Franklin Templeton Fixed Income Group. Franklin Templeton Shariah Funds Franklin Global Sukuk Fund - A (acc) USD. Data as of 30 June 2018

Transcription

1 Franklin Templeton Fixed Income Group Data as of 30 June 2018 Franklin Templeton Shariah Funds - A (acc) USD

2 Table of Contents Franklin Templeton Investments...4 Access to a W ell-established, Integrated Platform...25 Investment Capabilities Overview...5 Global Sukuk Specialists on the Ground...26 Franklin Templeton Fixed Income Management...6 Specialised Expertise in Managing Sukuk...27 W ho Is Franklin Templeton Investments?...7 Amanie International Shariah Supervisory Board...28 Financial Strength That Our Clients and Partners Can Trust... 8 Fatwa...29 Local Insights from a Global Leader... 9 Investment Philosophy...30 Extensive Shariah-Compliant Resources Sukuk Investment Process...31 Broad Exposure to Global Sukuk Market Opportunities...32 Global Sukuk...11 Integrated Risk Management Has Three Different Layers...33 Basic Building Block of a Shariah-Compliant Asset Allocation Global Sukuk Risk Framework...34 Global Sukuk Bonds Have Low Correlation to Oil and Other Major Asset Classes Strong Outperformance of Global Sukuk with Less Volatility than Conventional Bonds...14 Fund Characteristics...35 Global Sukuk Index Returns Have a Strong Risk/Return Profile Compared to...15 Emerging Markets Bonds and Global Bonds Summary...36 Global Sukuk Have Provided Downside Protection...16 Portfolio Characteristics...38 Exponential Growth in Annual Global Sukuk Issuance...17 Geographic Allocation...39 The Global Sukuk Market Has Grown in Size and Diversity...18 Currency Allocation...40 Global Sukuk Issues Are Increasingly Larger, Listed and Liquid...19 Sector Allocation...41 Current Portfolio Themes Quality Allocation...42 Trailing Allocations...21 Maturity Allocation...43 Strategy Overview...23 Top Ten Holdings...44 Sukuk Investing with a Global Asset Management Leader...24 Discrete Performance W hat are the Key Risks?

3 Table of Contents (continued) Historical Performance...46 Calendar Year Returns Performance Risk Statistics Supplemental Information...49 Appendix...51 Most Common Sukuk Instruments...52 Growing Global Sukuk Market Increasingly Diversified...53 Glossary...54 Important Disclosures...55 Additional Disclosures...56 GIPS Performance Presentation

4 Franklin Templeton Investments 4

5 Investment Capabilities Overview FRANKLIN TEMPLETON INVESTMENTS Total Combined Assets Under Management : US$724.1 Billion 2 AUM Equity 5 Fixed Income US$317.0 Billion CAPABILITIES Value Deep Value Core Value Blend GARP Growth Convertibles Sector Shariah Smart Beta INVESTMENT Templeton Global Equity Group (1940) TEAMS Franklin Equity Group (1947) Franklin Mutual Series (1949) Franklin Templeton Emerging Markets Equity (1987) 8 Multi-Asset Solutions US$275.2 Billion Government Municipals Corporate Credit Bank Loans Securitised Multi-Sector Currencies Sukuk Franklin Templeton Fixed Income Group (1970) Templeton Global Macro (1986) Franklin LAM-Fixed Income (1993) 11 US$120.3 Billion Multi-Asset Income Diversified Outcome-Oriented Risk Premia Smart Beta Balanced Allocation Target Date/Risk Model Portfolios Inflation Protection Managed Volatility Franklin Templeton Multi-Asset Solutions (1948) Franklin SystematiQ (2011) Alternatives US$16.1 Billion Commodities Infrastructure Real Estate Hedge Funds Private Equity Franklin Real Asset Advisors (1984) Darby Overseas Investments (1994) K2 Advisors (1994) Pelagos Capital Management (2005) Source: Franklin Templeton Investments (FTI), as of 30 June 2018, based on latest available data. Total combined Assets Under Management (Total AUM) combines U.S. and non-u.s. AUM of the investment management subsidiaries of the parent company, Franklin Resources, Inc. (FRI) [NYSE: BEN], a global investment management organisation operating as FTI. Only selected business entities within FTI claim compliance with the GIPS standards as described in the table of contents if applicable. Total and platform AUM includes discretionary and non-discretionary accounts, including pooled investment vehicles, separate accounts and other vehicles. Total and platform AUM may also include advisory accounts with or without trading authority. In addition, assets for which certain FTI advisers provide limited asset allocation advisory services, and assets that are not allocated to FTI products are not included in the AUM figures shown. Franklin Templeton Multi-Asset Solutions may invest in various investment platforms advised by a number of investment advisory entities within FTI. Platform AUM reported for FT Multi-Asset Solutions therefore may include certain AUM separately reported under each utilised investment platform. Total AUM also includes assets managed by certain FTI advisers that do not form part of the selected investment platforms shown. As a result, the combined platform AUMs may not equal Total AUM and may be calculated and reported separately for regulatory or other purposes under each investment adviser. Each local asset manager may be considered as an entity affiliated with or associated to FTI by virtue of being a direct or indirect wholly-owned subsidiary of FRI, an entity or joint venture in which FRI owns a partial interest, which may be a minority interest, or a third party asset management company to which investment advisory services have been delegated by an FTI adviser. 5

