Franklin Global Government Bond Fund

Transcription

1 Franklin Templeton Investment Funds Franklin Global Government Bond Fund Fixed Income Fund Profile Fund Details Inception Date 06 September 2013 Investment Style Benchmark(s) Fixed Income Citigroup World Government Bond Index (WGBI) FUND OBJECTIVE Franklin Global Government Bond Fund (the Fund ) seeks to maximise, consistent with prudent investment management, total investment return consisting of a combination of interest income and capital appreciation. The Fund invests principally in investment grade fixed and floating rate debt securities issued by governments, government-related entities (including supranational organisations supported by several national governments) and to a lesser extent corporations worldwide, but may also invest up to 10% of total net assets in debt securities below investment grade. John Beck Director of Fixed Income, London We believe market inefficiencies can be exploited in a disciplined manner through an integrated global platform that draws on robust topdown, bottom-up and quantitative resources. WHY CONSIDER THIS FUND Access to fixed income market opportunities worldwide. The Fund s global mandate offers investors the potential to benefit from the full range of investment grade sovereign yield opportunities available around the world. Portfolio diversifier and stabilizer. For investors seeking to reduce portfolio volatility, the asset class s low correlations to other major asset classes make the Fund an attractive option for portfolio diversification. In addition, the Fund s emphasis on investment grade securities is designed to deliver consistent returns over time with relatively low volatility. Fundamental, value-driven investment approach. The Fund s investment team employs the same fundamental, value driven approach to investing that is successfully employed with other Franklin Templeton Investment Funds product offerings. Experienced, stable investment team and process. The Fund s investment team leverages the depth and breadth of the Franklin Templeton Fixed Income Group, which have been managing multi- and singlesector investment strategies for more than 30 years. By tapping robust bottom-up and quantitative resources, the investment team seeks to exploit market inefficiencies to deliver attractive returns. For Professional Investor Use Only. Not for Distribution to Retail Investors.

2 INVESTMENT PHILOSOPHY & PROCESS The Fund s investment philosophy is based on the belief that a portfolio built around a diversified set of actively managed positions has the potential to generate the most attractive risk adjusted returns over a full market cycle. By implementing a large number of small, low-correlated active positions, the investment team strives to reduce the risk of poor performance from any single active position. Investment Universe The Fund s investment universe includes all countries, currencies, and sectors in the Citigroup World Government Bond Index. On a tactical basis, the Fund may also invest outside the benchmark, seeking alpha from non-benchmark sectors if they are attractive on a risk-adjusted basis. Investment Process With a value-based investment style, this Fund invests primarily in the global sovereign fixed income markets, but maintains the flexibility to pursue diversified sources of alpha from interest rates, currencies, sovereign credit, corporate credit, and securitised debt. Utilizing significant Franklin Templeton Fixed Income Group resources ranging from topdown macroeconomic views provided by the Fixed Income Policy Committee (FIPC) to bottom-up sector-specific research and quantitative analysis, the Fund seeks to add value to portfolios by identifying and exploiting market inefficiencies while employing a disciplined risk management process. Macroeconomic Views Long-term macroeconomic investment themes are established by the FIPC to guide the portfolio construction process across all fixed income strategies. Composed of the CIO and other senior investment professionals, including the members of the Fund s portfolio management team, the committee evaluates the factors that may affect the global fixed income markets, such as economic output, monetary policy, duration/yield curve, global currency and geo-political trends, as well as fiscal policy. To make sector weighting recommendations, the committee considers the in-depth insight of senior sector team leaders focusing on government, credit, securitised debt, and emerging market debt. In addition to qualitative assessments, the committee also considers quantitative evaluations (spread duration, risk adjusted spread, standard deviation), as well as benchmark comparisons. Each week, the committee issues forwardlooking policy views on sectors, markets, and currencies to the members of the for use in strategy formulation. PORTFOLIO CONSTRUCTION Investment Strategy Formulation Allocation decisions for the Fund are made by the portfolio management team that is led by John Beck and David Zahn. Using the broad investment themes developed by the FIPC, the portfolio management team develops a model portfolio that reflects the most attractive investment opportunities identified through fundamental and quantitative analysis. This allocation incorporates the top down input of the FIPC with the bottom-up security-specific ideas of the analysts on the various sector teams. Risk Management is also present in the process, providing the portfolio management team with an on-going and timely assessment of active risk in the portfolio and ensuring that the risk/return profile of the portfolio is in-line with the team s more qualitative views of investment opportunities from both a top-down and bottom-up perspective. Country and Duration Decision Country, duration, and yield curve strategy is determined by combining in-depth country analysis that focuses on factors affecting a country s fundamentals, such as monetary and fiscal policy, macroeconomic disequilibria and the capacity for change and policy implementation, with robust econometric currency and interest rate modelling. Return and volatility expectations across the yield curves of various countries are then incorporated into an expected return matrix to develop the team s outlook for relative value between various countries across the yield curve and to indicate the appropriate portfolio structure. From Universe to Portfolio For Professional Investor Use Only. Not for Distribution to Retail Investors. 2

