Templeton Global Macro. Franklin Templeton Investment Funds Templeton Global Bond Fund - A (acc) USD. Data as of 31 March 2018

Transcription

1 Templeton Global Macro Data as of 31 March 2018 Franklin Templeton Investment Funds - A (acc) USD

2 Table of Contents Investment Capabilities Overview...3 Portfolio Characteristics...25 Strategy Overview... 4 Geographic Allocation...26 A Record of Strong Performance...5 Currency Allocation...27 Relatively Moderate to Low Correlations Historically to Other Asset Classes...6 Sector Allocation...28 Discrete Performance... 7 Quality Allocation...29 Prolonged Advances Versus Moderate Declines...8 Maturity Allocation...30 A Solid Risk/Reward Profile...9 Historical Performance...31 Expanding Opportunity Set...10 Calendar Year Returns A Benchmark W orldview...11 Performance Risk Statistics The Global Bond Fund W orldview Navigating Global Divergence On-the-Ground Research...14 Insight and Information Sharing Around the Globe Appendix...34 Management Profiles Templeton Global Macro Management Profiles...36 Investment Philosophy...16 Investment Process Module: Additional Resources...40 Global Research Multiple Perspective/Lenses...18 A Specialised Local Asset Management (LAM) Team Country Research Can Help to Identify Potential Alpha Sources Portfolio Construction...20 Portfolio Positioning Summary of Advantages...22 Summary...23 W hat are the Key Risks?...24 Module: Performance Attribution...42 Three Sources of Potential Alpha Over Time...43 Module: Process Implementation Examples...44 Active Duration Management Important Disclosures

3 Investment Capabilities Overview FRANKLIN TEMPLETON INVESTMENTS Total Combined Assets Under Management : US$737.5 Billion 2 AUM Equity 5 Fixed Income US$315.0 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$290.0 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$124.0 Billion Income Real Return Balanced/Hybrid Total Return Target Date/Risk Absolute Return Tactical Asset Allocation Managed Volatility Franklin Templeton Multi-Asset Solutions (1996) Franklin SystematiQ (2011) Alternatives US$16.2 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 31 March 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. 3

4 1794 Strategy Overview Strategy Summary1 Seek to maximise total investment return consisting of a combination of interest income, currency gains and capital appreciation Utilise a benchmark agnostic approach to take advantage of an unconstrained worldview Seeks to maintain a longer term volatility profile that is commensurate with that of a traditional global government bond index Investment Focus Focus on global government and government-related debt securities, global currencies and related derivatives Limit below-investment grade country exposure typically to no more than 25% May include allocations to both developed and emerging markets Potential Sources of Value Added May utilise three independent sources of alpha potential: Yield Curve Currencies Sovereign Credit For investors who seek to: Diversify a fixed income allocation or an overall portfolio via an unconstrained global bond strategy that has historically had low to moderate correlations to other asset classes Achieve solid, long-term, risk adjusted returns in diverse market conditions by capturing potential alpha opportunities in global fixed income and currencies 1. There is no assurance that the strategy will achieve its investment objectives. The strategy is managed in a benchmark unconstrained manner. 4

5 A Record of Strong Performance - A (acc) USD vs. JP Morgan Global Government Bond Index Discrete Annual Performance (%) As of 31 March 2018 Monthly Rolling 3-Year Annualised Returns 30 April 2009 to 31 March A (acc) USD Net of Fees 16% 03/17 03/16 03/15 03/14 03/13 03/18 03/17 03/16 03/15 03/14 OUTPERFORMED - A (acc) USD Net of Fees 11% JP Morgan Global Government Bond Index Annualised Total Returns (%) As of 31 March % - A (acc) USD Net of Fees 1% JP Morgan Global Government Bond Index -4% UNDERPERFORMED -4% 1% 6% JP Morgan Global Government Bond Index 11% 16% Inception Date 3 Yrs Yrs 10 Yrs - A (acc) USD outperformed the JP Morgan Global Government Bond Index 87 out of the 108 monthly rolling 3-year periods shown All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. Annualized rolling periods are plotted on a monthly or quarterly basis as indicated. The leading diagonal line links points of return for the index (lower axis). For every point of return along this line there is a corresponding return for the fund represented by the blue square (left axis). Any point above the line represents outperformance relative to the index for that period. Any point below the line represents underperformance relative to the index for that period. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 5