6 0301 Franklin Templeton Fixed Income Management Michael Hasenstab, Ph.D. Chief Investment Officer Global Macro Global Sovereign Local Emerging Market Debt 21 Investment Professionals Christopher Molumphy, CFA Chief Investment Officer Corporate Credit Global Sovereign/ Emerging Markets Mortgages Bank Loans Municipals Local Asset Management1 Glenn Voyles, CFA Matt Fey, CFA John Beck William Ledward, Ph.D. Roger Bayston, CFA Mark Boyadjian, CFA Sheila Amoroso Rafael Costas Australia, Brazil, Canada, China,2 India, South Korea, Malaysia, Mexico and UAE 32 Investment Professionals 12 Investment Professionals 9 Investment Professionals 18 Investment Professionals 31 Investment Professionals 44 Investment Professionals Quantitative: David Yuen, CFA, FRM, 8 Professionals Fixed Income Policy Committee Co-Chairs: Christopher Molumphy and Michael Materasso Dedicated Fixed Income Investment Professionals3 CFA Charterholders 14 Ph.D.s 62 M.B.A.s 1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. Reference to Local Asset Management is in relation to fixed income teams (excluding equity). 2. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. 3. Investment professionals include portfolio managers, analysts and traders. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. As of 30 June

7 1648 Who Is Franklin Templeton Investments? An Investment Management Organisation Focusing on research and investment management with over 600 investment professionals covering all major asset classes Serving the needs of investors worldwide with a dedicated team of 2018 Franklin Templeton Investments total firm assets US$724.1 billion as of 30 June 2018 investment professionals 2001 Providing the resources, expertise, experience and commitment to ensure outstanding service to our clients 2000 Offering a broad range of investment strategies and vehicles 1998 Shariah-Compliant Investment Solutions Provider Managing over US$2.3 billion in Shariah-compliant assets1 Offering Shariah-compliant strategies across a wide range of asset 1996 classes, including global, regional and local equities, and fixed income (sukuk) Applying our management expertise in combination with the knowledge and advice of Shariah scholars Fiduciary Trust Company International joins Franklin Templeton Investments Bissett Investment Management joins Franklin Templeton Investments Franklin Resources, Inc. (BEN), stock is added to S&P 500 Index Mutual Series joins Franklin Templeton Investments Templeton joins Franklin Templeton Investments Franklin Resources, Inc., stock listed and begins trading on New York Stock Exchange Franklin Resources, Inc., moves offices from New York to California Franklin Resources, Inc., formed as a holding company going public as BEN Franklin Distributors, Inc., introduces its first mutual funds Investment professionals include portfolio managers, analysts and traders. 1. As of 30 June

8 1650 Financial Strength That Our Clients and Partners Can Trust Diversified Business Franklin Templeton Investments manages over $737.5 billion assets in total Continue to benefit from the global diversification of our assets under management by investment objective, client type and geographic region A significant portion of our business is generated from outside the United States Strong Balance Sheet Franklin Resources, Inc. is well capitalised with over US$9.3 billion in net cash and investments Excellent Credit Ratings Standard & Poor s long-term and short-term ratings are A+ and A-1+, respectively Moody s long-term and short-term ratings are A1 and P-1, respectively Source: Franklin Resources, Inc. as of 31 March

9 3016 Local Insights from a Global Leader What Sets Us Apart Access to Locally Sourced Ideas & Insights Local investment professionals who are based in the country or region where assets are managed Specialisation and focus on a single region to develop deep knowledge and unique insights First-hand knowledge of local market dynamics as investment teams are embedded in their region s local business practices Real-time response to local market events Networks of local business contacts Broad Research Capabilities Worldwide Extensive on-the-ground asset management capabilities in 33 countries1 to identify the best investment opportunities in each country or region In-depth research across all markets developed, emerging and frontier and market capitalisation for unparalleled insights into the markets we invest in Access to investment opportunities beyond the mainstream and often before they are recognised by the broader market Strength of a Global Asset Management Leader Franklin Templeton was established in 1947 Manages US$738 billion of assets1 Credit ratings among the highest of any asset management company Large research platform that operates seamlessly across the globe Comprehensive 24/7 coverage and support of key operations such as trading, risk analysis, legal, technology, operations, client service and other key business services 1. Source: Franklin Templeton Investments as of 31 March

10 1651 Extensive Extensive Shariah-Compliant Shariah-Compliant Resources Resources Independent Endorsement from Esteemed Board of Scholars Our portfolios are independently reviewed and endorsed by the Amanie International Shariah Supervisory Board The Amanie scholars provide initial approval on investment objectives and strategy, as well as ongoing supervisory and monitoring services to ensure continuous adherence and validation to internationally accepted Shariah principles and standards A fatwa was issued for on 30 September 2011 Comprehensive, Integrated Risk Management Each portfolio team employs a highly disciplined investment philosophy and process designed to comprehensively measure and manage risk The teams also leverage analysis and insight from a worldwide network of locally based risk management specialists 10

11 Global Sukuk 11

12 1653 Basic a Shariah-Compliant Shariah-Compliant Asset Asset Allocation Allocation Basic Building Building Block Block of of a Global Sukuk Can Provide Diversification Benefits A 40% allocation to global sukuk would have reduced risk by 52%, while still achieving 78% of the return of the all-equity Shariah portfolio 5-Year Period Ended 31 March % Annualised Return 8% 100% Shariah Equity 20%/80% 40%/60% 6% 60%/40% 80%/20% 4% 100% Global Sukuk 2% 2% 4% 6% 8% 10% 12% Risk (Annualised Standard Deviation) FactSet. Important data provider notices and terms available at (Global Sukuk is represented by the S&P Dow Jones Sukuk (USD) Index; Shariah Equities are represented by the MSCI AC World Islamic Index). See Important Disclosures slide for additional information. Past performance is not an indicator or a guarantee of future performance. 12

