Templeton Asian Growth Fund Fund Manager Report

Transcription

1 Franklin Templeton Investment Funds Templeton Asian Growth Fund Fund Manager Report Equity LU January 2016 Fund Characteristics Base Currency USD Total Net Assets (USD) 4,489,854,582 Fund Inception Date Number Of Issuers 54 Primary Benchmark: MSCI All Country Asia ex- Japan Index Bloomberg Code - A(Ydis) TEMFREI LX Fund Management Allan Lam: Hong Kong Mark Mobius, PhD: Hong Kong Overview Asia ex Japan equities started out the year on a somber note, as signs of slowing growth, especially in Europe and China, led to a rise in risk aversion. Most sectors weighed on the fund s absolute performance in January, with consumer discretionary, energy and materials the largest detractors. The financials sector made the only substantial contribution to absolute performance. Regionally, China was by far the largest detractor from absolute returns. Positions in India and Pakistan also weighed on performance. In contrast, Indonesia and Thailand were solid contributors to absolute performance, and the fund s position in South Korea made a more modest contribution. Performance (%) (As of 31 January 2016) Cumulative Performance 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept ( ) Templeton Asian Growth Fund - A(Ydis) USD NAV MSCI All Country Asia ex Japan Index USD Annualized Performance (%) Net Of Sales Charge^ (As of 31 January 2016) Historical Performance 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept ( ) Templeton Asian Growth Fund - A(Ydis) USD NAV Portfolio Allocation (%) Sector Breakdown(%) Geographic Breakdown (%) Equity Cash & Cash Equivalents 0.55 Financials Energy Consumer Discretionary Industrials Materials 7.75 Information Technology 3.97 Consumer Staples 3.62 Health Care 0.60 Telecommunication Services 0.00 Utilities 0.00 China Thailand Indonesia Pakistan 9.14 Hong Kong 7.86 Other For information related to the headings Fund Characteristics, Portfolio Allocation, Sector Breakdown, Geographic Breakdown, Templeton Asian Growth Fund - A(Ydis) USD NAV, please see note regarding Fund Characteristics data and Fund Ratings on back page. Source: Franklin Templeton Investments, 31 January Past performance is not an indicator or a guarantee of future performance. Source for MSCI benchmark returns: FactSet Research System, Inc., as of 31 January Performance calculated as at 31 January 2016 in USD; 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 Market Review Asia ex Japan equities started out the year on a somber note, as signs of slowing growth, especially in Europe and China, led to a rise in risk aversion. Asian markets fared somewhat worse than emerging markets overall, dragged down by substantial weakness in China and Hong Kong, as the impact of growth concerns was compounded by uncertainty about the country s foreign-exchange policy and authorities intervention in equity markets, which rattled investor confidence. Singapore was sharply lower as well. India retreated on subdued corporate results and disappointing economic data, especially lower-than-expected industrial production growth in November. The rise in risk aversion also triggered a broad-based selloff in South Korea, with equities further impacted by a weak quarterly earnings season. Certain Southeast Asian markets posted solid gains, however, outperforming their regional and global peers. Thailand benefited from signs of rising consumer confidence and strengthening domestic activity in December, supported by government spending and tax incentives. Markets in Malaysia and Indonesia benefited from central bank policy measures, the former rebounding after the central bank lowered banks statutory reserve ratio to increase domestic liquidity, and the latter extending December s rally as the central bank cut rates by a further 25 basis points and the government announced its ninth economic stimulus package. All sectors within the benchmark index fell over the month, with financials seeing the largest percentage decline. Industrials, information technology (IT) and consumer discretionary were also weak. The most resilient sector was telecommunication services, thanks largely to strength in Indonesian and Thai stocks, and defensive sectors such as consumer staples and health care also saw a degree of support along with the rise in risk aversion. Performance Review and Contributors to Performance Most sectors weighed on the fund s absolute performance in January, with consumer discretionary, energy and materials the largest detractors. In consumer discretionary, top detractors were China-based automobile manufacturers, one of which saw its share price decline as December monthly retail sales fell and sales for the full year showed relatively muted growth, although wholesale shipments fared somewhat better as distributors replenished inventories. Another auto stock was simply pulled lower by the general market selloff, despite management s preliminary indication of possibly strong full-year profit growth. The sector s negative impact was offset somewhat, however, by strength in an Indonesia-based automobile manufacturer that performed well on the back of local market strength and hopes that vehicle demand would continue to improve in Declines in commodity-related companies in the energy and materials sectors hampered absolute returns, with stocks falling largely on concerns about the impact of the continued weak price environment amid slowing demand and increasing supply. The largest detractors in the energy sector were Pakistan-based Oil & Gas Development Company (OGDC) and a China=based coal company, while top detractors among materials stocks Aluminum Corporation of China (Chalco) and an India-based mining conglomerate. Weak commodity prices and worries about slowing demand also affected China-based companies in the industrials sector, particularly two stocks related to container transportation, logistics and port services. However, the negative impact was somewhat offset by a position in a South Korea-based construction and engineering firm with a focus on residential housing, which gained on significantly better-than-expected quarterly results indicating strong cash flow generation and improved profitability supported by its construction business. The financials sector made the only substantial contribution to absolute performance. An Indonesia-based bank was boosted not only by the central bank s rate cut but also by news that it planned to streamline its operations, increase efficiency and restructure its business model to focus more on lending to small and medium enterprises (SMEs). Banks in Thailand were buoyed by domestic market strength, while one stock additionally benefited from quarterly results that indicated a significant improvement in credit quality, rising loan growth and better net interest margins thanks to lower funding costs. Regionally, China was by far the largest detractor from absolute returns. Positions in India and Pakistan also weighed on performance. In contrast, Indonesia and Thailand were solid contributors to absolute performance, and the fund s position in South Korea made a more modest contribution. Portfolio Positioning We construct portfolios on a stock-by-stock basis, with country and sector weightings an outcome of the process. In January, the largest country positions were in China and Thailand, followed by Indonesia and Pakistan. The largest sector weights in absolute terms were in financials, consumer discretionary and energy. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail investors. Not for public distribution. 2

