Active Opportunities in US Equities

Transcription

1 Active Opportunities in US Equities 11 June 2015 Grant Bowers Vice President Portfolio Manager Franklin Equity Group Franklin Advisers, Inc.

2 Cumulative US GDP Growth (%) Total Cumulative US GDP Growth Number of Quarters Since Trough / Recession End Proportional Comparison: Indexed to Zero at End of Each Recession As of December % % Past 7 US Economic Recoveries % 20% 10% Current Recovery % Number of Calendar Quarters Since US Recession End For illustrative and discussion purposes only. Source: Federal Reserve Economic Data (FRED). 2

3 US$ Billion US Real Consumer Spending October March 2015 $11,500 $11,000 $10,500 $10,000 $9,500 $9,000 $8, /15 For illustrative and discussion purposes only. Source: FactSet, U.S. Bureau of Economic Analysis. Real Personal Consumption Expenditures, Bil. Chained 2005 US$, Saar - United States. 3

4 Ratio (%) US Household Debt Service and Financial Obligations Ratios January December % 13% 12% 11% AVG: % Dec-14: 9.91% 9% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 For illustrative and discussion purposes only. Source: FactSet, The Federal Reserve Board. Household Debt Service & Financial Obligations Ratios, Dsr, Total, Sa, Percent - United States. Quarterly data. 4

5 S&P 500 Operating Earnings Rolling Twelve Months Earnings and Consensus Estimates As of March 2015 US$140 Estimate US$120 US$100 US$80 US$60 US$40 US$20 US$ E For illustrative and discussion purposes only. Source: Strategas Research Partners. Thomson Reuters First Call. Data as of March There is no assurance that any projection, estimate or forecast will be realised. 5

6 S&P 500 Revenue Growth by Sector Calendar Year 2015 Revenue Growth As of 31 March % 6% 4% 2% 0% -2% -4% Healthcare Information Technology Consumer Discretionary Consumer Staples Telecom Services Financials Industrials S&P 500 Index Utilities Materials For illustrative and discussion purposes only. Source: FactSet. Energy sector, not shown on chart, had estimated revenue growth of -29.2% as of 31 March

7 Cash as a % of Total Assets Cash on Corporate Balance Sheets US Large Cap Companies, Cash as a % of Total Assets 31 March March % 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% / For illustrative and discussion purposes only. Source: Bernstein Analysis, as of 31 March

8 Number of Dividend Actions Stronger Cash Flow Influencing Dividend Policy 8 S&P 500 Companies As of 18 March YTD Increased Dividend Initiated Dividend Decreased Dividend Eliminated Dividend Paying issues For illustrative and discussion purposes only. Past performance is no guarantee of future results. Source: S&P. 8

9 Global Merger & Acquisition Trends by Value and Deal Count Q Q For illustrative and discussion purposes only. Source: Bloomberg Note: As per Bloomberg classification, we have considered only M&A completed & pending deals and excluded Investments, Spin-off, Joint Ventures.

10 P/E Ratio Equity Valuations S&P 500 Index: Forward Price-to-Earnings Ratio February April std dev 16 Average 17.15x 16.83x -1 std dev For illustrative and discussion purposes only. Source: FactSet, Standard & Poor s. 10

11 S&P 500 Valuations by Sector Sector Price-Earnings-Growth Ratios - As of 31 March Information Technology Industrials Consumer Discretionary Financials Healthcare Consumer Staples Materials Utilities Telecom Services For illustrative and discussion purposes only. Source: FactSet. Energy sector, not shown on chart, had FY2 PEG ratio of

12 Investment Themes for the Next Decade

13 Healthcare Industry Demographic Trends Aging Population in Developed Markets Total Population of People Aged 60 and Older Developed Countries Developing Countries Estimate For illustrative and discussion purposes only. Source: United Nations Population Fund. There is no assurance that any projection, estimate or forecast will be realised. 13

14 Thousands Healthcare Industry Trends Innovation drives drug discovery and new treatment options FDA Drug Approvals 1 41 drug approvals in Sequencing Cost per Genome Over Time 2 As of April 2014 US$100,000 US$10,000 US$1,000 US$100 US$10 US$1 US$0 Sequencing Cost per Genome Moore's Law For illustrative and discussion purposes only. 1. Source: Food and Drug Administration s (FDA) Center for Drug Evaluation and Research (CDER). As of 31 December Source: Wetterstrand KA. DNA Sequencing Costs: Data from the NHGRI Genome Sequencing Program (GSP) Available at: Accessed as of 18 September

15 Millions Technology Mobile Device Growth Connected Devices Global Installed Base For illustrative and discussion purposes only. Source: BofA Merrill Lynch Global Research, 2015 Technology year ahead: The Internet of Things, 17 December There is no assurance that any projection, estimate or forecast will be realised. 15

