI AC World Pharmaceutical index that are not portfolio holdings. Constituents lacking consensus estimates, or with extreme values as defined by lying outside the chart axis, are not shown. EPS growth shown for year after next 12 months. Companies named are the largest 5 by free-float market capitalisation. Bubble size is an illustration of portfolio holding size.

23 Where is the Value? Still there in Shell, Despite the Promise (Threat) of EVs 23 Attractions of Shell today - Acquisition of BG makes Shell the global leader in LNG - Shell raised their Free Cash Flow (FCF) targets by 20% - Gearing expected to hit 20% target in FCF target for 2021 at $65 oil delivers a 10% FCF yield - 6% dividend yield for 2018 Source: Factset, Company filings.

24 Market leading SaaS and Cloud Provider 24 Why we bought - Market concerns about the consumer division (but only ~5% of sales) - Underappreciated Microsoft s enterprise software business - Great long term potential to transition to a subscription based model - Core business was trading at ~16x FY1 PE Why it worked - Transition to cloud continues; commercial cloud almost 20% of revenues (up 56% y/y) - Revenues are more predictable/sticky with Office customers on a subscription model - Microsoft continues to aggressively return cash through buy backs and dividends Initiated position Mar 06 Trimmed Nov 16 Dec '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Microsoft Corporation - Price Source: Factset, Company filings.

25 25 Unloved British Bank and Card Company Why we bought - Under-valued after significant management turnover and ongoing regulatory pressure - Businesses deserve a premium to Tangible Book Value (TBV) as the value of the core UK and Card businesses became clearer - Valuation was ~0.9x FY1 P/TBV - Have added to positions after the initial purchase Why it hasn t worked - Despite boosting capital from the closure of non-core and sale of Barclays Africa, the share price has gone backwards - The market has punished the stock after CEO proposed redeploying capital in the Investment Bank - A number of legal issues remain outstanding Initiated position Mar '13 '14 '15 '16 '17 Barclays PLC - Price Source: Factset, Company filings.

26 Templeton Global Growth Fund Performance 26 Templeton Global Growth Fund vs. MSCI All Country World Index As at 31 st December, Performance Returns (%) Months 1 Year 3 Years 5 Years 10 Years Templeton Global Growth Fund - Gross of Fees & Expenses Templeton Global Growth Fund - Net of Fees & Expenses MSCI AC World Index (Net Dividends) AUD Periods of more than one year are annualised. Benchmark is presented net of dividends reinvested. Past performance does not guarantee future results and results may differ over future time periods.

27 Templeton Global Growth Fund Top Ten Holdings 27 As at 31 st December, 2017 Name of Issuer Country Industry % of Fund MICROSOFT CORP United States Software & Services 2.4 SAMSUNG ELECTRONICS CO South Korea Technology Hardware & Equipment 2.4 ORACLE CORP United States Software & Services 2.2 ROYAL DUTCH SHELL PLC BP PLC United Kingdom United Kingdom Energy 2.1 Energy 2.1 ALPHABET INC United States Software & Services 2.0 CITIGROUP INC United States Banks 1.8 JPMORGAN CHASE & CO United States Banks 1.7 SOFTBANK GROUP CORP Japan Telecommunication Services 1.7 APPLE United States Technology Hardware & Equipment 1.6 TOTAL 20.0

28 Templeton Global Growth Fund Sector Allocation 28 Templeton Global Growth Fund vs. MSCI All Country World Index As at 31 st December, 2017 Financials Health Care Information Technology Energy Industrials Consumer Discretionary Telecommunication Services Materials Consumer Staples Real Estate Utilities 0% 5% 10% 15% 20% 25% Templeton Global Growth Fund MSCI All Country World ex-aus Source: Morgan Stanley Capital Index (MSCI). All MSCI data is provided as is. The Fund described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the Fund described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index. Weightings as percent of equity. Percentage may not equal 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.

