Templeton Emerging Markets Balanced Fund

Transcription

1 Franklin Templeton Investment Funds Templeton Emerging Markets Balanced Fund Balanced Fund Profile Fund Details Inception Date 29 April 2011 Investment Style Benchmark(s) Balanced Custom 50% MSCI EM Index + 50% JP Morgan EMBI Global Index FUND OBJECTIVE Templeton Emerging Markets Balanced Fund (the Fund ) seeks to maximize, consistent with prudent investment management, a combination of capital appreciation and current income. The Fund seeks to achieve its objective by investing principally in a diversified portfolio of equity securities, fixed and floating rate debt securities and debt obligations issued by government, governmentrelated issuers and corporate entities which are located, incorporated or have their principal business activities in developing or emerging market countries. The Fund will typically hold both emerging market equity and debt securities but the proportion of its assets allocated to each may vary over time depending on the portfolio managers view of the relative attractiveness of each asset class. Allocations will be driven by comparing bottom-up valuation, risk and opportunity sets asses by each portfolio management team with regard to their respective asset class. Dr. Mark Mobius, Ph.D. Executive Chairman This fund provides the benefits of the broad opportunity sets of an emerging markets balanced strategy paired with the recognized global expertise of Franklin Templeton. WHY CONSIDER THIS FUND Diversification through multi-asset emerging markets exposure. An emerging markets balanced strategy provides a broad opportunity set that can capitalize on both equity and fixed income prospects within emerging markets. The Fund managers believe that greater value can be found by utilizing a more flexible mandate to pursue relative opportunities across: Asset Class Sectors Regions Countries A fundamental value-oriented approach to emerging markets investing. The Fund employs a collaborative investment approach combining rigorous fundamental analysis with top/down asset allocation views. Investment analysis will focus on opportunities that appear to be trading at a discount to our projected future intrinsic values. At the same time, the Fund managers will seek to identify economic imbalances that may lead to opportunities in interest, currencies and credit. Local resources, global approach. The equity portion of the portfolio is managed by Templeton Emerging Markets Group. Templeton is one of the pioneers in emerging markets investing, having been the first to set up a dedicated emerging markets equity team in 1987 under the leadership of Dr Mark Mobius, who is also a co-portfolio manager of the Fund. The fixed income portion is managed by Templeton Global Macro, with experience overseeing a wide variety of fixed income strategies. In addition, the fund will leverage the expertise of research teams on the ground in local markets. For Professional Investor Use Only. Not for Distribution to Retail Investors.

