Templeton Growth (Euro) Fund A. A (acc) EUR

Transcription

1 Templeton Growth (Euro) Fund A (acc) EUR Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details Fund Assets 7,575,661, Fund Inception Date 09/08/2000 Number of Issuers 88 Bloomberg ISIN Base Currency Investment Style Overall Morningstar Rating TM 2 TEMGREU LX LU EUR Value Benchmark MSCI All Country World Index Morningstar Category Global Large-Cap Value Equity Asset Allocation 1 % Equity Cash & Cash 6.38 Equivalents Fixed Income 0.48 Fund Description The fund aims to achieve long-term capital appreciation by investing primarily in equity securities of companies worldwide, including emerging markets. Key Points Global equity markets rose in US-dollar terms during October Investors largely shrugged off concerns about ongoing combative rhetoric between the United States and North Korea, and instead focused on renewed expectations for tax reform in the United States and continued indications of synchronised global economic growth. Emerging stock markets collectively topped their developed-market peers. Stock selection and an overweight allocation in the health care sector materially undermined relative results. Stock selection in the consumer discretionary sector together with an underweight allocation and stock selection in the information technology sector also impaired relative performance. Stock selection in the industrials and consumer staples sectors further curbed relative results. In contrast, stock selection in the financials and telecommunication services sectors advanced relative performance. From a regional standpoint, relative performance was negatively impacted by stock selection in the United States as well as an unfavourable overweight allocation and stock selection in Europe. The fund s even-weighted Asian holdings performed roughly in line with the benchmark, with strong gains in South Korea, which was overweight, offsetting smaller relative weakness in China due to stock selection. Performance Data Performance Net of Management Fees as at 31/10/2017 (Dividends Reinvested) (%) 3 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (09/08/2000) A (acc) EUR MSCI All Country World Index Calendar Year Returns (%) 100% 50% 0% -50% A (acc) EUR Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review Global equity markets rose in US-dollar terms during October Investors largely shrugged off concerns about ongoing combative rhetoric between the United States and North Korea, and instead focused on renewed expectations for tax reform in the United States and continued indications of synchronised global economic growth. Emerging stock markets, as measured by MSCI indices, collectively topped their developed-market peers. Emerging markets were bolstered by strength in Asian equities. China s preliminary third-quarter annualised gross domestic product (GDP) growth was in line with consensus expectations. The country s industrial output and retail sales rose in September, though fixed-asset investment increased at the slowest pace in almost 18 years. South Korea s third-quarter GDP growth beat consensus estimates, as well as first- and second-quarter gains. The country s unemployment rate fell in September, and the consumer price index (CPI) increased year-on-year in October.

