Franklin Templeton Investment Funds Franklin U.S. Equity Fund. Fund Manager Report

Transcription

1 Franklin Templeton Investment Funds Franklin U.S. Equity Fund Equity LU Fund Manager Report Fund Characteristics Base Currency USD Net Assets (USD) 581,420,716 Fund Inception Date Number Of Issuers 70 Primary Benchmark: S&P 500 Index Bloomberg Code - A(acc) TEMFUAI LX Fund Management Brent Lorder: United States Chris Anderson: United States Performance (%) Cumulative Performance Overview U.S. equity markets rallied in August as investor sentiment was lifted by generally healthy corporate earnings, accommodative Federal Reserve policy and evidence of accelerating growth in key economic indicators. The fund underperformed its benchmark index in August, with stock selection in the information technology, health care and materials sectors detracting from relative returns. In contrast, stock selection in the financials sector benefited the fund s relative performance. 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept ( ) Franklin U.S. Equity Fund - A(acc) SGD NAV N/A N/A S&P 500 Index SGD N/A N/A Annualized Performance (%) Net Of Sales Charge^ Historical Performance 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept ( ) Franklin U.S. Equity Fund - A(acc) SGD NAV N/A N/A 6.59 Portfolio Allocation (%) Breakdown (%) Equity Cash and Cash Equivalents 3.68 Information Technology Health Care Financials Consumer Discretionary Industrials Energy 8.77 Materials 5.92 Consumer Staples 2.77 Utilities 0.00 Telecommunication Services 0.00 For information related to the headings Fund Characteristics, Portfolio Allocation, Breakdown, Franklin U.S. Equity Fund - A(acc) SGD NAV, please see note regarding Fund Characteristics data and Fund Ratings on back page. Source: Franklin Templeton Investments,. Past performance does not guarantee future results. Source for benchmark returns: FactSet Research System, Inc., as of. Performance calculated as at in SGD; NAV-NAV; dividend reinvested. Past performance is not indicative of future performance. ^Initial sales charge of 5%. For Broker/Dealer and Professional Use Only. Not for public distribution. 1

2 Franklin U.S. Equity Fund Market Review U.S. equity markets rallied in August as investor sentiment was lifted by generally healthy corporate earnings, accommodative Federal Reserve (Fed) policy and evidence of accelerating growth in key economic indicators. Intensifying geopolitical concerns about Ukraine and the Middle East apparently did not darken the outlook for many investors, and comments from key central banks outside the United States that suggested willingness for more aggressive stimulus in Europe and elsewhere were favorably received. Nine out of 10 major U.S. equity sectors advanced, led by the utilities, health care, consumer staples, consumer discretionary and financials sectors, while telecommunication services had a small decline. According to Russell U.S. indexes, gains for mid-capitalization stocks were broadly higher than those for the small- and large-cap tiers. By investment style, growth stocks generally outperformed their value counterparts regardless of company size. The U.S. equity market outpaced other developed markets and topped most emerging markets in August, while both groups fared better than frontier markets, which declined overall. Signs of increased U.S. economic momentum included betterthan-expected consumer confidence readings along with rising manufacturing, services-sector and international trade activity that came without worrisome inflation. Upward revisions to second-quarter U.S. economic growth and strength in select areas of the housing market were also well received. Countering this wave of positive releases was somewhat lackluster personal income, consumer spending and retail sales reports. Additionally, the labor market added a fewer-than-expected 142,000 new jobs in August, though the unemployment rate fell from 6.2% to 6.1%. Lofty U.S. equity valuations further inspired some caution, as did worries about how markets might respond when the Fed fully winds down its monthly bond-purchasing stimulus in October. Performance Review and Contributors to Performance The fund underperformed its benchmark, the S&P 500 Index, in August, with stock selection in the information technology, health care and materials sectors detracting from relative returns. The fund s cash position also weighed on relative results. In contrast, stock selection in the financials sector benefited the fund s relative performance. Detracting from the fund s relative performance in the information technology sector was an underweighting in Apple as shares of the technology innovator rose amid investor anticipation of the release of a new iphone. Shares of data center operator Equinix also dampened relative performance as its shares lagged the benchmark index s performance. Conversely, a position in Microsoft helped to offset some of these negative effects. Shares of Valeant Pharmaceuticals International declined and hindered results in the health care