13 4267 Global Sukuk Bonds Have Low Correlation to Oil and Other Major Asset Classes Index Weight in Oil Sensitive Sectors as of 31 March Year Correlation of Daily Returns in US$ as of 31 March Sukuk Bonds Emerging Markets Government Bond 0.40 Emerging Markets Equity 0.39 GCC Bonds Global Government Bond 0.36 Emerging Markets Bond 0.64 Global Bonds 0.36 Developed Markets Equity 0.20 Emerging Market Corporates Crude Oil 0.09 Global HY Corporates Global IG Corporates 0% 7% Energy Exposure 14% 21% 28% 35% Materials Exposure 1. Source: FactSet. Indices are represented as follows: Global IG Corporates (Bloomberg Global IG Corporate Bond Index), Global HY Corporates (Bloomberg Global HY Corporate Bond Index), Emerging Market Corporates (Bloomberg USD EM Corporate Bond Index), GCC Bonds (FTSE MENA Broad Bond GCC Issuers Index), Sukuk Bonds (Dow Jones Sukuk Index). 2. Source: FactSet. Indices are represented as follows: Crude Oil (Bloomberg Composite Crude Oil Index), Developed Markets Equity (MSCI The World Index), Global Government Bond (JP Morgan GBI Global Index), Emerging Markets Equity (MSCI Emerging Markets Index), Global Bonds (Bloomberg Barclays Global Aggregate Index), Emerging Markets Government Bond (JP Morgan GBI-EM Global Composite Index) and Emerging Markets Bond (JP Morgan EMBI Global Index). 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 Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 13

14 1655 Strong Outperformance of Global Sukuk with Less Volatility than Conventional Bonds Strong Outperformance of Global Sukuk with Less Volatility than Conventional Bonds Global Sukuk vs. Global Bonds 3-Year Period Ended 31 March ,000 US$ 11,000 10,000 9,000 8,000 Mar-15 Jul-15 Global Sukuk Nov-15 Feb-16 Jun-16 Sep-16 Jan-17 Apr-17 Aug-17 Nov-17 Mar-18 Global Bonds FactSet. Important data provider notices and terms available at Source: S&P and J.P. Morgan as of 31 March Global Sukuk are represented by the Dow Jones Sukuk Index. Global Bonds are represented by the J.P. Morgan GBI Broad Index. Returns are in USD. See Important Disclosures slide for additional information. Past performance is not an indicator or a guarantee of future performance. 14

15 4266 Global Sukuk Index Returns Have a Strong Risk/Return Profile Compared to ComparedMarkets to Emerging Markets Bonds and Global Bonds Emerging Bonds and Global Bonds Global Sukuk Index vs. Emerging Markets Bond and Global Bond Indexes, Risk vs. Return 3-Year Period Ended 31 March % Emerging Markets Bond Index Average Annual Total Return 6% Global Bond Index 4% 2% Global Sukuk Index 0% -2% 1% 2% 3% 4% 5% 6% 7% 8% 9% Annualised Standard Deviation (Risk) Source: 2018 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (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. Sukuk Bonds are represented by the Dow Jones Sukuk Index; Emerging Markets Bonds are represented by the JP Morgan EMBI Plus Index; Global Bonds are represented by the JP Morgan Global Government Bond Index. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Important data provider notices and terms available at Past performance is not an indicator or a guarantee of future performance. 15

16 5990 Global Sukuk Have Provided Downside Protection Apart from the Global Financial Crisis, Global Sukuk Have Experienced Less Downside Risk Compared to Major Global Fixed Income Benchmarks Over the Past 10 Years Drawdown 4/2008 to 3/ Bloomberg Barclays Global Aggregate Bloomberg Barclays US Aggregate Bloomberg Barclays Euro Aggregate JP Morgan EMBI + Mar-18 Aug-17 Jan-17 Jun-16 Nov-15 Apr-15 Sep-14 Feb-14 Jul-13 Dec-12 May-12 Oct-11 Mar-11 Aug-10 Jan-10 Jun-09 Nov-08 Apr Dow Jones Sukuk 16

17 1656 Exponential Exponential Growth Growth in in Annual Annual Global Global Sukuk Sukuk Issuance Issuance Over US$428 Billion to Date Annual Global Sukuk Issuance As of 31 December 2017 $60,000 $50,000 US$ Million $40,000 $30,000 $20,000 $10,000 $ GCC Asia Other Source: Bloomberg LP as of 31 December Data excludes short-term issuance. 17

