Franklin European Growth Fund

Transcription

1 Franklin Templeton Investment Funds Franklin European Growth Fund Flex-Cap Growth Fund Profile Fund Details Inception Date 29 December 2000 Investment Style Flex-Cap Growth Benchmark(s) MSCI Europe Index FUND OBJECTIVE Franklin European Growth Fund (the Fund ) aims to achieve capital appreciation by investing principally in equity and/ or equity-related securities (including warrants and convertible securities) of companies of any market capitalization in European countries. Uwe Zoellner, CFA Head of Pan European Equities We seek to generate alpha through various economic cycles by focusing on undervalued high-quality, financially robust companies with limited downside risk. WHY CONSIDER THIS FUND Concentrated best ideas portfolio. The fund management team actively searches for high-quality stocks in Europe across sectors and market capitalisations, selecting stocks that meet our stringent quality criteria: sustainable competitive advantage, strong balance sheets and attractive absolute valuations. Our unconstrained bottom-up research approach is grounded in a long-term perspective that allows us to pursue stock opportunities beyond the mainstream and often before they are recognised by the broader market. The result is a concentrated best ideas portfolio that is not afraid to take a different view from the benchmark. Collaborative team approach. We use a rigorous, open discussion throughout our investment process to get as many perspectives as possible. No stock will be added to our portfolios that has not been scrutinised multiple times by the entire team in an iterative research process.our qualitative bottom-up stock analysis cannot be replicated by quantitative screens to understand all aspects of the underlying business model. Relentless focus on downside risk. We view downside risk as the permanent loss of capital and not solely as market volatility. Throughout our investment process, we work to minimise downside risk on a stock-by-stock basis. We offer world-class tools and strong global risk management from one of the world s largest investment organisations. For Professional Investor Use Only. Not for Distribution to Retail Investors.

2 INVESTMENT PHILOSOPHY & PROCESS The Fund principally invests its net assets in securities of European domiciled companies or companies whose principal business activities are in Europe. The Fund invests across the market capitalization spectrum. In selecting equity investments, the portfolio manager employs an active, bottom-up fundamental research process to search for individual securities believed to possess superior risk-return characteristics. The team has remained steadfast in its research-driven approach across market environment, focused on welldefined and consistent investment criteria. Analysts seek companies that generate solid cash flow, have strong balance sheets, and that have what they believe to be a clear competitive advantage. The team believes that a concentrated portfolio of highquality companies with sustainable competitive advantages and strong balance sheets has the potential to produce above-average risk-adjusted returns over the long term. Since the investment objective is more likely to be achieved through an investment policy that is flexible and adaptable, the Fund may also seek investment opportunities in other types of transferable securities. Idea Generation and Review of Key Attributes Idea generation is a multi-stage process whereby analysts utilise a variety of qualitative and quantitative means to identify companies with sustainable competitive advantages. Our process begins by identifying companies with strong market positions, niche products, and/or high returns. Analysts typically conduct an initial review of key attributes to understand whether a company possesses the following characteristics: Competitive Advantage: a clear competitive advantage that provides the potential for a company to survive and prosper over an economic cycle. Quality: strong balance sheets and free cash flow supported by a management team focused on the creation of shareholder value. Valuation: the investment process includes rigorous valuation analysis to select companies that the team believes are attractively priced. Analysts dedicate the majority of their time to seeking new opportunities across the investment universe and conducting in-depth coverage of the companies we own. They may spend four to eight weeks deeply investigating a company, as well as its industry and competitors. Both quantitative and qualitative resources support analysts efforts to identify companies trading at attractive valuations that meet our investment criteria and track the competitive landscape, suppliers, and industries. For each stock they recommend, analysts produce a report that includes a detailed analysis of the key investment criteria that make the company attractive. The report also includes financial analysis and models, an assessment of management, an evaluation of the competitive landscape, and corporate insights. Utilizing a variety of valuation methods, analysts establish strict buy and sell targets for each stock they recommend. They apply what they believe to be the optimal valuation tools to properly assess a company. In-Depth Fundamental Research Given the Fund s long-term investment horizon the team views intense, bottom-up analysis as the most crucial aspect of their investment process. Fundamental research is the core driver of portfolio construction, with over 90% of research generated in-house. Formal weekly team meetings serve as a forum for the members of the investment team to discuss each new investment idea and exchange insights and information. Together, the investment team discusses each potential new idea, utilising the key investment criteria as a guide, to ensure that the opportunity is analysed from every perspective. For Professional Investor Use Only. Not for Distribution to Retail Investors. 2