6 1937 Relatively Moderate to Low Correlations Historically to Other Asset Classes - A (Mdis) USD 5-Year Rolling Correlations Period Ending 31 March Years Ending 31/03/ U.S. Bonds 0.07 High Yield Bonds 0.53 Emerging Markets Sovereign Debt 0.52 U.S. Stocks 0.55 World Stocks FX Carry 0.52 Hedge Funds 0.53 Commodities U.S. Bonds U.S. Stocks Hedge Funds Correlation: 1 = perfect positive correlation High Yield Bonds World Stocks¹ Commodities 0 = no correlation 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-08 Sep-07 Feb-07 Jul-06 Dec Emerging Markets Sovereign Debt FX Carry -1 = perfect negative correlation 1. Source: Morgan Stanley Capital International (MSCI). All MSCI data is provided as is. 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 information described herein. Copying or redistributing the MSCI data is strictly prohibited. Sources: Bloomberg, Citigroup, JP Morgan, Standard & Poor s, Deutsche Bank, Hedge Fund Research, Inc. STANDARD & POOR S, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. Standard & Poor s does not sponsor, endorse, sell or promote any S&P index-based product. The above chart is for illustrative and discussion purposes only. U.S. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Index; U.S. Stocks are represented by the S&P 500 Index; Hedge Funds are represented by the HFRI Fund Weighted Composite Index; High Yield Bonds are represented by the Citigroup High Yield Market Local Currency Index; World Stocks are represented by the MSCI World Index; Commodities are represented by the S&P GSCI Official Close Index; Emerging Markets Sovereign Debt are represented by the JP Morgan Emerging Markets Bonds Index EMBI Global Composite; FX Carry are represented by the Deutsche Bank G10 Currency Future Harvest Index. The information is historical over the indicated time period and may vary significantly over other past time periods. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future performance. 6

7 RF/DA id# Discrete Performance - A (acc) USD As of 31 March 2018 Discrete Annual Performance (%) - A (acc) USD Net of Fees JP Morgan Global Government Bond Index Inception Date 03/17 03/18 03/16 03/17 03/15 03/16 03/14 03/15 03/13 03/ All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 7

8 1892 Prolonged Advances Versus Moderate Declines The fund has been able to provide investors with competitive performance results in various market conditions over the time period below. The chart below highlights how the fund s track record has been through various alternating periods of moderate declines, where short-term performance has lagged, and prolonged advances, where long-term gains have more than offset the short-term declines. The fund s contrarian strategy is designed to tolerate short-term periods of lagging performance as the management team builds positions in investments that may be out of favour, but may be poised for a rebound. Periods of at least twice the standard deviation of monthly returns were chosen to isolate long-term gains, which the team seeks, and short-term periods of lagging performance from daily and weekly market volatility. Cumulative Daily Returns for Each Period - A (Mdis) USD Net of Fees As of 31 March % Average Advance: 20.86%; 12.7 months 30% 20% 10% 0% -10% -20% Dec-01 Average Decline: -8.66%; 3.9 months Dec-03 Jan-06 Jan-08 Jan-10 Feb-12 Feb-14 Mar-16 An advance ( decline ) is any period of a month or longer when cumulative daily returns exceed (fall more than) twice the standard deviation of rolling monthly returns of the entire sample period. On average, periods defined as declines have been shorter and smaller than periods defined as advances. Mar-18 Performance for the - A (Mdis) USD is historical and may not reflect current or future performance. The performance information above is net of management fees and other expenses, assumes reinvestment of any dividends and is in the fund currency stated. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. If they were included, the returns would have been lower. The performance shown relates to the Class A (Mdis) shares and the performance of other share classes may vary depending on their respective commissions and fees. Results may differ over other historical time periods. Charts are for illustrative and discussion purposes only. Past performance is not an indicator or a guarantee of future performance. 8

9 1891 A Solid Risk/Reward Profile - A (Mdis) USD Net of Fees has provided relatively strong returns with relatively lower volatility compared to many asset classes over the long term 10-Year Period As of 31 March Domestic Stocks High Yield Bonds Emerging Market Bonds Return (%) 6 US Bonds World Stocks US TIPS Hedge Funds 2 Cash A (Mdis) USD Net of Fees Global Government Bonds -2-6 Commodities Standard Deviation (%) Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. Investment return and principal value will fluctuate with market conditions, and you may have a gain or a loss when you sell your shares. Please call your Franklin Templeton representative for the most recent monthend performance. Source: 2018 Morningstar, as of 31 March Global Government Bonds are represented by the JP Morgan Global Government Bond Index; U.S. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index; U.S. TIPS are represented by the Bloomberg Barclays U.S. Treasury TIPS Index; Emerging Market Bonds are represented by the JP Morgan Emerging Markets Bond Index Global; High Yield Bonds are represented by the Credit Suisse High Yield Index; Commodities are represented by the Bloomberg Commodity Index; REITs are represented by the FTSE NAREIT All REITs Index; World Stocks are represented by the MSCI World Index; U.S. Stocks are represented by the S&P 500 Index; Hedge Funds are represented by the Credit Suisse Tremont Hedge Fund Index; Cash is represented by the Citigroup (3M) Treasury Bill Index. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 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. STANDARD & POOR S, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. Standard & Poor s does not sponsor, endorse, sell or promote any S&P index-based product. Volatility as measured by annualised standard deviation. Past performance is not an indicator or a guarantee of future performance. 9