18 2913 The Sukuk Market and Diversity Diversity The Global Global Sukuk Market Has Has Grown Grown in in Size Size and Environmental Control Commercial Services Water Electric Transportation Real Estate Engineering & Construction US$1.5 billion New Issuances: % 13.85% 12.00% 11.33% 10.67% 4.41% 2.12% Electric Diversified Financial Services Commercial Services Multi-National Sovereign Leisure Time Engineering & Construction Water Banks Private Equity Commodity Fund Auto Manufacturers Real Estate Telecommunication Services Iron/Steel Holding Companies Diversified Oil & Gas Agriculture Computers Oil & Gas Services Auto Parts & Equipment Apparel Miscellaneous Manufacturers Lodging Electrical Compo & Equipment Pharmaceuticals Retail US$39.5 billion New Issuances: % 11.66% 11.36% 9.71% 8.32% 7.63% 6.79% 3.79% 3.67% 2.92% 2.77% 2.52% 1.95% 1.92% 1.84% 1.84% 1.64% 1.56% 1.18% 0.92% 0.47% 0.36% 0.26% 0.18% 0.11% 0.09% 0.07% Sovereign Banks Diversified Financial Services Engineering & Construction Electric Telecommunication Services Multi-National Real Estate Commercial Services Transportation Gas Agriculture Auto Manufacturers Oil & Gas Services Chemicals REITs Software US$134.0 billion New Issuances: % 13.00% 12.84% 12.33% 11.83% 8.12% 6.05% 3.49% 3.17% 2.28% 1.18% 0.96% 0.23% 0.14% 0.13% 0.06% 0.02% Sovereign Banks Real Estate Multi-National Electric Oil & Gas Building Materials Investment Companies Diversified Finan Serv Engineering & Construction Transportation Telecommunications Oil & Gas Services Chemicals Water REITS Commercial Services Retail Energy-Alternate Sources Holding Companies-Divers Auto Manufacturers Insurance Miscellaneous Manufacturers Internet Mining Media Agriculture 38.32% 9.04% 6.93% 6.79% 6.35% 5.54% 4.47% 4.17% 3.62% 3.12% 2.64% 1.77% 1.35% 0.95% 0.90% 0.73% 0.63% 0.60% 0.54% 0.52% 0.35% 0.22% 0.21% 0.12% 0.04% 0.03% 0.02% US$442.2 billion New Issuances: 435 Source: Bloomberg LP as of 31 December

19 1657 Global Global Sukuk Sukuk Issues Issues Are Are Increasingly Increasingly Larger, Larger, Listed Listed and and Liquid Liquid Annual Global Sukuk Issuance Annual Global Sukuk Issuance Number of Issues over US$500 Million As of 31 December 2017 Number of Issues over US$1 Billion As of 31 December GCC 2009 Asia Other GCC 2009 Asia Other Source: Bloomberg LP as of 31 December Data excludes short-term issuance. 19

20 5096 Current Current Portfolio Portfolio Themes Themes As of 31 March 2018 Benchmark Rates Currencies Neutral, positioned for some additional flattening The US Dollar s Outlook Remains Fragile The US and developed markets still have to contend with structural issues including massive debt stock, low labor productivity, aging populations and modest growth. Relative positioning more neutral after recent flattening of developed market curves. Expectations remain for broadly stable rates with risks tilted slightly to the downside if inflation and structural reform in the US disappoint. We are still constructive on local rates in Malaysia and Indonesia with competitive real rates and accommodative policy frameworks. Recent decline of the US dollar is consistent with the pattern seen after the start of the past three rate hike cycles. Impact of quantitative normalisation will be gradual, in our view. Political climate inhibiting effective policy making. We continue to find value in some EM currencies. Fund maintains approximately 10% in non-usd currencies. Credit Oil Price Defensive Characteristics Remain, Country Risk on Watch OPEC Deal to Support Inventory Rebalance and Oil Prices Geopolitical risk may have subsided in developed markets but increased in the Gulf Cooperation Council (GCC), with a more pronounced downside to country risk. GCC and Asian corporates have maintained solid credit quality, supported further by stable oil prices, highlighted by a continued trend in stable or upgraded ratings. We anticipate GCC banking system liquidity conditions to continue to ease into 2018 with solid profitability and capitalisation to remain key strengths. Spread levels of Sukuk-issuing corporates and banks should outperform any emerging markets or high yield spread widening. We see value in some long-dated Sukuk and idiosyncratic credit stories, however the portfolio maintains a defensive bias with allocation shifts to high grade and sovereign exposures. Prices should hold as OPEC cuts, geopolitical risks and rising cost structure in tight oil improve outlook. We see the OPEC deal between members and non-members persisting with compliance remaining robust. Our view is that current oil prices will relieve some of the stress on governments budgets but deficits to remain for GCC countries, albeit at a more manageable level. Fiscal consolidation paths and efforts to implement reform-oriented agendas should drive fundamentals. Opinions expressed are as of 31 March 2018, and are subject to change without prior notice. This is not investment advice, and is not a complete analysis of every material fact regarding any security, sector, portfolio, strategy or market. Source: Franklin Templeton Investments. 20

21 5101 Trailing Allocations Sector Allocations As of 31 March % 100% 90% 90% 80% 80% 70% 70% Percent of Portfolio Percent of Portfolio Geographic Allocations As of 31 March % 50% 40% 60% 50% 40% 30% 30% 20% 20% 10% 10% 0% 0% Hong Kong Turkey Kuwait United Arab Emirates 2014 Indonesia United Kingdom Oman United States Malaysia Cayman Islands Qatar Others Pakistan Bahrain Saudi Arabia Cash & Cash Equivalents Corporate Bonds Government-Related Agencies Government-Related Sovereign and Others The information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 21

22 5101 Trailing Allocations (continued) Currency Allocations As of 31 March 2018 Portfolio Duration vs. Benchmark As of 31 March % % % Percent of Portfolio 70% % 50% % % 20% % 0% 2012 Chinese Yuan British Pound Indonesian Rupiah Nigerian Naira 2015 Malaysian Ringgit Emirati Dirham Singapore Dollar US Dollar Fund Benchmark The information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 22