3 Currency Decision Currency is managed as a separate asset class and is influenced by the same macroeconomic factors that affect country allocations, i.e., monetary and fiscal policy, the economic cycle, local politics/events, comparable valuation, and technical factors. These factors have distinct impacts on each investment decision. Currency views are expressed tactically or on a longer-term strategic basis and are generally taken with a 1-3 month time horizon. Currency exposure is structured to complement portfolio bond positions to generate the best expected return-to-risk trade-off for the entire portfolio. Sector Decision In structuring the optimal sector allocations, the FIPC determines the relative value of each sector on a global basis, considering market supply, liquidity, volatility, and spreads. Factors such as central bank attitudes towards credit risk can also play an important role in this assessment. Sector specialists focusing on relative value within each sector meet weekly, and the Fund managers often attend these meetings for a deeper understanding of current trends within each sector. Using quantitative tools, the portfolio management team determines return and volatility expectations across the term structure of credit spreads, making relative value judgments between various sectors globally. Security Selection The Fund draws from a large and diverse number of potential alpha sources to ensure that no single active position dominates portfolio risk. The Fund may invest up to 10% of its total net assets in debt securities that are below investment grade. Sector teams, each specializing in the major segments of the fixed income markets, identify undervalued issues in each sector, setting price targets and investment time horizons. Sector analysts can then recommend investments to the portfolio managers that reflect their strongest convictions. Bottom-up relative value analysis of comparable instruments combined with the selection of specific undervalued securities is expected to provide the best expected risk/return trade-off for the portfolio. The base currency of the Fund is US dollar. RISK MANAGEMENT Although portfolio managers make the final risk management decisions for their respective strategies, they rely on the risk analysis and recommendations of two groups the Quantitative Research Group, which is dedicated to fixed income strategies, and the Performance Analysis and Investment Risk team (PAIR), an independent group that monitors and manages portfolio risk across all Franklin Templeton Investments strategies. Quantitative Research Group Situated with the fixed income investment teams, the Quantitative Research Group is composed of analysts who work with portfolio managers and research analysts to formulate investment strategy, identify sources of portfolio risk, and recommend risk control measures. At times they also produce alpha-generating ideas. Analysts evaluate portfolio diversification and exposures to country, currency, credit, and interest rate, as well any security-specific risk issues. Hedging techniques are also devised for the teams utilizing risk offsetting transactions. The Group compiles risk reports that guide the discussions at strategy meetings and the Fixed Income Policy Committee meetings. Performance Analysis and Investment Risk Team PAIR conducts periodic reviews of all Franklin Templeton Investments portfolios to increase risk awareness by quantifying sources and levels of risk and decomposing detailed risk data emphasizing the major sources of risk in the portfolios. PAIR works with portfolio managers in the portfolio construction process by increasing the portfolio managers awareness of the sources of portfolio risk and suggesting methods of effective risk deployment. PAIR also determines whether diversification is adequate and whether an appropriate level of risk is being taken to generate excess or incremental returns within prescribed guidelines. In an effort to keep risks proportional to return expectations, PAIR differentiates between intentional and unintentional exposures, identifying uncompensated portfolio risks. On a regular basis, PAIR conducts the following risk monitoring specifically for fixed income portfolios managed by the. Daily risk decomposition and reporting via an internal website deployed to all portfolio managers. Review of all major fixed income strategies and their portfolio structure during bi-weekly FIPC meetings. In addition to PAIR, these reviews are conducted by the Quantitative Research Group described previously, and portfolio management. For Professional Investor Use Only. Not for Distribution to Retail Investors. 3