3 Investment Process Fundamental Research Focused on Downside Risk, Strengthened by Rigorous, Open Team Discussion PORTFOLIO CONSTRUCTION We are benchmark indifferent throughout portfolio construction, considering the most compelling opportunities regardless of industry or domicile. The portfolio includes approximately companies. These companies tend to offer proprietary products and services and have what we believe to be longer-term competitive advantages and a high probability of maintaining strong balance sheets and generating cash flow over the long term. During portfolio construction, the analyst who formally recommended a stock and assigned its rating provides input on the company and shares in-depth sector knowledge. The lead portfolio manager renders all portfolio decisions based on analysts input. All decisions are made at the individual stock level, with sector and regional weightings a residual of this process. Portfolios are reviewed regularly and discussed at weekly team meetings. Individual holdings are weighted according to their valuation and our conviction of their future earnings profile. We purchase shares of a company when it reaches its buy target. Typically, positions are built quickly with the average position size in the portfolio 2.5%-3.5%. Overall, the maximum position size at cost for any one company in the portfolio is 5%, and may rise to 10% due to market appreciation. Sell Discipline: Positions are sold for one or more of the following reasons: The company reaches its price target. This would reflect when our analysts believe the holding has reached its fair value. A company experiences a change in fundamentals, business model, growth prospects, or management and therefore no longer meets our investment criteria. There may also be a shift in the competitive environment. RISK MANAGEMENT Risk is managed through the Franklin European Equity Team s bottom-up, research-driven investment process, which focuses on building a concentrated portfolio of companies that, in our view, demonstrate clear competitive advantages and strong balance sheets with minimal downside risk. We seek to manage risk in the portfolio through the following key components of our investment process: In-Depth, Fundamental Analysis Analysts focus on achieving an in-depth understanding of a company s long-term competitive advantage in order to reduce the risk of selecting an investment that will be impacted by a shrinking market position, falling revenues, and/or declining profitability. Strict Buy and Sell Targets Analyst use several valuation techniques to establish appropriate buy and sell price targets for each security, discounting the key risk factors over a five-year period. This process helps ensure we own shares when a company s valuation is attractive. We purchase shares when a company reaches its buy target and reduce a position as it nears its sell target i.e., when there is greater risk on the downside. In their research, analysts stress-test the valuation and financial models by performing scenario analysis in order to better understand the potential effects of a variety of micro or macro-economic scenarios, including an economic recession, on individual companies. For Professional Investor Use Only. Not for Distribution to Retail Investors. 3

4 Collaborative Team Structure The ongoing communication among the members of the Franklin European Equity Team, with each investment idea vetted by the entire team and benefitting from our analysts expertise and experience, supports our risk management process by ensuring that companies are evaluated from varying perspectives on a routine basis. While risk is managed primarily through the Franklin European Equity Team s research and portfolio construction processes, input from the firm s Performance Analysis and Investment Risk Group (PAIR) is beneficial for reviewing and monitoring risk within the portfolio. PAIR works independently of the portfolio management function to monitor investment risk for all portfolios managed by Franklin Templeton. The members of PAIR report directly to the firm s Executive Vice President of Portfolio Operations, the same individual to whom Franklin Templeton s chief investment officers report. PAIR provides the investment team with the following: Portfolio Risk Reports: PAIR communicates actively with portfolio management teams, and with quantitative analysts producing detailed risk reports with risk metrics that include risk exposure stock, sector, country, and currency positions. The portfolio management team utilises these reports to remain aware of the active risks they are taking in client portfolios. Independent Portfolio Risk Monitoring: PAIR further increases risk awareness by quantifying the sources and levels of portfolio risk. As an independent risk management team, PAIR does not have direct reporting lines to portfolio management and conducts periodic reviews of Franklin Templeton portfolios across all asset classes. PAIR suggests methods of effective risk deployment and assists in determining whether portfolio diversification is adequate and whether the appropriate level of risk is being taken to generate excess or incremental returns within prescribed guidelines. PORTFOLIO MANAGEMENT TEAM Uwe Zoellner, CFA, Head of Pan European Equities, Portfolio Manager Franklin Templeton Investments Uwe Zoellner, CFA, is head of Franklin European Equity. He joined Franklin Templeton Investments in 2001, and in 2008 was given responsibility to oversee the development of the European Equity Team, which locally manages Pan- European equity strategies. He is based in Frankfurt. Prior to his current role, Mr. Zoellner was executive vice president and portfolio manager for Templeton Global Equity Group from September 2001 to October He was in charge of a number of global and European accounts and also had research responsibility for industrials. Before that, he was a manager for European equities at Credit Suisse Asset Management in Frankfurt from 1999 to 2001, covering the energy, telecom and media sectors. Prior to joining Credit Suisse Asset Management, Mr. Zoellner was with Sal. Oppenheim KAG in Cologne, serving as portfolio manager for global equity mandates, as well as two funds specializing in commodity stocks. Mr. Zoellner earned a diploma in business administration and economics from the University of Cologne (Germany). He is a Chartered Financial Analyst (CFA) Charterholder. Mr. Zoellner is also a founding member and former treasurer of the German CFA Society. In order to ensure that risk and performance data are wellincorporated into portfolio management, PAIR also conducts regular peer reviews. During these formal meetings which are attended by PAIR representatives and investment professionals each portfolio is reviewed at the security, country, and industry levels. In this way, every Franklin European equity portfolio benefits from the expertise and input of the investment team, as well as that of PAIR. For Professional Investor Use Only. Not for Distribution to Retail Investors. 4

5 CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Luxembourgdomiciled SICAV Franklin Templeton Investment Funds (the Fund ). Given the rapidly changing market environment, Franklin Templeton Investments disclaims responsibility for updating this material. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. An investment in the Fund entails risks which are described in the Fund's prospectus. The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, your performance may also be affected by currency fluctuations. In emerging markets, the risks can be greater than in developed markets. Investments in derivative instruments entail specific risks that may increase the risk profile of the fund and are more fully described in the Fund s prospectus. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. No shares of the Fund may be directly or indirectly offered or sold to residents of the United States of America. Shares of the Fund are not available for distribution in all jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: or can be obtained, free of charge, from the address below. Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box , Dubai, U.A.E., Tel.: Fax: For Professional Investor Use Only. Not for Distribution to Retail Investors. DE Franklin Templeton Investments. All rights reserved.