10 0524 Expanding Opportunity Set Total Government Debt Outstanding: US$55.0 trillion US$41.7 tn 30 US$31.8 tn US$5.4 tn US$4.7 tn US$7.8 tn US$3.9 0 '96 '97 '98 Developing '99 '00 '01 '02 Developed ex-g3 '03 '04 '05 G3 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 ' Number of Countries Available for Investment Debt Outstanding (trillions of U.S. dollars) As of 30 September '17 Number of Countries Source: FactSet. Important data provider notices and terms available at G3 includes U.S., Japan and Eurozone. Developed and developing countries are based on IMF lists. All nations may not be included due to data availability. Data from January 1996 through December 1999 is reported annually. Charts are for illustrative and discussion purposes only. 10

11 1804 Benchmark Worldview Worldview A Benchmark Historic Country Allocation of JP Morgan Global Government Bond Index 30 June December Country Exposures The eurozone, Japan and the USA represented 89% of the benchmark For illustrative purposes only. The Fund is managed in a benchmark unconstrained manner. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. The countries depicted on this slide represent those that the index had exposure to at any time during the stated time period, and are not necessarily the countries that the index had exposure to on 31 December

12 1895 The Global Bond Fund Worldview (DA) vs The Global Bond Plus Worldview Since 30 June 2005, the has invested in 50 countries compared to 13 countries for the JP Morgan Global Government Bond Index (the benchmark) Historic Country Allocation of the 30 June December Country Exposures Country allocations may change without notice and are not a complete analysis of every material fact regarding any country. The chart should not be viewed as investment recommendations, but is intended to provide insight into the portfolio s country holdings. Holdings are subject to change. 12

13 1844 Navigating Global Divergence Potential Alpha Sources Can Vary from Country to Country with the Economic Cycle Strong Growth Environment Weak Growth Environment Yield Curve Yield Curve Currencies Currencies Credit Quality Credit Quality Hypothetical Exposure EXTEND Duration HEDGED Currency REDUCE Sovereign Credit Hypothetical Exposure REDUCE Duration UNHEDGED Currency EXTEND Sovereign Credit Yield Curve Seeking to position the portfolio to Currencies Seeking to position the portfolio in Sovereign Credit Seeking to capture opportunities benefit from declining interest rates or to help mitigate the potential impact to the portfolio during periods of rising rates. currencies we view as the most attractive and hedge currency risks. for strong growth and improving credit quality in select countries, which may occur during periods of rising inflation and growth. This is a hypothetical example intended solely to illustrate our investment process. It is for illustrative purposes only and is not intended to reflect any actual positioning of the portfolio and does not constitute investment advice. 13

14 0540 On-the-Ground Research One of the World s Largest Global Fixed Income and Equity Platforms Warsaw Frankfurt Edinburgh Calgary Toronto London San Mateo Fort Lauderdale Bucharest Seoul Vienna New York Istanbul Dubai Hong Kong Shanghai1 Bangkok Nassau Mumbai Mexico City Ho Chi Minh City Hyderabad Chennai 181 Global Fixed Income Professionals: Global Fixed Income Offices Fixed Income Local Asset Management (LAM) Offices2 Kuala Lumpur Rio de Janeiro Buenos Aires São Paulo 123 Global Equity Professionals: Singapore Cape Town Melbourne Global Equity Offices3 1. 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. 2. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. 3. Includes the Templeton Global Equity Group and the Franklin Templeton Emerging Markets Equity. As of 31 March

15 0539 Sharing Around Around the the Globe Globe Insight and Information Sharing Over 180 global fixed income and over 120 global equity investment professionals. Franklin Templeton Fixed Income WEEKLY Average Experience: 18 Years* Templeton Global Macro MONTHLY Franklin Templeton Emerging Markets Equity Research Team Average Experience: 15 Years* San Mateo, Singapore Local Asset Management1 Average Experience: 14 Years* 20 Investment Professionals WEEKLY Average Experience: 14 Years* MONTHLY Templeton Global Equity Research Team Average Experience: 20 Years* 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). Investment professionals include portfolio managers, analysts and traders. *Represents number of years of industry experience. As of 31 March

16 1810 Investment Philosophy Philosophy Investment Beliefs and Guiding Principles An unconstrained approach to global fixed income investing can lead to long-term value potential Integrating global macroeconomic analysis with in-depth country research can help identify long-term economic imbalances Actively allocating risk across three independent potential sources of alpha can deliver diversification benefits and the potential for more consistent returns in diverse markets 16