2 Brazil s annualised inflation for September was up slightly from August s reading and was the first increase since August In October, Brazil s central bank cut its benchmark interest rate. Mexico s third-quarter GDP fell on the previous quarter, its first contraction since 2013, and annualised inflation for September declined. Continued indications of synchronised global economic growth helped support developed-market stocks. The US government s advance estimate for third-quarter annualised GDP growth showed the best back-to-back quarterly expansion since The US Federal Reserve s preferred inflation gauge increased slightly in September and was up from a year earlier. The European Commission s Economic Sentiment Indicator for the eurozone in October reached the highest level since 2001, while the figure for the European Union (EU) was the highest since Flash estimates for thirdquarter GDP showed annual and quarterly growth for both the eurozone and the EU. The United Kingdom s third-quarter GDP was ahead of consensus estimates. The country s annualised CPI for September hit a five-year high and was above the Bank of England s target. In Japan, the landslide election victory of Prime Minister Shinzo Abe s governing coalition raised hopes of continued market-friendly policies. Performance Review The fund trailed the benchmark (both in euros) during the month of October. As stocks notched up multiple records during the month, market leadership remained firmly in favour of pro-cyclical and growth-oriented sectors like materials and, especially, information technology. On the other hand, traditionally defensive sectors like health care, consumer staples and telecommunication services fared poorly in the risk-on environment. In this environment, the fund s significant overweight in the out-of-favour health care sector in addition to stock-specific issues therein notably detracted. Six of the fund s 10 biggest individual detractors came from the sector, including Israeli generic drug-maker Teva Pharmaceutical Industries, the biggest relative detractor. The shares slumped at the beginning of the month after a rival firm won regulatory approval for a generic copy of Teva s blockbuster multiple sclerosis drug Copaxone. Our view on Teva has not changed since we discussed the stock in the third-quarter commentary. While we clearly underestimated the near-term challenges facing Teva s US generics business and the severity with which the market would penalise any perceived balance sheet vulnerabilities, our analysis has continued to indicate that Teva does not have a liquidity problem and should be able to address balance sheet issues in a timely manner and deliver on its more conservative outlook. Expectations for the company have sunk to new lows, and we believe the share price at month-end reflected undue pessimism. The year 2018 is shaping up to be a big one for Teva, featuring a number of potentially blockbuster new launches and exciting pipeline developments. We expect the firm s core generics business to ultimately perform well through the cycle and over the course of our investment horizon. More broadly, we continue to believe that regulatory fears and competitive concerns have excessively pressured valuations in the health care sector. We have continued to find what we consider immense long-term value in depressed pharmaceutical companies with innovative pipelines and novel drug franchises capable of dealing with pricing and competitive issues on a case-by-case basis. Stock-specific weakness amongst underweight consumer discretionary holdings also detracted, led lower by Luxembourg-based satellite and network services provider SES. Its shares slipped after management reported a second consecutive quarter of disappointing results, citing one-off headwinds and delayed revenues attributable to a changing business model. The string of disappointing results has cast doubts on management s credibility and led to a de-rating that implied the stock at month-end was trading at replacement cost for a business with traditionally very high barriers to entry and valuable orbital satellite slots that cannot be replicated. Add to that its high single-digit dividend and free cash flow yields and a significant contract backlog equivalent to four years of revenue, and we believe the stock remains undervalued. The firm s capital expenditures should be declining after a heavy investment phase, and we believe SES is well positioned to potentially create long-term value as it transitions from a satellite capacity provider to a higher-margin, full-service satellite network management firm. Information technology (IT) and industrials holdings also detracted from relative results. Our holdings in the IT sector delivered solid absolute gains, but failed to keep up with the benchmark return in the sector due to an unfavourable underweight and stock selection. While no IT holdings finished amongst the fund s top 10 detractors, South Korean semiconductor and electronics firm Samsung Electronics and US enterprise software firm Oracle both finished amongst the fund s top 10 relative contributors for the month. From the industrials sector, shares of UK defence contractor BAE Systems declined after the firm announced plans to cut some 2,000 jobs amidst tepid sales of its Eurofighter Typhoon fighter jet and a slimming down of its naval ships and cyber-security business. The stock also has been pressured by generalised concerns about a weaker UK defence budget, particularly in the event of a Labour government. Nevertheless, we note that both Prime Minister Theresa May and the opposition Labour Party recently re-committed to meeting the 2% of GDP defence spending target, with the incumbents also vowing to increase the budget by at least 0.5% above inflation annually. Furthermore, we think concerns about Eurofighter orders are now well reflected in the share price and that any additional orders represent undiscounted potential upside. We note that Eurofighter already has been a strong programme, generating substantial revenues and increasingly contributing to the firm s strong service business. Turning to contributors, we remain encouraged by the positive impact of stock selection in financials. Financials holdings continued to deliver strong returns during the month, accounting for several of the fund s top relative contributors. Chinese insurer China Life was the fund s top stock in the sector, rising the most in a year after management said it expected earnings to nearly double in the first nine months of 2017, citing higher investment returns. China Life is the industry leader for life insurance in China, and we believe the company remains well positioned to exploit the long-term growth prospects for penetration of life insurance products amongst China s increasingly affluent and under-insured middle class. US consumer credit firm Capital One Financial also contributed to the fund s relative performance, with its shares gaining after the firm demonstrated the ability to stabilise charge-offs and stem losses through tighter underwriting and slower loan growth. Investors cheered the firm s forecast of healthy profit improvement in 2017 amidst cost cuts and market share gains in the auto loan business. Improving capital ratios, a solid funding profile, and expanding net interest margins were also well received and keep us positive on the stock as strategic execution continues apace. Strong stockpicking amongst telecommunications holdings also contributed to the fund s relative results, led by Japanese mobile operator and technology conglomerate SoftBank. Its shares rallied to a 17-year high during the month as Japanese stocks gained and SoftBank progressed with a number of high-profile deal negotiations. Traditionally viewed as a telecommunications company, SoftBank today is more of a technology conglomerate, recently receiving favourable comparisons to Warren Buffett s Berkshire Hathaway (not a fund holding). Unlike Berkshire, however, SoftBank s stock has traded at a significant discount to its sum-of-the-parts valuation, according to our analysis, largely due to concerns about the company s appetite for large, debt-fuelled acquisitions. We have identified several catalysts that could help narrow this valuation discount, including a mark-to-market accounting of SoftBank s stake in Chinese e-commerce giant Alibaba (not a fund holding) and potential management fees from the company s recently formed US$100 billion technology investment fund. A potential merger between SoftBank s US telco subsidiary Sprint (not a fund holding) and rival T-Mobile (not a fund holding) could further unlock value, though negotiations appeared to have reached an impasse towards the end of the month amidst concerns about valuation and control. 2