3 Portfolio Diversification (As of 31 January 2016) Top Sector Contributors Sector Financials Consumer Staples Top Security Contributors Security PT BANK DANAMON INDONESIA TBK CLASS A KASIKORNBANK PUBLIC CO LTD SIAM COMMERCIAL BANK PUBLIC COMPANY LIMITED PT ASTRA INTERNATIONAL TBK HYUNDAI DEVELOPMENT CO YOUNGONE CORP KIATNAKIN BANK PUBLIC CO LTD PT UNITED TRACTORS TBK PTT EXPLORATION & PRODUCTION PLC DAIRY FARM INTERNATIONAL HOLDINGS LIMITED Top Sector Detractors Sector Consumer Discretionary Energy Materials Top Security Detractors Security PT BANK DANAMON INDONESIA TBK CLASS A BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED ALUMINUM CORPORATION OF CHINA LIMITED CLASS H OIL & GAS DEVELOPMENT CO LTD VEDANTA LIMITED CHINA INTERNATIONAL MARINE CONTAINERS (GROUP) CO LTD CLASS H SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CLASS B GUANGZHOU AUTOMOBILE GROUP CO LTD CLASS H MCB BANK LIMITED INNER MONGOLIA YITAI COAL CO LTD CLASS B Geographic Weightings vs. Benchmark (%) Sector Weightings vs. Benchmark (%) Templeton Asian Growth Fund MSCI All Country Asia ex Japan Index Source for Top Sector Contributors and Top Sector Detractors : FactSet Research System, Inc. as of 31 January Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined. Source for Top Security Contributors and Top Security Detractors : FactSet Research System, Inc. as of 31 January Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined. Source for the Fund s Geographic Weightings and Sector Weightings above: Franklin Templeton Investments as of 31 January 2016 Holdings of the same issuer have been combined. Weightings as percent of equity. Source for the benchmark s Geographic Weightings and Sector Weightings above: MSCI, as of 31 January The above MSCI Index, the primary benchmark for this Fund, is an equity index calculated by Morgan Stanley Capital International (MSCI). The index measures the total return (gross dividends are reinvested) of equity securities available to foreign (nonlocal) investors in the relevant geographic region as reflected in the name of the index or as defined by MSCI. Securities included in the index are weighted according to their Free Float adjusted market capitalization (Price*Shares outstanding*foreign Inclusion Factor). For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail investors. Not for public distribution. 3