17 1812 Investment Process Process Investment Multiple Research Lenses Can Lead to High-Conviction Opportunities Global Research Lenses Three Potential Sources of Alpha Portfolio Construction and Implementation Risk Modelling VaR Analysis Correlation Analysis Scenario/Stress Macro Models/Analysis Yield Curve Ideas In-Depth Country Analysis Currency Ideas Testing Identification of High-Conviction Opportunities PORTFOLIO Expected Risk Global Allocations Trading Trade Structuring Market Flows Local Execution/ Sovereign Credit Ideas Local Asset Management1 Perspective Management Team Potential Return vs. Settlement Liquidity Analysis Review Review Review/ Performance Attribution 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). The above chart is for illustrative and discussion purposes only. 17

18 0537 Perspectives/Lenses Global Research Multiple Perspective/Lenses COUNTRY ANALYSIS MACRO MODELLING LOCAL PERSPECTIVE1 Currency and interest rate valuation Currency models Local/regional perspectives Fundamentals Monetary and fiscal policy Macroeconomic disequilibria Capacity for change and policy implementation Country visits Meetings with policymakers Purchasing Power Parity (PPP), equilibrium exchange rates, interest rate differentials Interest rate models Econometric analysis, Taylor Rule, yield curve analysis Trading Short-term technicals and flows Ad hoc thematic research Scenario, shock and theme/trend analysis Australia Brazil Canada China2 India Malaysia Mexico Poland South Korea United Arab Emirates 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. 18

19 1818 Can Help Help to Identify Potential Alpha Sources Country Research Can Goal of Isolating Desired Risks Hypothetical Examples YIELD CURVE SOVEREIGN CREDIT CURRENCY SOUTH KOREA AUSTRALIA MEXICO Hypothetical Situation and Country Analysis Hypothetical Situation and Country Analysis Hypothetical Situation and Country Analysis Economic activity in Mexico is slowing down, which we believe will eventually force the central bank to cut interest rates and the Mexican peso to depreciate. Korean sovereign credit appears to be priced at distressed levels caused by liquidity issues. However, our analysis does not reveal a solvency problem. Australia is among the first countries to tighten their monetary policy. As a result, we expect the Australian economy to recover at a faster pace and the currency to strengthen. Proposed Course of Action Proposed Course of Action Proposed Course of Action Take advantage of attractive interest rates in Mexico but without exposure to the Mexican peso. Take advantage of attractive yield and spread compression opportunities in Korean sovereign credits. Take advantage of the appreciation of the Australian dollar. Hypothetical Portfolio Decision Hypothetical Portfolio Decision Hypothetical Portfolio Decision Purchase peso-denominated 20-year Mexican bond Hedge out peso risk by purchasing forex forward Purchase Korean sovereign credit Purchase short-term government bonds denominated in Australian dollars These hypothetical examples are for illustrative purposes only to demonstrate our investment process. They are not intended to reflect any past, current or future holdings of the portfolio and should not be considered as investment advice or an investment recommendation. 19

20 5397 Construction Position Sizing Portfolio Construction Portfolio Positioning Position Sizing The portfolio invests across developed and emerging countries Position size is based on our view of attractiveness, valuation, in areas where we see potential value conviction level and risk, as well as size and liquidity of the market There are typically a few overarching macro views that are Long country exposures typically range from approximately 4 8%, expressed using a variety of instruments Individual views are expressed using currency, interest rate, or expressed using some combination of currency, rates and credit; extremely high conviction positions may constitute around 20% credit positions Implementation Barbell Approach Views are implemented primarily via local currency bonds, The various investment positions in the portfolio seek to balance currency forwards, interest rate swaps, hard currency bonds, or a combination thereof downside risk, expected return and liquidity The makeup of a position depends on the exposure, valuation, liquidity, and correlation to the remainder of the portfolio Credit Hard Currency Bonds Rates Interest Rate Swaps* Currency Local Currency Bonds FX Forwards* *The fund may use other derivatives to generate similar exposures, such as futures. The portfolio composition, characteristics and the number of exposures held by the fund will vary due to a variety of factors, such as, but not limited to, market conditions, asset size, interest rates, currency fluctuations, economic instability and political developments. 20