23 1658 Strategy Strategy Overview Overview Investment Objectives1 To maximise total investment return, consisting of a combination of profit income and capital appreciation, consistent with prudent investment management Investment Universe Focuses on fixed- and floating-rate Shariah-compliant securities issued by government, government-related and corporate entities May include non-investment grade securities and allocations to both developed and emerging markets Can invest up to 40% of its net assets in short-term instruments including Murabaha placements Anticipated Sources of Value Added May utilise three independent sources of alpha: Profit rates Currencies Sovereign and corporate credit 1. The expected risk and return profile is provided solely to illustrate the manager s expectations with respect to fund characteristics, based on the fund s historical experience during normal market conditions. Thus, the characteristics do not take into account future market risks or changing economic conditions and are not a prediction or guarantee of future performance. An investor in the fund may experience significantly different risk and return characteristics, including greater volatility and lower returns than expected with the potential for loss of principal amounts invested. There is no assurance that the fund will achieve its investment objectives. As stated above, the fund is managed in a benchmark unconstrained manner. Past performance is not an indicator or a guarantee of future performance. 23

24 1659 Sukuk Sukuk Investing Investing with with aa Global Global Asset Asset Management Management Leader Leader Recognised Expertise in Managing Global Sukuk Manages over US$2.32 billion in Shariah-compliant strategies Named Best Islamic Asset Management House (Institutional) in Malaysia by the Asset Triple A Islamic Finance Awards in 2017 and 2018 Won The Most Outstanding Islamic Fund Manager, 14th KLIFF Islamic Finance Awards 2017 Access to a Well-Established, Integrated Platform Global Sukuk Team is supported by the analysis and insight of a worldwide network of over 200 investment, trading and risk professionals Extensive Shariah-Compliant Resources Independent endorsement and regular monitoring by the Amanie International Shariah Supervisory Board Broad Exposure to Global Sukuk Market Opportunities Strong research coverage across global sukuk issuing markets conducted by sukuk specialists on the ground As of 30 June

25 1661 Access Integrated Platform Platform Access to to a a Well-Established, Well-Established, Integrated A Worldwide Network of over 200 Fixed Income, Trading and Risk Professionals Edinburgh Frankfurt London Luxembourg Poznan Warsaw Fort Lauderdale Calgary New York Rancho Cordova Short Hills San Mateo Stamford Dubai Mexico City Chennai Hong Kong Hyderabad Kuala Lumpur Mumbai Seoul Shanghai Singapore Buenos Aires São Paulo Melbourne Fixed Income Research Offices Trading Platforms Risk Management Specialists As of 31 March

26 1662 Global Sukuk Specialists on the Ground TOP-DOWN RESEARCH Franklin Templeton Fixed Income Policy Committee 18 Investment Professionals Average Experience: 28 Years Franklin Templeton Investments well-established, integrated global platform Global Trading Global Sukuk Team (Dubai, Kuala Lumpur, San Mateo, Hyderabad) Franklin Templeton Fixed Income Resources 9 Investment Professionals Average Experience: 18 Years Risk Management Over 180 Fixed Income Professionals Compliance Templeton Global Macro Franklin Templeton Fixed Income Group Global Sukuk Team Global Sovereign/ Emerging Markets 12 Professionals Corporate Credit 33 Professionals Local Asset Management 45 Professionals Bank Loans 18 Professionals Municipals 31 Professionals Quantitative Analysis Team 7 Professionals Global Sovereign Local Emerging Market Debt 20 Professionals Technology Product Management Access to global insights and expertise of investment professionals in different fixed income sector teams and supported by a well-established, integrated global platform. BOTTOM-UP RESEARCH As of 31 March Please note that investment professionals mentioned on this page may participate in different functions. 26