2 INVESTMENT PHILOSOPHY & PROCESS The Fund is managed by two investment management groups with a long history of investing in the global equity and fixed income markets: Templeton Emerging Markets Group Founded in 1940, Templeton s investment philosophy is built upon a disciplined, yet flexible, long-term value-oriented approach. As it is applied to emerging markets investing, it is based on three tenets that they believe are critical to successful long-term investing: value, patience, and bottomup stock selection. Templeton seeks to identify the underlying worth of a business and to determine what that company s assets can generate in earnings and cash flow. As long-term, valuationdriven investors, they focus on normalized earnings to seek out compelling opportunities in all sectors and markets around the globe. Stock markets are often short sighted and affected by sentiment, Templeton s long-term focus allows them to look past short-term market noise and identify the fundamental value of a stock. Their commitment to original research drives the process to uncover opportunities wherever they may exist. Templeton Global Macro Templeton Global Macro seeks to provide superior riskadjusted returns by anticipating changes in the factors that determine variations in bond prices and currency values. The group adopts an active management approach, based on top-down, in-depth research of the economy and sectors, combined with bottom-up securities valuations and portfolio construction. Templeton Global Macro s approach to investing in the global bond market considers the total return of each security, taking into account interest rate, currency, credit and sovereign risk. Team members provide value-added research to find profitable investment opportunities for the Fund by investigating macroeconomic conditions, geopolitical risks, monetary policies, interest rates and currencies in all investable countries around the world. Although the Fund is co-managed by both the Templeton Emerging Markets Group and Templeton Global Macro, each investment group adheres strictly to its own investment process. Templeton Emerging Markets Group Templeton Emerging Markets Group s investment process consists of five steps: Step 1: Identify Potential Bargains Templeton s unconstrained search for value allows us to identify bargains wherever they exist. Quantitative screening, qualitative assessment and the deep experience of our analysts narrow the investable universe down to a group of securities that merit closer analysis. Our best screen is our experience: Templeton analysts are country experts with a comprehensive knowledge of every aspect of their respective areas of coverage. Step 2: In-Depth Fundamental Analysis At Templeton, in-depth fundamental analysis is the foundation of our investment process. Our analysts are primarily regional/country experts with a comprehensive knowledge of every aspect of their respective areas of coverage. In addition, dedicated sector research analysts are responsible for primary stock research within key, globallyoriented sectors, as well as macro views on trends and the competitive landscape within those sectors. Analysts conduct rigorous fundamental security analysis on all potential investment ideas to determine if the stock is trading at a substantial discount to what our research indicates the company is worth over a normalized five-year investment horizon. This focus on the long term ensures that our research is not biased by short-term cyclical considerations. When assessing the true fundamental value of a company, we are disciplined yet flexible. We adhere to strict and well-defined valuation criteria across all stocks, but our analysts use varying approaches and tools for finding value in different sectors. Through in-depth research, investment ideas are narrowed down to a group of viable Action List candidates. The Action List is the Templeton Emerging Markets Group s approved stock list, comprised of Strong Buy, Buy, Sell, and Hold-rated stocks. The Action List comprises companies that have been determined by the Templeton Emerging Markets Group to be mispriced by the market and the most undervalued relative to their business prospects. Templeton s collaborative culture ensures that each stock recommendation is thoroughly debated and critiqued. The Action List is the entry point for all approved purchases and is distributed to all analysts and portfolio managers. Each stock on the Action List has a specified buy and sell target. Step 3: Peer Review Evaluation Templeton s collaborative culture leverages the experience of the entire Emerging Markets Group to produce comprehensive research insights. While the research analyst has primary responsibility for stocks within the defined coverage universe, the analysis of every company includes a designated reviewer (backup analyst), sector analyst (where applicable), regional research team discussions, and portfolio managers who have exposure to the stock. The analyst is responsible for the final stock recommendation after incorporating feedback from the peer review process. Oversight is provided by Dr. Mark Mobius, the Director of Research, and the directors that form the core leadership team. The team safeguards the research and investment process and sets the investment direction of the Emerging Markets Group. For Professional Investor Use Only. Not for Distribution to Retail Investors. 2

3 Step 4: Portfolio Construction The Templeton Emerging Markets Group believes that the best investment decisions draw on the collective knowledge of the entire research team. Original research is the foundation of our approach, and the portfolio construction process leverages the insights of all our Fund managers/analysts within a disciplined framework. All of the team s portfolios are built from the bottom up, on a stock-by-stock basis, with a consistent focus on long-term valuations. As we are concerned first and foremost with the pursuit of compelling valuations, we do not construct portfolios to match the characteristics of any specific benchmark. Our country and industry allocations are a result of the bottom-up stock selection process. Macro and sector insights developed by the strategist and the sector analysts are incorporated to strengthen portfolio awareness in terms of macro trends affecting the EM investing landscape. When selecting stocks, the Fund manager has discretion but must do so within a disciplined, structured framework of controls designed to ensure consistency and diversification for all clients. Step 5: Evaluation and Attribution Analysis, Portfolio Maintenance We actively manage our clients portfolios to ensure they continually reflect our best thinking. This is accomplished through a team commitment to ongoing fundamental research and risk management. Several internal groups work closely with our Fund managers to monitor portfolios and manage risk, and their strong input and support is critical to the portfolio management process. Templeton Global Macro Our international bond strategies offer a unique combination of flexibility and expertise with the aim of maximizing total return. The core of the investment process is Templeton Global Macro s global investment platform. Importantly, our London, New York, Singapore and San Mateo offices, as well as local investment management offices in Canada, Mexico, Brazil, United Arab Emirates, India, Malaysia, China, Korea and Australia, function as one fully integrated investment team. Having such broad expertise creates opportunities to actively manage and take advantage of unique dynamics in individual markets. The team employs fundamental, country-by-country macroeconomic research, coupled with quantitative analysis and local market perspective, as can be seen in the diagram to the left. This process combines in-depth country research, macro analytic models and on-the-ground insight from local market participants and policymakers with rigorous risk and portfolio construction techniques. The process incorporates regular feedback between team members, between traders For Professional Investor Use Only. Not for Distribution to Retail Investors. 3