16 The Internet of Things Intelligent Systems for a More Connected World Consumer, Telecom, Energy, Healthcare, Industrial, Transportation For illustrative and discussion purposes only. Source: IDC, Intel *Includes PCs, Tablets and Mobile Phones, does not include MCU based devices or sensors. 16

17 Outlook and Perspectives As of June 2015 Short-Term Global Growth Europe / Asia Geopolitics Inflation & Interest Rates Source: Franklin Templeton Investments. Intermediate-Term GDP Growth Healthy US Companies Innovation & Growth Long-Term Globalisation Innovation Demographics 17

18 Franklin US Opportunities Fund Franklin Templeton Funds

19 Franklin US Opportunities Fund W(acc) GBP Portfolio Summary As of 30 April 2015 Portfolio Manager(s) IA Sector North America Grant Bowers United States Investment Style Growth Conrad Herrmann, CFA United States Fund Inception Date 30 January 2009 Share Class Inception Date 31 May 2012 Fund Identifiers Benchmark Russell 3000 Growth Index ISIN Code GB00B7KCG406 Base Currency for Fund GBP SEDOL Code B7KCG40 Base Currency for Share Class GBP Bloomberg Code FRUSOWA LN Total Net Assets (GBP) 69,984, Asset Allocation Equity: % Number of Issuers 78 Cash & Cash Equivalents: -0.37% Summary of Investment Objective The Fund aims to provide capital appreciation in the long-term through investment in US equities. Total Expense Ratio 0.84% Ongoing Charges 0.84% A sub-fund of the UK-domiciled OEIC Franklin Templeton Funds. The Ongoing Charges Ratio is a figure representing all operating charges and expenses as a percentage of the Fund s average net assets during the year ending 31 December Where ex-post expense information is not a fair representation of future operating costs and where 12 months of information is not available, an estimate will be disclosed. Holdings of the same issuer have been combined. 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. Percentage may not equal 100% due to rounding. Past performance does not guarantee future results. 19

20 Franklin Equity Group Our Team Senior investment professionals average more than 30 years of experience and more than 24 years with Franklin Access to approximately 70 equity and over 170 fixed income investment professionals* Our Culture Fundamental research conducted by experienced industry specialists Collaborative environment that balances autonomy with rigorous debate and accountability Equity and fixed income teams work together for additional insight on companies Our Research Investment professionals operate as industry specialists within sector teams Sector team leaders have over 20 years of experience on average Deep industry coverage across all market caps and styles Industry and sector research supplemented by small-cap generalists *Investment professionals include portfolio managers, analysts and traders, as of 30 April 2015 HEALTHCARE 5 analysts NATURAL RESOURCES 7 analysts UTILITIES 2 analysts CONVERTIBLE BONDS 3 analysts TECHNOLOGY & COMMUNICATIONS 8 analysts INVESTMENT TEAM HIGH YIELD & CORPORATE CREDIT 19 analysts All sectors INDUSTRIALS 6 analysts CONSUMER 5 analysts FINANCIAL & BUSINESS SERVICES 5 analysts 20

21 Franklin US Opportunities Fund Investment Strategy US Growth Equity: Growth, Quality & Valuation Framework Focus on Multi-Year Growth Trends Identify the Leaders US Opportunities Portfolio Fundamental, Bottom-Up Approach Leverages the Franklin Equity Groups Research Team Actively Managed, Conviction Weighted Portfolio, Diversified with High Active Share A sub-fund of the UK-domiciled OEIC, Franklin Templeton Funds. 21

22 Franklin US Opportunities Fund Case Study: MasterCard, Inc. (MA) Leading global payments solutions company that helps link merchants, financial institutions, and cardholders to ensure that payment transactions are convenient, reliable, and secure. Multi-year growth drivers Global consumer spending GROWTH QUALITY VALUATION Worldwide transition from cash based payments to debit/credit payments Network scale drive strong operating leverage Leading global franchise and brand Industry structure has high barriers to entry global duopoly High quality, experienced management team Sustainable earnings and cash flow growth Long term (3-5yr) future growth rate: 19% Strong balance sheet Long-Term Debt/Cap 18% High return model Low capex, high free cash flow ROIC over 45% Attractive risk vs. reward profile For illustrative and discussion purposes only. Past performance is not an indicator or guarantee of future performance. Source: Bloomberg and underlying company s financial reports, as of 31 March There is no assurance that any projection, estimate or forecast will be realised. This is an example of an investment purchased pursuant to investment advice of the Franklin Equity Group, but this investment may or may not be currently held by the Fund or any investment vehicle managed by the Franklin Equity Group. The information is provided only to illustrate the Franklin Equity Group s investment process. This is not a complete analysis of every material fact regarding an industry, security or investment. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments of the Franklin Equity Group. In addition, it should not be assumed that any securities transactions were or will prove to be profitable. The analysis and opinions of the security discussed herein are subject to change at any time, and there is no assurance that any security purchased will remain in the Fund s portfolio, or that any security sold will not be repurchased. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the Fund s manager of its affiliates. These opinions may not be relied upon as investment advice or recommendations or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Logos are trademarks of their respective owners and are used for illustrative purposes and should not be construed as an endorsement of or affiliation with Franklin Templeton Investments. As of 30 April 2015, MasterCard, Inc. represented 3.41% of the total net assets of Franklin US Opportunities Fund. 22