sector. In addition, shares of Roche Holding lagged the benchmark index and also detracted from relative performance. Assisting the sector were generic drugmaker Actavis and diversified health care benefits company Aetna. In the materials sector, chemicals company Axiall hindered results as it reported weak second-quarter results due, in part, to lower demand and pricing for its chlorovinyl products. In contrast, global plastics company LyondellBasell Industries assisted relative returns as the company has continued to benefit from a favorable North American natural gas environment. Elsewhere, in the industrials sector, railroad company Genesee & Wyoming pressured relative performance, while security surveillance firm ADT aided the fund s results. Benefiting relative performance in the financials sector were insurer Hartford Financial Services Group and investment manager BlackRock. Improving fundamentals in its property and casualty business benefited shares of Hartford, while increased assets under management has been supporting revenue growth for BlackRock. The fund s lower weighting in the energy sector versus its benchmark index proved favorable. Anadarko Petroleum contributed to relative performance, as did an underweighting in Exxon Mobil as its shares lagged the index. Hindering relative performance were shares of Oasis Petroleum, which fell following missed second-quarter consensus estimates amid lower-than-expected production. In the consumer discretionary sector, solid fiscal fourthquarter results lifted shares of Twenty-First Century Fox, helped by strong advertising growth in its cable network franchise. Conversely, auto components supplier BorgWarner dampened the fund s results as its return trailed the benchmark index. Portfolio Positioning As of, roughly 9.9% of the fund s equity holdings were in companies with market capitalizations below US$10 billion, with the remainder in companies with market caps of US$10 billion or more. The fund s month-end weighted-average market-capitalization size was approximately US$97 billion, below the weighted-average market-capitalization size of the S&P 500 Index. As of monthend, the fund held 71 securities. In August, relative to the benchmark index, the fund was most overweight in the health care sector, while it was most underweight in consumer staples and had no exposure to the telecommunication services and utilities sectors. Information technology and health care were the fund s largest sector allocations for the period. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail Not investors. for public distribution. 2

3 Franklin U.S. Equity Fund Performance Review and Contributors to Performance (continued) Top Contributors Top Detractors Top Overweights Top Underweights Index (%) Index (%) Industrials 0.40 Health Care Health Care 6.52 Consumer Staples Consumer Disc Utilities Information Tech 3.24 Utilities Energy 0.31 Materials Financials 2.14 Telecom Services Top Contributors Top Overweights Index (%)** ACTAVIS PLC 0.42 VALEANT PHARMACEUTICALS 4.56 FEDEX CORPORATION 0.23 ACTAVIS PLC 3.95 WALT DISNEY COMPANY 0.20 EQUINIX 3.39 GOOGLE INC 0.20 HARTFORD FINANCIAL SERVICES GROUP 3.27 ADOBE SYSTEMS INCORPORATED 0.19 TWENTY-FIRST CENTURY FOX 3.08 Top Detractors VALEANT PHARMACEUTICALS INTERNATIONAL INC Top Underweights Index (%)** APPLE ARIAD PHARMACEUTICALS INC* EXXON MOBIL HMS HOLDINGS CORP* BERKSHIRE HATHAWAY COBALT INTERNATIONAL ENERGY INC* VERIZON COMMUNICATIONS* TARGET CORPORATION AT&T Weightings vs. Benchmark (%) Franklin U.S. Equity Fund S&P 500 Index Source for the above figures: FactSet Research System, Inc. as of. Index statistics calculated by FactSet Research Systems, Inc. Profile data is calculated as a percentage of total. Contributors and Detractors are relative to the Index. Holdings of the same issuer have been combined. * not held in the portfolio at the end of the reporting period. **Average weighting compared to index during August Source for the Fund s Weightings above: Franklin Templeton Investments as of. Holdings of the same issuer have been combined. Weightings as percent of equity. Source for the benchmark s Weightings above: FactSet Research System, Inc., as of. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail Not investors. for public distribution. 3

4 Franklin U.S. Equity Fund Performance Review and Contributors to Performance (continued) Top Ten Equity Holdings Industry % of VALEANT PHARMACEUTICALS INTERNATIONAL INC Pharmaceuticals, Biotechnology & Life Sciences 4.88 ACTAVIS PLC Pharmaceuticals, Biotechnology & Life Sciences 4.38 HARTFORD FINANCIAL SERVICES GROUP INC Insurance 3.45 EQUINIX INC Software & Services 3.36 MICROSOFT CORP Software & Services 3.31 TWENTY-FIRST CENTURY FOX INC Media 3.16 METLIFE INC Insurance 3.04 GENESEE & WYOMING INC Transportation 3.04 QUALCOMM INC Technology Hardware & Equipment 2.99 ADT CORP/THE Commercial & Professional Services Portfolio Characteristics Earnings Investment Outlook As we move into the second half of 2014, secular investment themes combined with a U.S. economic