4 and risk specialists and between performance analysts. The fixed income portion of the Fund capitalizes on international investment opportunities in both sovereign and local currency markets. The Fund managers and the research team seek investment opportunities throughout the world by identifying market disequilibria, or inefficiencies, in the fixed income and currency markets. The Fund managers apply an active management, benchmark-agnostic investment style, to identify the most compelling investment ideas to be utilized in the fixed income portion of the portfolio. With a long-term, fundamentally driven investment focus, portfolio manager Dr. Michael Hasenstab, and his team perform global macroeconomic analyses aiming to identify economic imbalances leading to value in emerging markets via: Interest rate (duration) analysis Currency analysis Sovereign credit analysis Corporate analysis For Professional Investor Use Only. Not for Distribution to Retail Investors. 4

5 SECTOR RESEARCH TEAMS SOURCES OF POTENTIAL ALPHA PORTFOLIO CONSTRUCTION AND IMPLEMENTATION International Bonds Mortgages Municipals Quantitative Corporates Floating Rate Local Asset Management Duration/FX/Sovereign Ideas F I P C Macro Themes Sector Ideas Sub-Sector/Security Selection Ideas (bottom-up research) PM Team Potential Return vs. Expected Risk Global & Sector Allocations Trading Trade Structuring Market Flows Local Execution/ Settlement Risk Modeling VaR Correlations Scenario/Stress Best Execution Risk Analysis PORTFOLIO Feedback Feedback Strategy Review/ Review/ Performance Attribution The investment process combines qualitative analysis of macroeconomic factors with sophisticated quantitative tools to identify the desired currency, duration and credit exposures to reflect the most attractive risk exposures relative to current valuations. Fund managers focus the investment process on fundamental research to identify longterm opportunities and use short-term market inefficiencies to build positions in such investments. These views are applied to currency, duration, sovereign and corporate credit exposure unconstrained by the benchmark allowing for shifts in portfolio holdings to reflect anticipated changes. PORTFOLIO CONSTRUCTION The Templeton Emerging Markets Balanced Fund is a blended equity and fixed income product with a 25/75% max allocation range under normal market conditions. Asset allocation is guided by fundamental value investment philosophy of both teams and near term capital preservation is weighed against capital growth potential to determine the allocation of the Fund. Asset Allocation The management team practices rigorous bottom-up fundamental analysis and applies a disciplined valuation framework to arrive at final portfolio positioning. As part of a continual asset allocation review process, the management team considers the opportunity set within each asset class based on both absolute and relative valuations available within each asset class. In addition, the team considers the relative valuation of equities versus bonds and the volatility and near-term risk of loss in each asset class. The day-to-day focus of the Fund managers on the opportunities available within their respective asset classes allows them to bring the best possible ideas from each asset class into the blended portfolio. The management team holds regularly scheduled monthly meetings to review portfolio positions and asset class allocations, but can also convene on an ad hoc basis to adjust allocations if required, allowing for nimble responses to changing opportunity sets and creating a flexible and unique investment product optimally-positioned to satisfy its dynamic mandate. Equity Portion The Templeton Emerging Markets Group does not use model portfolios. All portfolios are built from the approved stock lists that comprise the team s Global Research Database. Fund managers select stocks from the Action List, which is comprised of companies our analysts believe are most undervalued relative to their longer-term business prospects. Each stock has an established valuation or price target that is set by the analyst responsible for recommending the security. Stocks are purchased only when the price is within this preset price range. Sell Discipline (Equity): A stock is sold if: The security price exceeds our estimation of value, Greater value exists in another similar security, or A fundamental change occurs at a company to alter our forecasts. All holdings are regularly reviewed to ensure that analyst recommendations are up-to-date and accurately reflect any changes in company fundamentals. In this way, our ongoing fundamental research drives all buy and sell decisions. Fixed Income Portion To construct the portfolios, members of the fixed income portfolio management team precisely identify desired currency, duration and credit exposures to reflect the most attractive risk exposures relative to current valuations. These exposures are then isolated and compiled to ensure that only the most attractive opportunities are held. These positions For Professional Investor Use Only. Not for Distribution to Retail Investors. 5