27 1663 Specialised Expertise in Managing Sukuk One of the Most Experienced Investment Teams in the MENASA Region Franklin Templeton Investments has a long track record in managing sukuk products since 2008 Average industry experience of Global Sukuk Team is 18 years Fixed income investment professionals with specialised expertise in managing sukuk to ensure adherence to the investment principles of Islamic law Dubai, United Arab Emirates Kuala Lumpur, Malaysia MOHIEDDINE KRONFOL Chief Investment Officer Global Sukuk and MENA Fixed Income Mr. Kronfol is responsible for the investment process, research and performance of the Global Sukuk and MENA Fixed Income teams. He is one of the founding partners and board member of Franklin Templeton Investments (ME), formerly Algebra Capital, and has been with the firm since its inception in He is the lead portfolio manager of the FTSF Global Sukuk Fund and FTIF GCC Bond Fund and a member of the Franklin Local Asset Management Team. He was previously the head of SHUAA Capital s Debt Asset Management where he launched and managed the first fund to focus exclusively on MENA debt. Mr. Kronfol holds a bachelor s degree in business administration and an M.B.A. from the American University of Beirut. SHARIF EID FRANCK NOWAK Portfolio Manager Fixed Income Local Asset Management MENA Senior Research Analyst Fixed Income Local Asset Management MENA Mr. Eid joined the investment team in April 2009 as Mr. Nowak joined the investment team in 2012 to a portfolio analyst and helped develop the Global lead the team s research efforts. He previously Sukuk and MENA Fixed Income team s fundamental worked for Moody s Investors Service in both research capabilities and production. He previously London and Dubai where he was responsible for worked for TD Securities in Toronto where he was non-bank ratings in the CEEMEA region. Mr. Nowak a trader on the Credit, FX and interest-rate options holds a bachelor s in commercial law and a master desk. Mr. Eid holds a bachelor s in industrial of science in management, both from Rouen engineering and a master s in mathematical finance, Business School in France. both from the University of Toronto. HANIFAH HASHIM IVY CHOO DANIEL KOH Executive Director Head Malaysian Fixed Income & Sukuk Research Analyst Local Asset Management Research Analyst Local Asset Management Ms. Hashim joined the investment team in 2011 and Ms. Choo is involved in deploying the investment Mr. Koh conducts credit research and analysis oversees the fixed income business in Malaysia process for Global Sukuk, and currently focuses on with a particular emphasis on Malaysia and which includes conventional fixed income assets and Malaysian credits in the Shariah-compliant space. ASEAN bond issuers. He previously worked as a Sukuk strategies. She has over 22 years of She also conducts macro research on South East research analyst in both Malaysia and Australia for experience in the investment industry. She was Asian economics. She previously worked as research more than 6 years, specialising in ASEAN and previously Head of Fixed Income, CIMB Principal analyst for more than 5 years, and was part of an Australasia markets. He holds a master s degree Asset Mgmt. Berhad. award winning fixed income research team. in finance from Royal Melbourne Institute of Technology (RMIT), Australia. Hyderabad, India AMIT JAIN RAKESH TRIPATHI Research Analyst Fixed Income Local Asset Management MENA Research Analyst Local Asset Management Mr. Jain joined Franklin Templeton in June 2014 to focus on credit research. Prior to joining Franklin Templeton, Mr. Jain worked as a credit analyst at SJS Markets, focusing on Asian High Yield and distressed debt markets. He holds a B.A. (Hons) in economics from Delhi University, MS in Finance from ICFAI University and PGP in Management from Indian School of Business. Mr. Tripathi joined Franklin Templeton in May 2017 to focus on credit research. Prior to joining Franklin Templeton, Mr. Tripathi worked as a Credit Manager at SREI Equipment Finance Ltd., focusing on credit research for infrastructure companies. He also worked at GHC India, focusing on risk management for hedge funds. Rakesh holds a B.Sc. (Hons) in Mathematics from Calcutta University and PGP in Management from Indian School of Business, Hyderabad. He has also passed all three levels of the CFA Program. As of 31 March CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. 27

28 1643 Amanie International International Shariah Shariah Supervisory Supervisory Board Board Amanie SHEIKH DR. MOHAMED ALI ELGARI CHAIRMAN Kingdom of Saudi Arabia Dr. Mohamed Ali Elgari is a Professor of Islamic Economics and the former Director of the Centre for Research in Islamic Economics at King Abdul Aziz University in Saudi Arabia. He is an advisor to many Islamic financial institutions throughout the world and is also on the Shariah board of the Dow Jones Islamic index. He is also a member of the Islamic Fiqh Academy as well as the Islamic Accounting and Auditing Organisation for Islamic Financial Institution (AAOIFI). Dr. Elgari has written several books on Islamic banking. He graduated from the University of California with a Ph.D. in Economics. DR. MUHAMMAD AMIN ALI QATTAN Kuwait Dr. Muhammad Amin Ali Qattan has a Ph.D. in Islamic Banking from Birmingham University and is himself a lecturer as well as a prolific author of texts and articles on Islamic economics and finance. He currently is the Director of Islamic Economics Unit, Centre of Excellence in Management at Kuwait University. Dr. Qattan also serves as the Shariah adviser to many reputable institutions such as Ratings Intelligence, Standard & Poor s Shariah indices, Al Fajer Retakaful, amongst others. He is a highly regarded Shariah scholar and is based in Kuwait. DR. MOHD DAUD BAKAR DR. OSAMA AL DEREAI Malaysia Qatar Dr. Mohd Daud Bakar is the founder and group chairman of Amanie Advisors, a global boutique Shariah advisory firm with offices located in Kuala Lumpur, Dubai, Luxembourg, Cairo, Kazakhstan, Oman, Australia, South Korea and Dublin. He is also the founder and chairman of Amanie Nexus Sdn Bhd (Kuala Lumpur). Prior to this, he was the deputy vice-chancellor at the International Islamic University Malaysia. He received his first degree in Shariah from University of Kuwait in 1988 and obtained his Ph.D. from University of St. Andrews, United Kingdom in In 2002, he went on to complete his external Bachelor of Jurisprudence at University of Malaya. He has published a number of articles in various academic journals and has made many presentations in various conferences both local and overseas. Dr. Mohd Daud is currently the chairman of the Shariah Advisory Council of the Central Bank of Malaysia, the SACSC and the Shariah Supervisory Council of Labuan Financial Services Authority. He is also a member of the Shariah Board of Dow Jones Islamic Market Index (New York), Oasis Asset Management (Cape Town, South Africa), The National Bank of Oman, Financial Guidance (USA), BNP Paribas (Bahrain), Morgan Stanley (Dubai), Jadwa-Russell Islamic Fund (Kingdom of Saudi Arabia), Bank of London and Middle East (London), Noor Islamic Bank (Dubai), Islamic Bank of Asia (Singapore), and in other financial institutions both local and abroad. Apart from that, Dr. Mohd Daud is also actively advising, locally and overseas, on capital markets product structuring such as sukuk. Dr. Osama Al Dereai is a Shariah scholar from Qatar. He has extensive experience in teaching, consulting and research in the field of Islamic finance. He received his bachelor s degree specialising in the Science of Hadeth Al Sharef from the prestigious Islamic University of Madinah (Saudi Arabia). He obtained his master s degree from the International Islamic University Malaysia and was later conferred his Doctorate in Islamic Transactions from the University of Malaya. Dr. Al Dereai is a Shariah board member of various financial institutions which include the First Leasing Company, Barwa Bank, First Investment Company and Ghanim Al Saad Group of Companies amongst others. 28