backdrop we regard as favorable leave us upbeat about multiple companies prospects for earnings growth and equity performance. Examples in the industrials, information technology and energy sectors, among others, reflect firms that are disrupting long-standing processes and remaking industries through the power of technological advances. In the industrials sector, new capabilities in computer programming are transforming centuries-old manufacturing techniques. Programs built to read engineering design files can now communicate with injection molding machines, improving many elements of the manufacturing process. The automation of labor-intensive steps has led to a decline in costs for prototyping and parts testing as well as an acceleration in product experimentation and innovation. Advancements within other semiconductor applications include the chip-based technology poised to become a new standard for bank and credit cards. This technology offers a much more secure transactional process compared to legacy debit and credit cards that rely on a magnetic stripe, and we think the eventual global roll-out of cards enabled with it holds strong long-term promise. Lastly, the energy sector is another rapidly changing landscape. New seismic mapping technology and processing capabilities have allowed explorers to find oil deposits in many previously unexplored deepwater basins globally, while modern rigs and drillships have facilitated the development of previously unreachable resources in harsh conditions and trapped in increasingly complex geology. Subsea drilling equipment and production infrastructure have also experienced continual technological advancement. All these changes have led deepwater oil production to become a significant portion of worldwide supply over the past decade, and we believe it is likely to continue to be an important contributor in the future. The multiple individual investment opportunities we have found in companies steering these and other powerful secular trends lead us to remain optimistic about the longer-term Book Value Cash Flow Dividend Yield Market Cap (USD Millions) Franklin U.S. Equity Fund (Wtd. Avg.) 22.21x 2.70x 11.82x 1.11% 96,778 S&P 500 Index (Wtd. Avg.) 20.93x 2.73x 10.73x 1.98% 130,381 environment for U.S. stocks and focused on bottom-up research into similar innovators. Investment Objective The Franklin U.S. Equity Fund seeks to attain medium to long-term capital appreciation by investing primarily in U.S. equity securities including common stocks, preferred stocks or convertible securities. The Investment Manager employs an active bottom-up research process to identify individual securities believed to possess superior risk-return characteristics, taking into account both future growth potential and valuation consideration. The stock selection process provides for a diversified portfolio that spans the style spectrum, from growth to value, without preference to capitalization size, sector, or industry. Investment Philosophy The management team for the Fund believes that aboveaverage performance and below-average risk can be achieved over the long term through a disciplined investment process. The management team emphasizes active, bottom-up fundamental evaluation to search for individual securities believed to possess superior risk-return characteristics, taking into account both future growth potential and valuation considerations. This strategy allows for portfolio diversification across U.S. stock market capitalization size, sectors and industries. The Fund s portfolio managers are part of Franklin Equity Group, which, since 1947, has followed a research-driven, bottom-up approach to stock selection combined with critical analysis of market trends and investment themes. Portfolio recommendations are made with a high degree of conviction and without the influence of short-term market trends or sentiment. The team is guided by a long-term perspective and seeks companies with solid fundamentals and attractive valuations. For the Top Ten Equity Holdings above, please note that top ten equity holdings information is historical and may not reflect current or future fund characteristics. All holdings are subject to change. Holdings of the same issuers have been combined. The information provided is not a recommendation to purchase, sell, or hold any particular security. The securities identified do not represent the fund s entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in the fund, or that securities sold will not be repurchased. The portfolio manager for the Fund reserves the right to withhold release of information with respect to holdings that would otherwise be included in the top 10 holdings list. For information related to the heading Portfolio Characteristics above, please see note regarding Fund Characteristics data on back page. Source: Franklin Templeton Investments,. Past performance does not guarantee future results. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail Not investors. for public distribution. 4