29 Templeton Global Growth Fund Geographic Allocation 29 Templeton Global Growth Fund vs. MSCI All Country World Index As at 31 st December, 2017 North America Europe Asia Mid-East/Africa L. America/Caribbean Australia/NZ 0% 10% 20% 30% 40% 50% 60% Templeton Global Growth Fund MSCI All Country World ex-aus Source: Morgan Stanley Capital Index (MSCI). All MSCI data is provided as is. The Fund described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the Fund described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index. Weightings as percent of equity. Percentage may not equal 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.

30 Templeton Global Growth Fund Portfolio Characteristics Templeton Global Growth Fund vs. MSCI All Country World Index Price to Book Ratio 30 th June, 2009 to 31 st December, '09 '10 '11 '12 '13 '14 '15 '16 '17 Templeton Global Growth Fund MSCI AC World The benchmark is the MSCI All Country World Index Net Dividends Reinvested (AUD) Index. The portfolio characteristics listed are based on the Fund s underlying holdings, and do not necessarily reflect the Fund s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between the portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Source: FactSet. For the portfolio, the Price to Book Value calculations use harmonic means for the weighted average. Values less than 0.01 (i.e., negative values) are excluded and values in excess of 200x are capped at 200x. For the benchmark, no limits are applied to these ratios in keeping with the benchmark s calculation methodology.

31 31 Questions

32 32 Get in touch Phone: Level 19, 101 Collins Street Melbourne VIC 3000

33 33 Important Disclosures All investments involve risks including loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their smaller size and lesser liquidity. While stocks have historically outperformed other asset classes over the long term, they tend to fluctuate more dramatically over the short term. The use of derivatives and foreign currency techniques involve special risks, as such techniques may not achieve the anticipated benefits and/or may result in losses.. (TGG) (ABN ) (AFSL ) Level 19, 101 Collins Street, Australia issues this document with the intention to provide general information only and not investment or financial product advice. It does not take into account the individual objectives, financial situation or needs of any recipient. Nothing in this update should be construed as investment advice. TGG have exercised professional care and diligence in the collection of information in this recording. However, data from third party sources may have been used in its preparation and TGG has not independently verified, validated or audited such data. Past performance does not guarantee future results and results may differ over future time periods. Any research and analysis contained in this presentation has been procured by TGG for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change. TGG accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of this commentary or any information, opinion or estimate herein.

34 34 Appendix

35 Appendix: PMI Heat-map: healthy momentum in the advanced world 35 Source: Berenberg

36 36 Appendix: The US Has Clearly Stood Out in the Last 8+ Years 200 Price Change, USD 30 th June, 2009 to 31 st December, % % 58% 51% 0-50 '09 '10 '11 '12 '13 '14 '15 '16 '17 MSCI USA MSCI Europe MSCI Emerging Markets MSCI Japan Source: FactSet. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at

37 Appendix: Paying a Higher Price for Better Fundamentals But Price-to-Earnings Ratios have risen 37 Price to 12-month forward earnings As of 31 st January, S&P 500 MSCI Europe Topix x 15.2x 14.9x Source: Bloomberg

38 Appendix: Paying a Higher Price for Better Fundamentals 38 Source: MSCI, BLS, NBER, Minack Advisors

39 Appendix: Paying a Higher Price for Better Fundamentals 39 Price/10y Average of 12m Trailing Real Operating EPS: Total Stock Market Indices As at 15 th December 2017 Source: Thomson Reuters, Capital Economics

40 Appendix: Paying a Higher Price for Better Fundamentals 40 Differences Between Current & 10y Averages Of EPS & Related P/E Ratios: Total Stock Market Indices As at 15 th December 2017 Source: Thomson Reuters, Capital Economics

41 Appendix: The US Has Clearly Stood Out in the Last 8+ Years 41 Price to 12-month forward earnings As of 31 st January, S&P 500 MSCI Europe Topix x 14.9x Source: Bloomberg

42 Appendix: The US Has Clearly Stood Out in the Last 8+ Years 42 Price to tangible book value As at 12 th January 2018 Source: CLSA, Bloomberg