21 1822 Portfolio Positioning As of 31 March 2018 Potential Alpha Sources Current Positioning Defensive Stance Due to Concerns about Rising Interest Rates We remained positioned for rising yields by maintaining low overall portfolio duration and holding negative duration exposure to US Treasuries Outside of the developed markets, we held select duration exposures in specific countries that we believe have attractive risk/return profiles, relatively higher yields and favourable macro conditions for yields to remain even or shift lower YIELD CURVE CURRENCIES Favourable Opportunities in Select Currencies A resilient US economy and rising US Treasury yields should increasingly magnify the fundamental differences between healthy and vulnerable economies, potentially leading to respective appreciations or depreciations against the US dollar We maintained net-negative positions in the Japanese yen and the euro as we continue to expect highly accommodative monetary policies from the Bank of Japan and the European Central Bank We favour currencies in countries that we believe have strong growth fundamentals and compelling interest-rate differentials Selectively Finding Sovereign Credit Opportunities Continued to selectively invest in credit opportunities across emerging markets, with a particular focus on credit exposures in economies with strong growth indicators SOVEREIGN CREDIT The foregoing information reflects our analysis, opinions and portfolio information as of 31 March The views expressed are those of the individual portfolio managers only and may vary from the views expressed by portfolio managers representing other investment platforms or strategies within Franklin Templeton Investments. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or portfolio. Statements of fact are from sources considered to be reliable, but no representation or warranty is made as to their completeness or accuracy. Because market and economic conditions are subject to rapid change, opinions provided are valid only as of the date indicated. 21

22 1828 Summary of of Advantages Advantages Summary The Foundation of Our Long-Term Track Record An Unconstrained Worldview A Truly Global Research Platform A High-Conviction Process 22

23 Summary - A (acc) USD As of 31 March 2018 Summary of Investment Objective The Fund aims to maximise total investment return consisting of a combination of interest income, capital appreciation and currency gains by investing principally in a portfolio of fixed or floating rate debt securities and debt obligations issued by government or government-related issuers worldwide. Morningstar Category Global Bond Investment Style Fixed Income - Governments Fund Inception Date 28 February 1991 Share Class Inception Date 28 April 2006 Benchmark JP Morgan Global Government Bond Index Base Currency for Fund USD Base Currency for Share Class USD Total Net Assets (USD) 16,783,468, Fund Identifiers Asset Allocation Fixed Income: 83.70% ISIN Code LU Cash & Cash Equivalents: 16.30% SEDOL Code B13QQC5 Number of Holdings 173 Bloomberg Code FTGBFAC LX Total Expense Ratio 1.41% Portfolio Manager(s) Michael Hasenstab, PhD United States Sonal Desai, PhD United States Fund Ratings (31 March 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. Asset Allocation figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. 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. 23

24 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 debt securities issued by government or government-related entities in any country and in derivatives. Such securities and derivatives have historically been subject to price movements, generally due to interest rates, foreign exchange rates or movements in the bond market. As a result, the performance of the Fund can fluctuate over time. The Fund may distribute income gross of expenses. W hilst this might allow more income to be distributed, it may also have the effect of reducing capital. Other significant risks include: credit risk, currency risk, derivatives risk, liquidity risk, emerging markets 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. 24

25 Portfolio Characteristics vs. JP Morgan Global Government Bond Index As of 31 March 2018 Portfolio Index BBB+ AA Yrs 8.00 Yrs 2.91 Yrs 9.96 Yrs Yield to Maturity 8.00% 1.36% Yield to W orst 7.99% 1.36% Average Credit Quality Average Duration Average W eighted Maturity Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Average Duration, Average Weighted Maturity, Yield to Maturity and Yield to Worst reflect certain derivatives held in the portfolio (or their underlying reference assets). 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 (or internal ratings for unrated bonds, cash and equivalents), is provided to indicate the average credit rating of the portfolio's underlying investments and generally ranges from AAA (highest) to D (lowest). For unrated bonds, cash and equivalents, ratings may be assigned based on the ratings of the issuer, the ratings of the underlying holdings of a pooled investment vehicle, or other relevant factors. The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of investments 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 may be lower if cash and equivalents are excluded from the calculation. The ACQ is provided for informational purposes only. Derivative positions 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. 25

26 Geographic Allocation vs. JP Morgan Global Government Bond Index As of 31 March AMERICAS NON-US AMERICAS Mexico Brazil Colombia Argentina Peru USA ASIA ASIA EX-JAPAN South Korea Indonesia India Philippines JAPAN MIDDLE EAST / AFRICA Ghana EUROPE NON-EMU EUROPE Ukraine EMU EUROPE SUPRANATIONAL OTHER ST CASH AND CASH EQUIVALENTS % 10% 21% 32% 43% 54% Regions Sub-Regions AMERICAS NON-US AMERICAS Mexico Brazil Colombia Argentina Peru Canada USA ASIA ASIA EX-JAPAN South Korea Indonesia India Philippines Australia JAPAN MIDDLE EAST / AFRICA Ghana EUROPE NON-EMU EUROPE Ukraine United Kingdom Denmark Sweden EMU EUROPE France Italy Germany Spain Belgium Netherlands SUPRANATIONAL Portfolio % Index % Over/Under % OTHER ST CASH AND CASH EQUIVALENTS Portfolio % Index % Over/Under % Countries Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. 26