4 Quarterly strategy and risk review meetings for all major fixed income strategies which are attended by PAIR, the Senior Vice President of Investment Risk, each lead portfolio manager, and the Fixed Income Group Chief Investment Officer. To help ensure appropriate independence, PAIR does not have direct reporting lines to portfolio management but instead reports directly to the Executive Vice President of Portfolio Operations. Firm-wide Risk Management Groups In addition to risk management and control specific to the investment process, fixed income portfolios also benefit from risk management provided by Franklin Templeton Investment teams that focus on organizational-level issues, such as regulatory and guideline compliance, best practices, and internal policies and procedures. The following risk oversight committees are important to the management of risk specific to the trading function. Global Trading Oversight Committee This committee monitors every facet of the trading function. Comprised of the firm s most senior traders and compliance officers, the committee ensures that trading policies and practices established by the firm are adequately and consistently applied. Counterparty Credit Committee The Counterparty Credit Committee seeks to guard against risk of loss in the trading process that can be caused by overexposure to any one trading partner, which is particularly important in volatile markets. This committee includes senior traders, portfolio managers, as well as compliance and investment risk management professionals. Annual Risk Assessment At the business unit level, Franklin Templeton Investments conducts an annual bottom-up risk assessment, reviewing and confirming risk information provided. Risks from each business unit are combined to identify enterprise-level risks. A symposium of mid-level managers meets each year to determine key risks to the firm, which are then validated by senior management before presentation to the Franklin Templeton Audit Committee and the Board of Directors. PORTFOLIO MANAGEMENT TEAM John Beck Director of Fixed Income, London John W. Beck, senior vice president and director of London Fixed Income, coordinates the London-based fixed income teams that manage the group's European Fixed Income and Emerging Markets Debt Opportunities strategies. Mr. Beck is the lead portfolio manager responsible for Global Aggregate Strategies and manages portfolios for major institutions, including multinational pension funds and supranational organisations. He is a member of the Fixed Income Policy Committee. Prior to joining the firm in 1990, Mr. Beck was with Saudi International Bank for three years. Mr. Beck holds an M.A. from Exeter College, Oxford University. David Zahn, CFA, FRM Head of European Fixed Income David Zahn, head of European fixed income and senior vice president, is responsible for leading the management of European fixed income strategies and is a member of the Fixed Income Policy Committee. He is also a portfolio manager for a number of Global Aggregate and Global Government fixed income portfolios. Prior to joining Franklin Templeton in 2006, Mr. Zahn was a senior portfolio manager at Citigroup Asset Management. Mr. Zahn holds a B.S. in business administration from the University of Maine and an M.B.A in finance from the University of Connecticut. He is a Chartered Financial Analyst (CFA) Charterholder and is a qualified Financial Risk Manager (FRM). For Professional Investor Use Only. Not for Distribution to Retail Investors. 4

5 CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds (the Fund ). Nothing in this document should be construed as investment advice. Given the rapidly changing market environment, Franklin Templeton Investments disclaims responsibility for updating this material. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. An investment in the Fund entails risks which are described in the Fund's prospectus. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, your performance may also be affected by currency fluctuations. In emerging markets, the risks can be greater than in developed markets. Investments in derivative instruments entail specific risks that may increase the risk profile of the fund and are more fully described in the Fund s prospectus. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. No shares of the Fund may be directly or indirectly offered or sold to residents of the United States of America. Shares of the Fund are not available for distribution in all jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: or can be obtained, free of charge, from the address below. Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box , Dubai, U.A.E., Tel.: Fax: For Professional Investor Use Only. Not for Distribution to Retail Investors. DE Franklin Templeton Investments. All rights reserved.