Templeton Global Equity Fund

Transcription

1 Value Equity Product Profile Product Details Fund Assets $150,018, Fund Inception Date 10/03/2005 Number of Issuers 94 Base Currency AUD Investment Style Value Overview Our time-tested investment approach focuses on identifying stocks trading at a significant discount to their longer-term business value based on our estimates of future normalised earnings and cash flow generation. We utilise a disciplined, consistent investment process that is based on our philosophy of value, patience and bottom-up stock picking. Templeton s long-term perspective and in-depth research give us the insight and conviction to purchase out-of-favour securities and the patience to wait for potential value recognition. Performance Data Average Annual Total Returns (AUD %) 1 Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs (10/03/2005) Templeton Global Equity Fund - Gross of Fees Templeton Global Equity Fund - Net of Fees MSCI All Country World ex-australia (Net Dividends) 20% 10% 0% -10% Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception Templeton Global Equity Fund - Gross of Fees Templeton Global Equity Fund - Net of Fees MSCI All Country World ex-australia (Net Dividends) Calendar Year Returns (AUD %) Templeton Global Equity Fund - Gross of Fees Templeton Global Equity Fund - Net of Fees MSCI All Country World ex- Australia (Net Dividends) Portfolio Manager Insight Market Review Despite mostly strong January performance, global equity markets generally shed value in USdollar terms for the first quarter of Concerns arose that strong economic growth in some parts of the world, particularly the United States, would lead central banks to increase interest rates sooner than expected. A selloff in technology firms amidst concerns about consumer data privacy and potentially tighter regulatory controls in the sector affected many developed markets. Sentiment was also dampened by worries that a trade war could develop following protectionist moves by the Trump administration. 1. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future performance.

2 Most European equity markets declined in the first quarter. Many investors took little cheer in corporate earnings reports and appeared to focus on the risk of escalating trade tensions and the selloff in technology shares. Europe s gross domestic product (GDP) in 2017 grew by 2.3% in the euro area and by 2.4% in the European Union (EU) overall. The February 2018 unemployment rate in the euro area edged down to 8.5%, the lowest reading since December 2008, and the rate in the EU declined to 7.1%, the lowest level since September However, annualised inflation in February slowed to 1.1% in the euro area and 1.3% in the EU, while the euro area flash estimate for March was 1.4%. The US stock market stumbled in the first quarter of 2018 amidst heightened volatility, even as earnings reports showed many US companies posting their best results in years. At its March 2018 monetary policy meeting, the Fed raised its benchmark interest rate. It also lifted its 2018 US growth forecast but maintained its projection of three rate hikes this year. Data released in March showed the US economy expanded at a 2.9% annualised rate in 2017 s fourth quarter, compared with 3.2% gross domestic product (GDP) growth in the third quarter. The Australian dollar declined 1.9% relative to the US dollar, and declined 4.3% against the euro for the first quarter of Performance Review 2 During the first quarter of 2018, stock selection and an underweight allocation in the information technology sector curbed relative results. Stock selection in the health care, financials and telecommunication services sectors were other notable relative detractors. Conversely, security selection and an underweighting in the consumer staples sector supported relative performance during the first quarter. Stock selection in the real estate, energy and materials sectors also helped returns. Regionally, stock selection in China hindered relative results in Asia. Conversely, investments in Thailand and Japan helped the fund s performance. An overweighting and stock selection in Europe further dampened relative returns, pressured by investments in France, Sweden and Germany. In contrast, Italy was a notable contributor in the region. In North America, investments in the United States overall had a negative relative effect on returns, but was offset by advantageous stock selection in Canada. Outlook & Strategy Surveying the current global investment environment, a number of situations appear incongruous and unsustainable to us. First, the US-led economic cycle is now the second-longest of the post-war era, with the world s largest economy nearing full employment and peak profitability. This strikes us as an odd moment to unleash large-scale fiscal stimulus, especially if it needs to be deficit-financed at a time of waning demand for Treasury debt. Second, US stocks are near their highest valuation levels in history, at least based on the metrics that are most correlated to future long-term returns. This seems a strange time to rush indiscriminately into US equities, yet data confirms that 2017 saw record inflows into US-focused exchange-traded funds. Third, corporate debt-to-gdp is back near previous peaks, while the government debt-to-gdp ratio of the Group of Seven countries is near the highest level since World War II. This seems a perilous time to increase borrowing costs, but nevertheless rates have been rising. Our broader point is that risks appear elevated at this mature stage in the cycle, with volatility resurfacing in an environment of full valuations, rising interest rates and still fragile economic growth. We would not want to own the leaders of the last cycle in this environment, and believe that the inevitable market transition come when it may could significantly bolster the case for active value investing. In keeping with our time-tested value discipline, recent quarters have seen us reducing exposure to expensive sectors like information technology, consumer discretionary and US banks and reinvesting proceeds into beleaguered sectors like health care, telecommunications and select energy stocks. The aim of a long-term, contrarian investment framework is to spot such opportunities and get there before the crowds arrive to erode the return potential. In this environment of impending transition, we have continued to find what we consider the best long-term opportunities amongst unloved and overlooked stocks. Portfolio Characteristics of a Representative Account 2,3 MSCI All Country World ex-australia (Net Portfolio Dividends) Price to Earnings (12 Month Trailing) 15.70x 18.95x Price to Book Value 1.42x 2.24x Price to Cash Flow 6.71x 11.48x Market Capitalisation (Millions in AUD) 152, ,467 Number of Issuers 94 - franklintempleton.com.au 2