27 Currency Allocation vs. JP Morgan Global Government Bond Index As of 31 March 2018 AMERICAS U.S. DOLLAR NON-US DOLLAR Mexican Peso Brazilian Real Colombian Peso 4.83 Argentine Peso 4.69 Peru Nuevo Sol 0.57 MIDEAST/AFRICA 2.11 Ghanaian Cedi 2.11 ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Philippine Peso 0.36 South Korean Won 0.09 Australian Dollar JAPANESE YEN EUROPE NON-EURO Portfolio % Index % Over/Under % Euro -45% AMERICAS U.S. DOLLAR NON-US DOLLAR Mexican Peso Brazilian Real Colombian Peso Argentine Peso Peru Nuevo Sol Canadian Dollar MIDEAST/AFRICA Ghanaian Cedi ASIA ASIA EX-JAPAN Indian Rupee Indonesian Rupiah Philippine Peso South Korean W on Australian Dollar JAPANESE YEN EUROPE NON-EURO British Pound Danish Krone Swedish Krona Euro % Regions 41% 84% Sub-Regions 127% 170% Currencies Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. 27

28 Sector Allocation vs. JP Morgan Global Government Bond Index As of 31 March 2018 Local Curr. Govt/Agency Bonds Investment Grade Non-Investment Grade Non-Local Curr. Sovereign Bonds 1.10 Non-Investment Grade 1.10 Derivatives Supranational 0.60 Cash & Cash Equivalents -2% Local Curr. Govt/Agency Bonds Investment Grade Non-Investment Grade Non-Local Curr. Sovereign Bonds Non-Investment Grade US Treasuries/Agencies Derivatives Supranational Cash & Cash Equivalents Portfolio % Index % Over/Under % % 34% 52% 70% 88% Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. 28

29 Quality Allocation vs. JP Morgan Global Government Bond Index As of 31 March 2018 AAA AA+ AA AAA+ ABBB BBBBBB BNR Cash Investment Grade Non-Investment Grade Cash AAA AA+ AA AAA+ ABBB BBBBBB Portfolio % Index % Over/Under % BNR Cash 0% 20% 40% 60% 80% JP Morgan Global Government Bond 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. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ('NRSRO'), such as Standard & Poor's, Moody's and Fitch. The ratings are an indication of an issuer's creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. The NR category consists of rateable securities that have not been rated by an NRSRO. Cash includes equivalents, which may be rated. Derivatives are excluded from this breakdown. 29

30 Maturity Allocation vs. JP Morgan Global Government Bond Index As of 31 March to 1 Year 1 to 2 Years 2 to 3 Years 3 to 5 Years 5 to 7 Years 7 to 10 Years 10 to 15 Years 15 to 20 Years 20 to 30 Years 30+ Years 0 to 1 Year 1 to 2 Years 2 to 3 Years 3 to 5 Years 5 to 7 Years Portfolio % Index % Over/Under % to 10 Years 10 to 15 Years 15 to 20 Years 20 to 30 Years 30+ Years -1% 14% 29% 44% 59% JP Morgan Global Government Bond Index Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of any derivatives, unsettled trades or other factors. 30

31 Historical Performance - A (acc) USD As of 31 March 2018 Annualised Total Returns (%) - A (acc) USD Net of Fees Inception Date 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept Inception Date 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept JP Morgan Global Government Bond Index Cumulative Performance (%) - A (acc) USD Net of Fees JP Morgan Global Government Bond Index All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 31

32 Calendar Year Returns - A (acc) USD As of 31 March % % % % -7% YTD A (acc) USD Net of Fees JP Morgan Global Government Bond Index All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations. Performance data may represent blended share class performance, e.g., hybrid created from an A (dis) share class which was converted to A (acc). The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Current performance may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit franklintempleton.lu for current performance. 32

33 Performance Risk Statistics - A (acc) USD As of 31 March 2018 Performance Risk Statistics 1 Yr 3 Yrs* 5 Yrs* 10 Yrs* - A (acc) USD JP Morgan Global Government Bond Index Information Ratio^^ Sharpe Ratio Standard Deviation (%): Tracking Error (%)^^ The base currency of a fund determines the risk-free rate index used in calculating certain risk statistics on this page. A fund that is based in USD uses the US T-Bill Index as the risk free rate return, a EUR-based fund uses the Euro 3-Month T-Bill Index, a GBP-based fund uses the UK Treasury Bills 3 Month Index, a JPY-based fund uses the Japan Financing Bill 3 Month Index, and an AUD-based fund uses the Australia T-Note 3 Month Index. ^^Measured against the JP Morgan Global Government Bond Index. *Annualised. Past performance is not an indicator or a guarantee of future performance. 33