23 Franklin US Opportunities Fund Case Study: Under Armour, Inc. Diversified manufacturer and distributor of athletic apparel, footwear and accessories for men and women at all levels, from youth to professional. GROWTH QUALITY VALUATION Large secular growth market Emerging category leader through innovation and branding International growth opportunity Strong consumer trends in athletic apparel Growing brand awareness through global sponsorship deals History of consistent revenue growth in core product lines High quality management team with history of successful execution Multi-year growth outlook supports long term value creation Long-term future growth rate estimated at 25% Strong cash flow growth Consistent double digit ROE Net Debt/Cap 16% Attractive risk vs. reward profile For illustrative and discussion purposes only. Past performance is not an indicator or guarantee of future performance. Source: Bloomberg and underlying company s financial reports, as of 31 March There is no assurance that any projection, estimate or forecast will be realised. This is an example of an investment purchased pursuant to investment advice of the Franklin Equity Group, but this investment may or may not be currently held by the Fund or any investment vehicle managed by the Franklin Equity Group. The information is provided only to illustrate the Franklin Equity Group s investment process. This is not a complete analysis of every material fact regarding an industry, security or investment. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments of the Franklin Equity Group. In addition, it should not be assumed that any securities transactions were or will prove to be profitable. The analysis and opinions of the security discussed herein are subject to change at any time, and there is no assurance that any security purchased will remain in the Fund s portfolio, or that any security sold will not be repurchased. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness or accuracy by the Fund s manager of its affiliates. These opinions may not be relied upon as investment advice or recommendations or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund. Logos are trademarks of their respective owners and are used for illustrative purposes and should not be construed as an endorsement of or affiliation with Franklin Templeton Investments. As of 30 April 2015, Under Armour, Inc. was not a top ten holding of Franklin US Opportunities Fund. Holdings are historical and are subject to change. 23

24 Franklin US Opportunities Fund Top Ten Holdings As of 30 April 2015 Name of Issuer Country Industry % of Total 1. ACTAVIS PLC United States Pharmaceuticals, Biotechnology & Life Sciences CELGENE CORP United States Pharmaceuticals, Biotechnology & Life Sciences MASTERCARD INC United States Software & Services APPLE INC United States Technology Hardware & Equipment SBA COMMUNICATIONS CORP United States Telecommunication Services FACEBOOK INC United States Software & Services GOOGLE INC United States Software & Services AMAZON.COM INC United States Retailing VISA INC United States Software & Services WALT DISNEY CO United States Media 2.32 Total A sub-fund of the UK-domiciled OEIC, Franklin Templeton Funds. The Top Ten Holdings represent the ten largest holdings of Franklin US Opportunities Fund as of the date indicated. These securities do not represent all of the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in the securities listed was or will be profitable. All portfolio holdings are subject to change. Holdings of the same issuer have been combined. Weightings as a percentage of total. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included in a top 10 holdings list 24

25 Market Cap Allocation (%) Franklin US Opportunities Fund Market Cap Allocation We Invest Wherever We Find the Most Attractive Opportunities As of 30 April % 50% 40% 30% 27.73% 33.07% 20% 10% 0% 19.14% 12.59% 5.28% 2.17% > 50 Billion Billion 5-25 Billion Billion < 1.5 Billion N/A Franklin US Opportunities Fund A sub-fund of the UK-domiciled OEIC, Franklin Templeton Funds. Source: Franklin Templeton Investments. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Percentage may not equal 100% due to rounding. Market capitalisation statistics are indicated in the base currency for the portfolio presented. 25

26 Franklin US Opportunities Fund W(acc) Cumulative Performance As of 30 April 2015 Franklin US Opportunities Fund W(acc) GBP Net of Fees 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Launch (31/05/12) 5.45% 8.88% 32.00% 64.74% 93.43% % Russell 3000 Growth Index 3.93% 5.84% 28.05% 67.70% % % A sub-fund of the UK-domiciled OEIC, Franklin Templeton Funds. Past performance is not an indicator or a guarantee of future performance. 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 details provided are based on NAV-NAV and include reinvested dividends. 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. 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. 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. Source: Morningstar, copyright 2015 Morningstar, Inc. All Rights Reserved. 26