5 Franklin U.S. Equity Fund Explanatory Notes Fund Characteristics: The Earnings, Cash Flow and Book Value calculations shown herein use harmonic means. Values less than 0.01 (i.e. negative value) are excluded and values in excess of 200x are capped at 200x. Yields above 100% are also excluded. For the benchmarks, no limits are applied to these ratios in keeping with the benchmark s calculation methodology. Market capitalization statistics are indicated in the base currency for the portfolio presenter. Yield figures quoted should not be used as an indication of the income to be received. Fund Ratings: Copyright Morningstar, Inc. All rights reserved. Morningstar Rating as of date indicated above, in the respective Morningstar TM Category relevant to the fund. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fund performance data include reinvested dividends, and is net of management fees. Sales charges, other commissions, taxes and other relevant costs to be aid by the investor are not included. Disclaimers: 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 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. The market capitalization figures for both the portfolio and the benchmark are the security level, not aggregated up to the main issuer. The dividend yield quoted here should not be used as an indication of the income to be received from this portfolio. Top Contributors and Top Detractors are holdings based on the last one month period for rolling months or on the last three months period for quarter-end months. These securities do not represent all the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in the security listed was or will be profitable. Holdings are subject to change, holdings of the same issuer have been combined. The information provided is not a recommendation to purchase, sell or hold any particular security. The security identified does not represent the composite s entire holdings and in the aggregate, may represent a small percentage of such holdings. There is no assurance that security purchased will remain in the composite, or that security sold will not be repurchased. Performance figures are not based on audited financial statements and assume reinvestment of interest and dividends. When comparing the performance of Franklin Templeton Investment Funds (the Fund ) with a benchmark index, it is important to note that the securities in which Franklin Templeton Investment Funds invests may be substantially different than those represented by the benchmark index. Furthermore, an investment in Franklin Templeton Investment Funds represents an investment in a managed investment company in which certain charges and expenses, including management fees, are applicable. These charges and expenses are not applicable to indices. Lastly, please note that indices are unmanaged and are not available for direct investment. Certain data and other information shown have been supplied by outside sources. While we consider that information to be reliable, we give no assurance that such data and information is accurate or complete. The indices are provided only to show the investment environment during the specific periods shown. The performance of each index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. The indices include a greater number of securities than those held in the Fund. An index is unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. For the most current information on the fund, please contact your Franklin Templeton marketing representative. Stocks mentioned in this report are not a solicitation to purchase those stocks, and are examples of some stocks which performed well. Not all stocks in the portfolio performed as well. This information is not a complete analysis of every material fact regarding these securities and should not be viewed as an investment recommendation. Any views expressed are the views of the portfolio manager and do not constitute investment advice. This report, issued by Franklin Templeton Investments, does not constitute or form part of any offer to invest nor is it an invitation to invest. Subscriptions may only be made on the basis of the most recent Prospectus and Product Highlights Sheet which is available at Templeton Asset Management Ltd or our authorised distributors. Investors should read the Prospectus and Product Highlights Sheet for details before investing. Past performance is not necessarily a guide to future performance and the value of the shares and the income from them may fall as well as rise. This investment product is not available to U.S. and Canadian residents or citizens. Investors may wish to seek advice from a financial adviser before making a commitment to invest in shares of the Fund. Copyright Franklin Templeton Investments. All rights reserved. Issued by Templeton Asset Management Ltd. Registration No. (UEN) E For Broker/Dealer and Professional Use Only. Not for public distribution. For Professional investor use only. Not for distribution to 2014 retail Franklin investors. Templeton Investments. All rights reserved. 5