34 Appendix 34

35 Management Profiles 35

36 1834 Templeton Global Macro Management Profiles MICHAEL HASENSTAB, Ph.D. Executive Vice President, Portfolio Manager, Chief Investment Officer Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States SONAL DESAI, Ph.D. Senior Vice President, Portfolio Manager, Director of Research Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States CALVIN HO, Ph.D. Vice President, Senior Global Macro & Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States HYUNG C. SHIN, Ph.D. Vice President, Senior Global Macro & Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States Dr. Hasenstab is a member of the Fixed Income Policy Committee and is a portfolio manager for a number of Franklin Templeton fixed income and hybrid funds and strategies. Dr. Hasenstab holds a Ph.D. in economics from the Asia Pacific School of Economics and Management at Australian National University, a master s degree in economics of development from the Australian National University and a B.A. in international relations/political economy from Carleton College in the United States. Dr. Desai is responsible for shaping the research agenda of Templeton Global Macro, and providing macroeconomic analysis to the fixed income team. Dr. Desai acts as a key resource for the firm s Fixed Income Policy Committee, which provides policy views on sectors, markets and currencies. Dr. Desai holds a Ph.D. in economics from Northwestern University and earned a B.A. with honors from Delhi University in New Delhi. Dr. Ho joined Franklin Templeton Investments in Currently, he is a vice president and senior global macro & research analyst for Templeton Global Macro. In this position, he specialises in global macroeconomic analysis and global exchange rate modelling. Dr. Ho earned both a B.A. and a Ph.D. in economics from the University of California, Berkeley. His prior research analysed international monetary arrangements. He is also fluent in Mandarin and Cantonese. Dr. Shin joined Franklin Templeton in 2005 as a research analyst and moved to senior global macro & research analyst for Templeton Global Macro. In this position, he analyses global macroeconomic trends and up-to-date developments in emerging market economies. Dr. Shin is an expert of Asian economies, with a focus on Southeast Asia and Japan. He also specialises in monetary and global macroeconomic analysis with a focus on world real-interest-rate modelling. Dr. Shin holds a Ph.D. in economics from the University of California, Davis and a B.A. in business administration from Seoul National University in South Korea. Dr. Shin s prior research analysed optimal choice of monetary policy regimes. He is also fluent in Korean. 36

37 1834 Templeton Global Macro Management Profiles (continued) DIEGO VALDERRAMA, Ph.D. Senior Global Macro & Research Analyst Templeton Global Macro Dr. Valderrama joined Franklin Templeton Investments in 2009 as research analyst and moved to senior global macro & research analyst in Templeton Global Macro. In this position, Dr. Valderrama specialises in global macroeconomics. In addition, he has a regional focus on the United States, Canada, Latin America, Australia, New Zealand and the United Kingdom. Franklin Advisers, Inc. San Mateo, California, United States Dr. Valderrama holds a Ph.D. and an M.A. in economics from Duke University and a B.A. in economics from Cornell University. He is also fluent in Spanish. LAURA BURAKREIS Laura Burakreis joined Franklin Templeton Investments in August She is a portfolio manager and research analyst and has a focus on emerging market corporate debt. She worked in various parts of the World Bank in Washington, D.C. At the World Bank, she assisted governments in the Middle East and North Africa in designing and implementing financial sector reforms. Ms. Burakreis also negotiated the terms of debt issued by the International Bank of Reconstruction and Development in emerging and developed markets. Portfolio Manager, Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States VIVEK AHUJA Portfolio Manager, Research Analyst Templeton Global Macro Templeton Asset Management Ltd. Singapore, Singapore Ms. Burakreis holds an M.B.A. in finance from the University of Chicago, Graduate School of Business (1987) and an M.A. from the University of Chicago, Center for Middle Eastern Studies (1990). She earned her B.A. in economics from The College at the University of Chicago (1984). Mr. Ahuja joined Franklin Templeton Investments in 2006 and has over 17 years of investment and research experience in fixed income markets. He is a portfolio manager and research analyst for Templeton Global Macro. He is responsible for the analysis of macroeconomic trends and developments in Asian emerging market economies and financial systems. Prior to joining Franklin Templeton, Mr. Ahuja worked in various financial institutions in India in the areas of fixed income investments and macro research. Mr. Ahuja earned his bachelor of commerce and master s degree in finance from Mumbai University. ATTILA KORPOS, Ph.D. Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States Dr. Korpos joined Franklin Templeton Investments in 2011 as a research analyst in Templeton Global Macro. He is an international fixed income research analyst with a regional focus on Central and Eastern European countries. Dr. Korpos received a Ph.D. in economics from Tilburg University in the Netherlands, where he investigated monetary regimes in open economies. He holds a B.A. in finance and banking from Babes-Bolyai University in Romania, and an M.A. in economics from the Central European University in Hungary. 37