29 1664 Fatwa Fatwa Issued on the on 30 September 2011 and issued quarterly thereafter 29

30 1665 Investment Investment Philosophy Philosophy We believe: The Global Sukuk team uses a fundamental research-driven investment approach. That while various factors can cause markets and securities to trade independently of their underlying fundamentals for periods of time, markets are efficient in the longer-term. We assign significant resources to identify and exploit these inefficiencies. An actively managed portfolio of lowly-correlated positions, selected on the basis of intensive bottom-up research, and guided by top-down macroeconomic analysis, has the potential to deliver above-benchmark returns over a full market cycle. We aim to manage volatility and downside risk by ensuring that no single position or risk factor dominates the portfolio. Our approach benefits from Franklin Templeton s global asset management platform, with institutional-quality capabilities supporting portfolio management, trading, and risk management. 30

31 1666 Sukuk Sukuk Investment Investment Process Process Multiple Research Perspectives Can Lead to High-Conviction Sukuk Opportunities Three Potential Alpha Sources Three Research Perspectives Portfolio Construction & Implementation Macroeconomic Country Analysis Risk Management Currency and Profit Rate Models Identifies Market Inefficiencies Profit Rates Ideas Bottom-Up Credit Analysis Fundamental Credit Research Proprietary Credit Models Credit Ideas Identification of High-Conviction Sukuk Opportunities Portfolio Management GLOBAL SUKUK Portfolio Optimisation PORTFOLIO Currency Ideas Quantitative Analysis Risk Mapping of Sukuk Universe Quantitative Risk Analyses Trading Full Integration of Amanie Int l Shariah Supervisory Board Ongoing Portfolio Monitoring by Risk Management and Compliance 31

32 1668 Broad Sukuk Market Market Opportunities Opportunities Broad Exposure Exposure to to Global Global Sukuk Broad Research Coverage across Sukuk Issuing Markets Regular analysis of 127 credits with the ability to expand the research along with the rapid market growth Non-Financials Corporates/ Industrial/Holdings/Real Estate Financials Sovereigns Extensive resources of a global asset management leader allow research of rated and unrated securities within the sukuk universe worldwide with the goal to identify alpha-generating sukuk opportunities The result is a diversified portfolio with over 50 sukuk securities from 14 countries and supranational entities Strong Relationships with Sukuk Issuers Only global asset manager with Islamic investment specialists on the ground in major sukuk issuing markets, such as Dubai and Kuala Lumpur, with great insight into issuances First and only global asset manager with a dedicated MENA trading desk in Dubai First Global Sukuk Fund Available for European Retail Investors As of 31 March

33 5098 Integrated Risk Management Has Three Different Layers Multiple Teams Review the Portfolio Seeking to Ensure Consistency and Compliance with Prospectus and Objectives In-Depth Research and Quantitative Risk Analysis Investment Risk Management Group1 Portfolio Compliance Provides risk data related to country, currency, Examines and assesses portfolio risk relative to Performs pre-trade compliance for all trades sector, industry, yield curve and issuer positions Generates potential trade ideas for portfolio Generates monthly security-specific and performance attributions Creates historical return summaries for all asset classes a benchmark Estimates risk and correlation impact on portfolio when positions are added or removed Generates risk reports used by portfolio managers and analysts across the fixed income platform Oversees the maintenance and reliability of firm-wide fixed income investment risk reporting tools Maps Sukuk to appropriate risk factors to generate reports entered into the Charles River IMS on a daily basis Utilises ex-post trading tools to ensure the portfolio compliance with stated Prospectus, objectives and restrictions on a daily and monthly basis Utilises Shariah compliance protocol for existing and new issues with Amanie advisors Employs Sukuk screening technology from Ideal Ratings for customised Sukuk structure governance and compliance Develops and monitors strategy specific risk framework 7 Investment Professionals 45 Risk Consultants and Analysts 54 Investment Professionals 13 Average Years of Experience 13 Average Years of Experience 10 Average Years of Experience 1 Location 11 Locations 12 Locations As of 31 March Investment Risk Management Group an independent team of risk specialists reporting directly to the CEO performs a risk oversight function and can consult with the portfolio manager to provide unbiased risk insights. 33