3 From a regional standpoint, relative performance was negatively impacted by stock selection in the United States as well as an unfavourable overweight allocation and stock selection in Europe. The fund s even-weighted Asian holdings performed roughly in line with the benchmark, with strong gains in South Korea, which was overweight, offsetting smaller relative weakness in China due to stock selection. Portfolio Positioning In October, the fund was most overweight the energy, health care and financials sectors, while the biggest underweight sectors were consumer staples, industrials and IT. The fund had no exposure to the real estate sector. Outlook & Strategy Global economic and financial conditions have remained benign, backed by easy monetary policy and low inflation. With the post-financial crisis recovery nearly 10 years old and the global profit cycle looking increasingly mature, many investors are wondering when we might see the inflection point in this unusually extended and muted business cycle. While we never attempt to time the cycle, we can monitor indicators as potential signposts for an eventual inflection point. To this end, near-term tactical indicators remain relatively subdued, with little excess exuberance evident in consumer credit, corporate investment or wage inflation. Absent inflationary pressures, central banks should have sufficient runway to respond to evolving financial conditions and begin normalising monetary policy over time. That said, inflection points in the cycle are often unpredictable and unexpected. What is more, the massive central bank stimulus required to recover from the global financial crisis has led to certain extreme and unprecedented conditions that can increase longer-term systemic risks. For instance, central bank balance sheets have ballooned to unprecedented sizes, creating an inorganic liquidity backstop, the removal of which could negatively impact asset prices that, by at least one measure (of developed-market stocks and bonds), are the most expensive in over two centuries. Global sovereign debt levels and government budget deficits are unusually high, conditions typically associated with periods of crisis and conflict, but now an everyday reality we view as likely to increase vulnerability should conditions deteriorate. Finally, the rise of populism and nationalism, while apparently on the ebb for now, has increased geopolitical tensions and threatens to disrupt the fluidity of trade and labour that has contributed to globalisation and pulled millions out of poverty around the world. In these uncertain times, we continue to caution against blindly buying the market in this late cycle and dearly valued environment. To the contrary, we believe the ability to spot secular business and product cycle trends, and identify stocks still trading at a discount to their long-term intrinsic value, will be instrumental in potentially accumulating and preserving wealth over the long term as the cycle matures and eventually inflects. Portfolio Characteristics 4,5 Portfolio Price to Earnings (12 Month Trailing) 17.22x 20.49x Price to Book Value 1.54x 2.32x Price to Cash Flow 8.08x 12.13x Market Capitalisation (Millions in EUR) 96,020 94,500 Dividend Yield 2.64% 2.33% Portfolio Diversification Top Sector Contributors 6,6 Total Sector Effect (%) Telecommunication Services 0.29 Consumer Staples 0.14 Energy 0.12 Real Estate 0.02 Industrials 0.02 Top Sector Detractors 6,6 Total Sector Effect (%) Health Care Information Technology Consumer Discretionary Financials Materials Contributors/detractors data shown is for the period from 01/10/2017 to 31/10/2017. Top Security Contributors 6,7 Security Total Effect (%) SAMSUNG ELECTRONICS CO LTD 0.16 CHINA LIFE INSURANCE CO LTD 0.11 GENERAL ELECTRIC CO 0.09 AT&T INC 0.08 SOFTBANK CORP 0.08 Contributors/detractors data shown is for the period from 01/10/2017 to 31/10/2017. Top Security Detractors 6,7 Security Total Effect (%) SES SA TEVA PHARMACEUTICAL INDUSTRIES LTD ALLERGAN PLC WALGREEN CO AMGEN INC