38 1834 Templeton Global Macro Management Profiles (continued) SHLOMI KRAMER, Ph.D. Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States Shlomi Kramer joined Franklin Templeton Investments in 2016 as a global fixed income research analyst. In this position, he analyses global macroeconomic trends and covers economic developments in China and several developed economies. Prior to joining Franklin Templeton, Dr. Kramer was a senior economist at GE Corporate, where he ran the economics team s forecasting model, which forms the basis for GE s planning and strategy, and served as the team s lead economist on emerging markets. Dr. Kramer received his Ph.D. in economics from Princeton University in May 2011 and holds a B.S. in mathematics and economics from Tel Aviv University. CHRISTINE ZHU Portfolio Manager, Quantitative Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States RYAN FERSTER, CFA Quantitative Research Analyst Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States JAAP WILLEMS Ms. Zhu is a portfolio manager and quantitative research analyst in Templeton Global Macro. She focuses on portfolio construction, derivatives/quantitative strategies in global market, performance attribution and risk management. Ms. Zhu joined Franklin Templeton in Ms. Zhu received an M.B.A. with investment focus from the University of California, Berkeley, and earned her M.S. in computer science and engineering from the University of Notre Dame. She is fluent in Mandarin. Ryan Ferster is a quantitative research analyst for Templeton Global Macro. Mr. Ferster manages the internal portfolio administration systems, performs quantitative research including portfolio construction, fixed income security pricing, and portfolio risk management and performance attribution, and researches performance dispersion. He also supports the portfolio managers and traders day to day workflow. Mr. Ferster holds a B.S. in computer engineering, and an M.S. in computer science, from Columbia University. He is a Chartered Financial Analyst (CFA) charterholder. Quantitative Research Analyst Templeton Global Macro Jaap Willems is a quantitative research analyst for Templeton Global Macro. In his role he supports the rebalancing efforts of separate accounts and provides quantitative analytic support around performance and risk attributes of funds as well as separate accounts to portfolio managers, traders and research analysts. Templeton Asset Management Ltd. Singapore, Singapore Jaap joined Franklin Templeton in 2015 after working for 7 years in various investment risk, actuarial/asset liability management companies, most recently at ING Group and Schroders. Jaap holds a B.S. in international economics and an M.S. in business administration (risk and portfolio management) from the University of Groningen in the Netherlands. 38

39 1834 Templeton Global Macro Management Profiles (continued) MICHAEL MESSMER Vice President, Senior Trader Templeton Global Macro Mr. Messmer is the lead trader for Templeton Global Macro. Mr. Messmer is responsible for trading investment grade and subinvestment grade global government treasuries, currencies and sovereign bonds. Mr. Messmer also provides relative value, yield curve and technical analysis. He joined Franklin Templeton in 2001 and participated in the Futures Associate Program. Franklin Advisers, Inc. San Mateo, California, United States Mr. Messmer earned his B.S. in economics with an emphasis in finance from Southern Methodist University. MATTHEW HENRY Mr. Henry is a trader for Templeton Global Macro. Mr. Henry trades investment grade and sub-investment grade global bonds and currencies. Mr. Henry joined Franklin Templeton in 2006 and participated in the Futures Associate Program. Trader Templeton Global Macro Mr. Henry holds a B.S. in management science and engineering from Stanford University. Franklin Advisers, Inc. San Mateo, California, United States ANDREW MESIC Trader Templeton Global Macro Mr. Mesic is a trader for Templeton Global Macro, supporting foreign exchange and investment grade global bond traders. Mr. Mesic joined Franklin Templeton in 2007 and participated in the Futures Associate Program. Mr. Mesic holds a B.A. in economics and international relations from the University of California, San Diego. Franklin Advisers, Inc. San Mateo, California, United States ELSA GOLDBERG Vice President, Institutional Portfolio Manager Templeton Global Macro Franklin Advisers, Inc. San Mateo, California, United States Elsa Goldberg is a vice president and institutional portfolio manager for Templeton Global Macro. As an integrated member of the Templeton Global Macro team, Ms. Goldberg is the principal conduit to provide perspective and understanding regarding the team s investment strategies to a broad range of clients globally. Ms. Goldberg has over 19 years of experience in the investment industry. Previously, she was director of the Global Fixed Income Product Management team at Franklin Templeton. Ms. Goldberg holds a bachelor s degree in econometrics from the University of Paris Pantheon-Sorbonne and a master s degree in money, banks and finance from the University of Paris Pantheon-Assas. Ms. Goldberg is a certified European Financial Analyst. She holds NASD Series 7 and 66 licences. The Templeton Global Macro Group also includes 3 experienced research associates and 1 assistant trader. 39