27 S&P 500 Index 2014 Calendar Year Return (%) Active vs. Passive Investing S&P 500 Index 2014 Calendar Year Return With and Without 50 Best & Worst Stocks 20% 18% 17.76% 16% 14% 12% 11.39% 10% 8% 8.39% 6% 4% 2% 0% S&P 500 Without 50 Worst Stocks Without 50 Best Stocks For illustrative and discussion purposes only. Source: Strategas as of 31 December Past performance is not an indicator or a guarantee of future performance. 27

28 Active Share (%) The Level of Active Management Varies by Manager Active Share vs. Tracking Error Morningstar US OE Large Cap Growth Peer Group As of 31 March Diversified Stock Picks Closet Indexing Tracking Error Franklin US Opportunities Representative Account Concentrated Stock Picks Source: Cremers and Petajisto. Morningstar Direct as of 31 March Calculated using each Fund s Primary Prospectus Benchmark; Tracking Error measured from 1 April March Information is supplemental to the accompanying full performance presentation prepared in accordance with the Global Investment Performance Standards (GIPS ). Please also see the Important Information page in the Appendix. Active share and tracking error information is historical and may not reflect current or future composite characteristics. All holdings are subject to change. For the most current information on the composite, please contact your Franklin Templeton institutional marketing representative. 28 Factor Bets

29 Active vs. Passive Investing Why is active management important? Copying the benchmark, by definition, does not generate alpha you need to be active Chasing performance in the market will not lead to market outperformance We believe the best potential for delivering attractive risk-adjusted returns is through disciplined, bottom-up research, identifying companies with sustainable growth potential that is not already priced into their current share prices 29

30 Why Franklin US Opportunities Strategy? Exposure to leading growth companies in the US Research intensive, fundamental approach Portfolio construction focused on quality growth Conviction weighted portfolio High active share, diversified - multi-cap, multi-industry Strong risk management Solid long-term track record A sub-fund of the UK-domiciled OEIC, Franklin Templeton Funds. 30

31 Management Profile Grant Bowers Vice President Portfolio Manager, Research Analyst Franklin Equity Group Franklin Advisers, Inc. San Mateo, California, United States Grant Bowers is a vice president and portfolio manager with Franklin Equity Group. He is the lead portfolio manager of Franklin U.S. Opportunities Fund (SICAV) and Franklin US Opportunities Fund (OEIC), as well as related portfolios. He is also a member of Franklin Equity Group's US Growth team. Mr. Bowers joined Franklin Templeton Investments in 1993 as a fixed income analyst and in 1998 joined the Franklin Equity Group as an analyst. His previous research coverage has included the telecom, media, publishing, transportation and business services industries. Prior to assuming his current role he was the lead portfolio manager of the Franklin Global Communications Fund from 2002 through Mr. Bowers studied economics at the University of California at Davis. Prior to joining Franklin Templeton, he served in the United States Army. 31

32 Important Information This commentary reflects the analysis and opinions of the speaker as of March 2015, and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments. Because market and economic conditions are subject to rapid change, the analysis and opinions provided may change without notice. The commentary does not provide a complete analysis of every material fact regarding any country, market, industry or security. An assessment of a particular country, market, security, investment or strategy is not intended as an investment recommendation nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. Source: FactSet FactSet Research Systems Inc. All Rights Reserved. The information contained herein: (1) is proprietary to FactSet Research Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Frank Russell Company is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. This is a presentation of Licensee. The presentation may contain confidential information and unauthorised use, disclosure, copying, dissemination or redistribution is strictly prohibited. Frank Russell Company is not responsible for the formatting or configuration of this material or for any inaccuracy in Licensee's presentation thereof. Source: S&P 500. Copyright 2015, S&P Dow Jones Indices LLC. All rights reserved. Reproduction of S&P US Index data in any form is prohibited except with the prior written permission of S&P. S&P does not guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. S&P DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall S&P be liable for any direct, indirect, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with subscriber s or others use of S&P US Index data. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. 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. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. 32

33 Important Information (Continued) 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 the UK-domiciled OEIC Franklin Templeton Funds (the Fund ). Nothing in this document should be construed as investment advice. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, and, where available, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. 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. An investment in the Fund entails risks which are described in the Fund s prospectus and, where available, in the relevant Key Investor Information Document No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America 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. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund s holding at any one time. For a free copy of the latest prospectus, and the relevant Key Investor Information Document, the annual report and semi-annual report, if published thereafter or for more information about any Franklin Templeton Investments fund, please contact: Franklin Templeton Investments, Telephone: , ftisalessupport@franklintempleton.co.uk or write to us at the address below. Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority. 33

34 2015 Franklin Templeton Investments. All rights reserved. Franklin Templeton Investment Management Limited Cannon Place, 78 Cannon Street London EC4N 6HL United Kingdom franklintempleton.co.uk