4 Geographic Weightings vs. 1 NORTH AMERICA EUROPE ASIA MID-EAST/AFRICA CASH & CASH EQUIVALENTS % 25% 50% 75% Sector Weightings vs. 1 Financials Health Care Information Technology Energy Consumer Discretionary Telecommunication Services Industrials Materials Utilities Consumer Staples Real Estate Cash & Cash Equivalents % 5% 10% 15% 20% 25% Templeton Growth (Euro) Fund Templeton Growth (Euro) Fund Top Ten Holdings 8 Top Holdings Sector % SAMSUNG ELECTRONICS CO LTD Technology Hardware & Equipment 2.58 ROYAL DUTCH SHELL PLC Energy 2.54 ORACLE CORP Software & Services 2.50 CITIGROUP INC Banks 2.18 AMGEN INC Pharmaceuticals, Biotechnology & Life Sciences 1.88 BP PLC Energy 1.82 KINGFISHER PLC Retailing 1.71 STANDARD CHARTERED PLC Banks 1.69 ALLERGAN PLC Pharmaceuticals, Biotechnology & Life Sciences 1.64 BAIDU INC Software & Services 1.60 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton Growth (Euro) Fund Tracking Error (%) Information Ratio Beta Sharpe Ratio Templeton Growth (Euro) Fund Beta, Information Ratio and Tracking Error information are measured against the. 4

5 Investment Team Portfolio Manager Years with Firm Years Experience Norman Boersma, CFA, Chief Investment Officer Tucker Scott, CFA, EVP, Portfolio Manager, Research Analyst Heather Arnold, CFA, EVP, Director of Research, Portfolio Manager, Research Analyst James Harper, CFA, EVP, Portfolio Manager, Research Analyst Templeton Global Equity Team Number of Members Average Years Experience Portfolio Managers/Analysts Research Analysts

6 Important Legal Information 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 Luxembourg-domiciled 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. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. 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: Past performance is not an indicator or a guarantee of future performance. 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. Investment in the Fund entails risks which are described in the Fund s prospectus and, where available, in the relevant Key Investor Information Document. Special risks may be associated with a Fund s investment in certain types of securities, asset classes, sectors, markets, currencies or countries and in the Fund s possible use of derivatives. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund s holdings at any one time. 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. Where a Fund invests in emerging markets, this investment can be more risky than an investment in developed markets. 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. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. 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. For the most current information on the fund, please contact your Franklin Templeton marketing representative. 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. References to indexes are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. 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. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. Past performance is not an indicator or a guarantee of future performance. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. 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: 1. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change Morningstar, Inc. All rights reserved. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and 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. 3. Source for all information is Franklin Templeton Investments. Benchmark related data provided by FactSet. Past performance is not an indicator or a guarantee of future performance. Periods greater than one year are shown as average annual total returns. Fund performance data include reinvested dividends, and is net of management fees. Sales charges, other commissions, taxes and other relevant costs to be paid by the investor are not included. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 4. 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. The market capitalisation figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Source: Factset. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 5. The dividend yield quoted here is the yield on securities within the portfolio and should not be used as an indication of the income received from this portfolio. Franklin Templeton Investments The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box Dubai, U.A.E. Tel.: Fax.: Franklin Templeton Investments. All rights reserved.

7 6. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. 7. Top Security Contributors and Top Security 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 Fund 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 Fund, or that security sold will not be repurchased. 8. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 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. 10. Information ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). Franklin Templeton Investments The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box Dubai, U.A.E. Tel.: Fax.: Franklin Templeton Investments. All rights reserved.