6 are discussed among Franklin Templeton Investments extended fixed income team to validate positioning. During the implementation phase, traders and other local market investment professionals advise on regional market flows, trade structuring and local execution. The team takes into consideration the level of risk aversion in the global markets on a security-by-security basis, the portfolio team maintains a keen awareness of risk, building a portfolio within a specific risk budget. This risk budget will shift, based on relative attractiveness of each security during global economic and credit cycles. The team uses proprietary and state-of-the art, third-party tools to measure risk, including scenario analysis, where analysts model potential crises, such as geopolitical risks or oil price shocks, to analyze the impact on currency values and interest rates. Sell Discipline (Fixed Income): Positions are sold if: Another name or investment opportunity has substantially greater value; Positions reach target sell levels set by analysts; or The fundamentals of a given issue change, warranting a revaluation of the expected risk return profile. Redemptions from and inflows into the fund are treated similarly. In the short term, the assets are bought or sold to meet redemptions or put subscriptions to work based on current market valuations and long-term targets. Fund managers will then continue to optimize the portfolio to achieve target weightings. They generally do not simply allocate new cash or redemptions across all holdings unless this strategy fits with their view on valuations and long-term targets. RISK MANAGEMENT The Fund leverages the depth and experience of Franklin Templeton s Performance Analysis and Investment Risk ( PAIR ) Group, which works separately from the portfolio management function, monitoring investment risk for all portfolios managed by the firm. PAIR has the express mandate to integrate investment risk management into the portfolio construction process and continues to improve on detailed decomposition of various risk factors that the portfolios may be exposed to. Through the use of various risk systems, the PAIR Group is able to indicate the active risk or tracking error of the account versus the benchmark as well as to show what the sources of active risk are (i.e., country, sector or style differences) and which specific issues are the largest contributors to active risk. Security Selection Constraints Fund managers have discretion in selecting securities for the portfolio, but they must be within the approved list and general guidelines established by each respective group. Asset Classes The Fund invests in equity or equity-linked securities, including debt or preferred stock convertible or exchangeable into equity securities, selected primarily on the basis of their capital growth potential. The Fund is also invested in fixed and floating rate debt securities and debt obligations of governments, government-related or corporate issuers fixed income securities from emerging market for the purpose of generating income. Country/Regional and Sector Limits There are no limits. Min/Max Security Positions Individual security positions typically do not exceed 5% of the fund s total net assets. Cash Policy Fund managers intend to remain close to fully invested at all times. Reported cash and cash equivalent numbers may exceed 10% in extraordinary periods. Currency Policy There are no constant hedge ratios for the Fund. However, currency is an important consideration at the security level for both equity and fixed income. In the fixed income portion, futures and other derivatives may be used for hedging purposes, as well as for expressing positive and negative currency views. Capitalization Limits In general, there are no established minimum market-cap guidelines. However for reason of liquidity, the equity team focuses on companies with at least US$300 million in market capitalization and US$3 million in daily turnover. Derivatives Financial derivative instruments may be dealt either in regulated markets or over- the-counter, and may include, inter alia, swaps (such as credit default swaps or total return swaps), forwards and cross forwards, futures contracts (including those on government securities), as well as options. Use of financial derivatives may result in negative exposures in a specific yield curve/duration, currency, or credit. Risk management is integrated into every aspect of the Fund s investment process. To ensure consistency, all portfolios are built within a structured framework of dynamic sector ranges and approved stock lists. The Fund has specific investment guidelines and requirements that are set forth by the board of directors of Franklin Templeton Investment Funds and reviewed on a quarterly basis to ensure that the risk management process is adhered to: For Professional Investor Use Only. Not for Distribution to Retail Investors. 6