34 5467 Global Sukuk Risk Framework Risk Framework Philosophy: Customised Set of Internal Risk Guidelines: As the market developed, we have adopted a set of specific risk guidelines for the strategy which were designed collaboratively to enhance oversight and information sharing. The risk guidelines include risk measurements across three dimensions: 1. Absolute and relative volatility limits. Not hard limits or constraints 2. Risk budget limits for five risk factors. Used as a discussion tool to ensure that the strategy s risk exposures align with our conviction May be breached during abnormal market conditions Common metrics for the portfolio management and risk management teams to monitor exposures 3. Expected exposure ranges to various asset types. Used as a management reporting tool Risk Estimates: Min Sample Max TEV in bps/year Warning Bar 38% VaR 99% in bps/month % ES 99% in bps/month % Risk Budget by Factor: Contribution to Total Volatility Range 14% 60% 14% 5% 40% 13% Foreign Exchange 19% 40% 48% Idiosyncratic & Credit Default 61% 50% 122% % 5% 5% 94% Spread Credit Curve Exposures/Sensitivities: DTS ratio (Portfolio/Benchmark) TEV is the strategy s risk budget for the year Value at Risk is used to approximate downside risk Estimated shortfall is used to measure tail risk (in excess of VaR) We budget risk among the different risk factors. The strategy is geared towards credit risk with constraints for FX and duration risk. Exposure Range 0.75 Non-USD unhedged exposure per currency (MV%) 8% 20% 41% Portfolio overall DTS % contribution from sector (unit is %) 39% 35% 113% Portfolio overall DTS % contribution from High Yield Sukuk (unit is %) 13% 40% 33% 13% 25% 52% 0% 2% 54% 2% 4% 50% Non-USD unhedged exposure cumulative (MV%) Market Value % of High Yield Sukuk Net Option Adjusted Duration (with respect to BM in years) Check -2 Market Value of illiquid positions DTS, or duration times spread, is a more accurate measure of risk that takes into account the maturity as well as the credit spread of each issue or issuer. Risk guideline levels are not hard limits, but are used internally to ensure that risks are recognized and intentional. These are only a partial sample of the risk exposures tracked on a daily basis. For illustrative and discussion purposes only. This screenshot is not representative of the fund. 34

35 Fund Characteristics 35

36 Summary - A (acc) USD As of 30 June 2018 Summary of Investment Objective To maximise, consistent with prudent investment management, total investment return, consisting of a combination of profit income and capital appreciation. The Fund seeks to achieve this objective by investing principally in a portfolio of fixed- and floating-rate Shariah-compliant securities (including non-investment grade securities), including Sukuk, Murabaha and Wakala placements and other short-term instruments issued by government, government-related and corporate entities located in developed and developing countries. Morningstar Category Islamic Global Bond Investment Style Fixed Income Fund Inception Date 10 September 2012 Share Class Inception Date 10 September 2012 Benchmark Dow Jones Sukuk Index Base Currency for Fund USD Base Currency for Share Class USD Portfolio Manager(s) Total Net Assets (USD) 139,212, Mohieddine (Dino) Kronfol U. Arab Emir. Fixed Income: 97.74% Sharif Eid U. Arab Emir. Cash & Cash Equivalents: 2.26% Fund Identifiers Asset Allocation Number of Holdings 57 Total Expense Ratio 1.50% ISIN Code LU SEDOL Code B7PXZP2 Bloomberg Code FTGSAAU LX Fund Ratings (30 June 2018) Overall Morningstar Rating «««Morningstar, Inc All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (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. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Past performance is not an indicator or a guarantee of future performance. 36

37 What are the Key Risks? 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. Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund invests mainly in Shariah-compliant debt securities, including Sukuk and short-term instruments of any quality issued by entities located in developed and emerging markets. Such securities have historically been subject to price movements, generally due to the supply and demand for financing, other market factors or movements in the Sukuk market. As a result, the performance of the Fund can fluctuate moderately over time. Other significant risks include: emerging markets risk, derivatives risk, counterparty risk, liquidity risk, Sukuk risk, Shariah compliance risk. For full details of all of the risks applicable to this Fund, please refer to the Risk Considerations section of the Fund in the current prospectus of Franklin Templeton Investment Funds. 37

38 Portfolio Characteristics vs. Dow Jones Sukuk Index As of 30 June 2018 Portfolio Index BBB+ A Average Duration 5.28 Yrs 4.76 Yrs Average W eighted Maturity 7.00 Yrs 5.65 Yrs Yield to Maturity 5.33% 3.83% Yield to W orst 5.25% 3.83% Average Credit Quality Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Source: Franklin Templeton Investments. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different agencies, is provided to indicate the average credit rating of the portfolio s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default increases as a bond s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio s default risk because a simple, weighted average does not measure the increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivative positions and unrated securities are not reflected in the ACQ. Yield figures quoted should not be used as an indication of the income that has or will be received. Yield figures are based on the portfolio's underlying holdings and do not represent a payout of the portfolio. 38

39 Geographic Allocation vs. Dow Jones Sukuk Index As of 30 June 2018 MIDDLE EAST / AFRICA United Arab Emirates Saudi Arabia Qatar Kuwait Oman Nigeria South Africa ASIA ASIA EX-JAPAN Indonesia Malaysia Hong Kong Pakistan EUROPE NON-EMU EUROPE Turkey United Kingdom NORTH AMERICA UNITED STATES SUPRANATIONAL ST CASH AND CASH EQUIVALENTS Middle East / Africa Asia ex-japan Non-EMU Europe United States Supranational Portfolio % Index % Over/Under % ST Cash and Cash Equivalents 0% 15% 30% 45% 60% Dow Jones Sukuk Index Weightings as percent of total. Percentage may not total 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 39

40 Currency Allocation vs. Dow Jones Sukuk Index As of 30 June 2018 NORTH AMERICA U.S. DOLLAR ASIA ASIA EX-JAPAN Malaysian Ringgit Indonesian Rupiah Singapore Dollar MIDEAST/AFRICA Nigerian Naira EUROPE NON-EURO British Pound U.S. Dollar Malaysian Ringgit Indonesian Rupiah Portfolio % Index % Over/Under % Singapore Dollar Nigerian Naira British Pound 0% 20% 40% 60% 80% 100% Dow Jones Sukuk Index Weightings as percent of total. Percentage may not equal 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. 40