43 Appendix: Where is the Value? 43 Price U.S. Earnings MSCI USA 31 st January, 2001 to 31 st December, ,500 2,000 1,500 1, Earnings per share Price Eurozone Earnings Poised to Rise MSCI Eurozone 31 st January, 2001 to 31 st December, Earnings per share Earnings per share, last 12-month (rhs) Earnings per share, last 12-month (rhs) Price Price Current (December 31, 2017) Long Term Average (Since Jan. 1980) P/Trend Earnings 23.0x 18.4x P/B 3.3x 2.6x Earning Trend Rolling over Opportunities Some Current (December 31, 2017) Long Term Average (Since Apr. 1998) P/Trend Earnings 16.1x 17.8x P/B 1.7x 2.0x Earning Trend Poised to Rise Opportunities Many Source: FactSet, MSCI. US is represented by the MSCI USA index. Eurozone is represented by the MSCI European Monetary Union (EMU) index. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at

44 Appendix: Where is the Value? 44 Europe in the Sweet Spot; improving growth and slack in the economy Source: CLSA, Markit Economics Ltd

45 Appendix: European Earnings Doing Better 45 MSCI Eurozone: Earnings Estimates Jan to following Apr, Consensus EPS growth (%) progression (2017) (2018) (2011) 0.7 (2014) -0.2 (2016) (4) -4.2 (2015) -5.6 (2012) (8) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr -6.1 (2013) Source: Thomson Datastream, UBS European Equity Strategy

46 Appendix: Where is the Value? 46 Asset class yields vs 30 yr. history Source: Thomson Datastream, UBS European Equity Strategy

47 Appendix: Inflation: The Statistic that Cried Wolf 47 Goldilocks Growth without Inflation Source: OECD, NBER, Minack Advisors

48 Appendix: Inflation: The Statistic that Cried Wolf 48 Source: BLS, BEA, Atlanta Fed, NBER, Minack Advisors

49 Appendix: Inflation: The Statistic that Cried Wolf 49 New York Fed s Underlying Inflation Gauge (UIG) Source: New York Fed, Mauldin Economics

50 Appendix: Central Banks Tightening 50 Source: Datastream, Societe Generale

51 Appendix: Central Banks Tightening 51 Financial Conditions Easier Source: Datastream, Societe Generale

52 Appendix: Central Banks Tightening 52 Central Bank Net Asset Purchases (USD Bn, 3mma), F Source: National Central Banks, Citi Research. SE = Sweden, EA = Euro area

53 Appendix: GDP Growth 53 World GDP growth (%YoY) 31 st December th December Average Source: Factset

54 Appendix: Inflation % Consumer Prices (OECD, %YoY) 31 st December th December % Core Headline 3.0% 2.0% Average 1.0% 0.0% -1.0% Source: OECD

55 Appendix: US Tax Cuts 55 EPS with trend vs tax rate March March 2018 Corporate tax rate (lhs) Log LTM EPS (rhs) EPS trend (rhs) 60% % % % % % -0.5 Mar-35 Mar-41 Mar-47 Mar-53 Mar-59 Mar-65 Mar-71 Mar-77 Mar-83 Mar-89 Mar-95 Mar-01 Mar-07 Mar-13 Mar-19 Source: Bloomberg Finance LP, Deutsche Bank

56 Energy: Full of Opportunity 56 MSCI All Country World Energy Index Relative Price-to-Book 29 th September, 1995 to 31st December, 2017 Price-to-Book Average '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: FactSet, MSCI. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI.

57 Citi: Value vs Mr. Market Added to position Aug Trimmed position Jun Position initiated May 11 Added to position Apr 14 0 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Tangible Book Value Per Share Price Source: Factset, Company filings.

58 Sumitomo Metal & Mining: Value vs Mr. Market Position initiated Oct & Nov 16, added in Apr 17 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Book Value Per Share Price Source: Factset