4 Portfolio Diversification (continued) Top Ten Equity Holdings Security Industry % of Total BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LTD Automobiles & Components 7.71 OIL & GAS DEVELOPMENT CO LTD Energy 6.89 PTT PCL Energy 5.78 ALUMINUM CORP OF CHINA LTD Materials 5.06 KASIKORNBANK PCL Banks 4.92 BANK RAKYAT INDONESIA PERSERO TBK PT Banks 4.59 SIAM COMMERCIAL BANK PCL Banks 4.49 ASTRA INTERNATIONAL TBK PT Automobiles & Components 4.27 GUANGZHOU AUTOMOBILE GROUP CO LTD Automobiles & Components 4.06 BANK DANAMON INDONESIA TBK PT Banks 4.03 Total Portfolio Characteristics Price to Earnings Price to Book Value Price to Cash Flow Dividend Yield Market Cap (USD Millions) Templeton Asian Growth Fund (Wtd. Avg.) 11.12x 1.21x 4.57x 3.80% 10,607 MSCI All Country Asia ex Japan Index (Wtd. Avg.) 11.57x 1.29x 7.57x 2.93% 43,662 Investment Outlook Emerging Asia remains a key growth engine for the global economy, with China and India among the world s fastestgrowing major economies. Despite a slight moderation in growth in China, the economy continues to expand at high rates even as its government manages the transition from an export-driven to a consumption-led economy. Meanwhile, a number of Asian markets that were weak in 2015, including Thailand, Indonesia and Pakistan, could witness a reversal of fortunes in 2016, helped by stimulus measures, reform programs and infrastructure spending. Extensive marketfriendly reforms and infrastructure investment, in many cases thanks to new governments coming to power, should be an important driver of economic performance during Low commodity prices have helped lower inflation, boost consumer purchasing power and enable governments to implement reforms and accommodative monetary policies, all of which have supported economic growth. The decline in Asian equity markets in 2015 was not broadbased, and performance diverged significantly across markets. From our perspective, though, the upside of the overall market decline is that valuations of Asian equities have become more attractive. Our ground-up investment approach has enabled us to identify what we believe are interesting investment opportunities across the region. The corrections in emerging Asia s stock and currency markets have provided a very attractive opportunity, we think, to build up or expand exposure to the region. Investment Objective Long-term capital appreciation by investing primarily in equity securities of companies incorporated or who have their area of primary activity in Asia (excluding Australia, New Zealand and Japan). Investment Philosophy The foundation of the Templeton Emerging Markets Team s investment philosophy value-oriented, patient, bottom-up, global investing has remained consistent for several decades. Its strategy is grounded in patience and the belief that on a short-term basis, stocks overreact to news and noise. On a long-term basis, markets are efficient and patience will reward those who have identified undervalued stocks. Through proprietary research, Templeton seeks to identify quality investments in frequently unfashionable and undervalued stocks. 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, 31 January Past performance is not an indicator or a guarantee of future performance. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail investors. Not for public distribution. 4

5 Explanatory Notes Fund Characteristics: The Price to Earnings, Price to Cash Flow and Price to 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 presented. 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 paid 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 Security Contributors and Top Security Detractors are holdings based on the last 12 months period. 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. All MSCI data is provided as is. The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited. For Professional investor use only. Not for distribution to 2016 retail Franklin investors. Templeton Investments. All rights reserved. 5

6 This document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Any research and analysis contained in this presentation has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change. Franklin Templeton Investments accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Past performance or any prediction or forecast is not necessarily indicative of future performance of the Fund. 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. Potential investor should read the details of the Prospectus and Product Highlights Sheet before deciding to subscribe for or purchase the Fund. This shall not be construed as the making of any offer or invitation to anyone in any jurisdiction in which such offer is not authorised or in which the person making such offer is not qualified to do so or to anyone to whom it is unlawful to make such an offer. In particular, this Fund is not available to U.S. Persons and Canadian residents. Opinions expressed within the promotion are subject to change without prior notice. Investors may wish to seek advice from a financial adviser before making a commitment to invest in shares of the Fund. In the event an investor chooses not to seek advice from a financial adviser, he/she should consider whether the Fund is suitable for him/her. Copyright 2016 Franklin Templeton Investments. All rights reserved. Issued by Templeton Asset Management Ltd. Registration No. (UEN) E For Professional investor use only. Not for distribution to 2016 retail Franklin investors. Templeton Investments. All rights reserved. 6