7 We primarily focus on three types of risk: Security-specific risk is addressed primarily through the quality of the Templeton Global Equity and Templeton Global Macro team research. A disciplined sell methodology also helps minimize security-specific risk. Portfolio risk is addressed by creating fund portfolios that are well-diversified and benefit from the portfolio teams best thinking. The management team holds regularly scheduled monthly meetings to review portfolio positions and asset class allocations, but can also convene on an ad hoc basis to adjust allocations if required, depending on market volatility, internal or exogenous events. Operational risk is minimized by the due diligence of the Fund managers and the separation of all major investments and their related functions. A comprehensive system of checks and balances involving distinct and independent groups ensures that all investment guidelines and restrictions are strictly adhered to. Additionally, market, political and economic risks are taken into account and addressed primarily at the individual security level. Analysts take all political, economic and currency factors into consideration when making financial forecasts and recommendations. PORTFOLIO MANAGEMENT TEAM The Fund is co-managed by Templeton Emerging Markets Equity Group and Templeton Global Macro. The Templeton Emerging Markets Group consists of 50 investment professionals located in offices worldwide, organized along global industry lines. Franklin Templeton has over 170 investment professionals dedicated to managing a wide variety of fixed income strategies from corporate credit, senior secured bank loans, asset-backed securities and treasuries to global sovereign credit.* Dr. Mark Mobius, Ph.D., is the lead equity portfolio manager and Dr. Michael Hasenstab, Ph.D., is the lead fixed income portfolio manager. Mark Mobius, Ph.D. Executive Chairman Templeton Emerging Markets Group Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, has spent more than 40 years working in emerging markets all over the world. He joined Franklin Templeton in 1987 as president of the Templeton Emerging Markets Fund, Inc. He is the author of the following books: Trading with China, The Investor's Guide to Emerging Markets, Mobius on Emerging Markets, Passport to Profits, Equities - An Introduction to the Core Concepts, Mutual Funds - An Introduction to the Core Concept, Foreign Exchange - An Introduction to the Core Concepts, Bonds - An Introduction to the Core Concepts, Mark Mobius - An Illustrated Biography and The Little Book of Emerging Markets. Dr. Mobius was named by Asiamoney magazine in 2006 as one of their Top 100 Most Powerful and Influential People. Asiamoney said, he...boasts one of the highest profiles of any investor in the region and is regarded by many in the financial industry as one of the most successful emerging markets investors over the last 20 years. Despite tough times during the financial crisis nine years ago, he still commands a strong following in the investment world and is influencing the direction of billions of investment dollars. Other awards include: (1) 50 Most Influential People by Bloomberg Markets Magazine in 2011, (2) 2010 Africa Investor Index Series Awards by African Investor, (3) Emerging Markets Equity Manager of the Year 2001 by International Money Marketing, (4) Ten Top Money Managers of the 20th Century in a survey by the Carson Group in 1999, (5) Number One Global Emerging Market Fund in the 1998 Reuters Survey, (6) 1994 First in Business Money Manager of the Year by CNBC, (7) Closed-End Fund Manager of the Year in 1993 by Morningstar and, (8) Investment Trust Manager of the Year 1992 by Sunday Telegraph. Dr. Mobius earned bachelor's and master's degrees from Boston University, and a Doctor of Philosophy (Ph.D.) in economics and political science from the Massachusetts Institute of Technology. For Professional Investor Use Only. Not for Distribution to Retail Investors. 7

8 Michael Hasenstab, Ph.D. Executive Vice President, Portfolio Manager CIO, Templeton Global Macro Franklin Advisers, Inc. Dr. Michael Hasenstab, Ph.D., is executive vice president and chief investment officer for Templeton Global Macro, which conducts in-depth global macroeconomic analysis covering thematic topics, regional and country analysis, and interest rate, currency and sovereign credit market outlooks. Templeton Global Macro offers global, unconstrained investment strategies through a variety of investment vehicles ranging from retail mutual funds to unregistered, privately offered hedge funds. Dr. Hasenstab is a portfolio manager for a number of funds, including Templeton Global Bond Fund and Templeton Global Total Return Fund. Dr. Hasenstab is economic advisor to the CEO of Franklin Resources, Inc., providing his perspective and insight through the lens of Templeton Global Macro. In addition, he is a member of Franklin Resources' executive committee, an eight-member group responsible for shaping the company's overall strategy. Dr. Hasenstab has received numerous industry awards and accolades throughout his investment career. Over the last decade, the funds that he and his team manage have collectively received more than 400 awards from various rating agencies globally, including Lipper and Morningstar. In addition, various publications have recognized Dr. Hasenstab's investment expertise including, most recently, his being named one of Forbes' Money Masters of Investment Week named him Global Bond Manager of the Year in 2008, 2010 and 2011 and recognized him as one of the most influential fund managers in Morningstar awarded him Fixed Income Manager of the Year in Canada in 2013 and Fund Manager of the Year in the U.S. in In 2011 and 2012, he was highlighted as one of the most influential young people in business in Fortune's 40 under 40. Dr. Hasenstab initially joined Franklin Templeton Investments in July After a leave of absence to obtain his doctor of philosophy (Ph.D.) degree, he rejoined the company in April He has worked and traveled extensively abroad, with a special focus on Asia. Dr. Hasenstab holds a Ph.D. in economics from the Asia Pacific School of Economics and Management at Australian National University, a master's degree in economics of development from the Australian National University, and a B.A. in international relations/political economy from Carleton College in the United States. For Professional Investor Use Only. Not for Distribution to Retail Investors. 8

9 *As of June 30, 2016 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 any of the Luxembourgdomiciled SICAV Franklin Templeton Investment Funds (the Fund ). 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.