3 Portfolio Diversification of a Representative Account 2 Geographic Weightings vs. MSCI All Country World ex-australia (Net Dividends) 4 NORTH AMERICA EUROPE ASIA MID-EAST/AFRICA CASH & CASH EQUIVALENTS % 25% 50% 75% Sector Weightings vs. MSCI All Country World ex-australia (Net Dividends) 4 Financials Health Care Information Technology Energy Consumer Discretionary Industrials Telecommunication Services Materials Consumer Staples Real Estate Utilities 2.91 Cash & Cash Equivalents % 5% 10% 15% 20% 25% Templeton Global Equity Fund MSCI All Country World ex-australia (Net Dividends) Templeton Global Equity Fund MSCI All Country World ex-australia (Net Dividends) Top Ten Holdings 5 Top Holdings Sector Country % SAMSUNG ELECTRONICS CO LTD Technology Hardware & Equipment South Korea 2.36 ORACLE CORP Software & Services United States 2.35 ROYAL DUTCH SHELL PLC Energy United Kingdom 2.33 BP PLC Energy United Kingdom 2.14 MICROSOFT CORP Software & Services United States 2.04 ALPHABET INC Software & Services United States 1.97 SOFTBANK GROUP CORP Telecommunication Services Japan 1.73 CAPITAL ONE FINANCIAL CORP Diversified Financials United States 1.71 UBS GROUP AG Diversified Financials Switzerland 1.63 CITIGROUP INC Banks United States 1.63 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton Global Equity Fund MSCI All Country World ex-australia (Net Dividends) Tracking Error (%) Information Ratio Beta Sharpe Ratio Templeton Global Equity Fund MSCI All Country World ex-australia (Net Dividends) Beta, Information Ratio and Tracking Error information are measured against the MSCI All Country World ex-australia (Net Dividends). franklintempleton.com.au 3

4 Investment Philosophy Templeton utilises a disciplined, consistent approach based on three timeless principles of investing: Value Patience Bottom-up stock picking Our flexible approach is applied within a disciplined framework and seeks to identify companies trading at large discounts to their business value. Our long-term focus gives us a framework to take advantage of price volatility to reveal potential longterm investment opportunities. Patience allows for potential long-term value recognition. Our portfolio management process seeks to buy pessimism and sell optimism. We build portfolios spanning regions and sectors made up of securities identified through this process. Investment Process Identify Potential Bargains Experienced analysts Focus on global industry sectors Quantitative and qualitative assessment Identify material ESG issues In-Depth Fundamental Analysis Five-year financial forecasts Management/supplier/ competitive evaluation Upside/downside return quantification Recommendation of Bargain List candidates Research Team Evaluation Presentation of investment thesis Investment debate and critique: Devil s Advocate ESG Devil s Advocate Director of research approval Bottom-Up Portfolio Construction Investment parameters Industry and sector framework Build and diversify portfolio Long-term approach: 20% historical turnover TEMPLETON S BOTTOM-UP STOCK SELECTION PROCESS Portfolio Monitoring and Risk Management Ongoing valuation analysis Ongoing ESG monitoring Disciplined sell methodology Weekly peer review and risk analytics 8. Historical turnover is based on Templeton s experience as a Firm, over a five-year period as of most recent quarter end. The turnover is a byproduct of Templeton s long-term approach to managing portfolios, but various factors, such as a portfolio s specific investment guidelines and market or economic conditions may cause actual portfolio turnover to vary. For more information regarding an individual strategy s historical turnover ratio please contact your Franklin Templeton marketing representative. Investment Team Portfolio Manager Years with Firm Years Experience Peter Wilmshurst, CFA, EVP, Portfolio Manager, Research Analyst Templeton Global Equity Team Number of Members Average Years Experience Portfolio Managers/Analysts Research Analysts Additional Resources Investment Risk Management Group Global Research Library Junior Research Analysts Global Portfolio Compliance Product Managers Years with Firm Years Experience Ann Reitman, CFA Iris Glikin, CFA franklintempleton.com.au 4

5 Important Legal Information Basis for Performance for the Templeton Global Equity Fund (ARSN ): From 1 April 2009, monthly returns are calculated using a price to price return methodology. Prior to 1 April 2009, monthly returns were calculated using a time-weighted return methodology. Please refer to the website for an explanation of the two methodologies. Percentage may not equal 100% due to rounding. Past performance is not an indicator or a guarantee of future performance. The MSCI All Country World ex-australia is a free float-adjusted market capitalisation weighted equity index comprised of securities in MSCI s developed and emerging market country-specific indexes, excluding Australia. The benchmark is used for comparative purposes only and is provided to represent the investment environment existing during the time periods shown. es are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. 2. Based on a representative portfolio taken from the Templeton Global Equity Fund. A representative portfolio may vary significantly from other similarly managed separate accounts, depending on a variety of factors, such as portfolio size, specific investment guidelines and inception date of the account. 3. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 4. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 5. Holdings of the same issuer have been combined. Top ten holdings information is based on a representative account, is historical, and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The securities identified do not represent the fund s entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in the fund, or that securities sold will not be repurchased. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 7. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). This document is intended to be of general interest only, and does not constitute legal or tax advice nor is it an offer of any investment fund or service. Nothing in this document should be construed as investment advice. Investments entail risks, the value of investments can go down as well as up and investors should be aware that they might not get back the full value invested. Franklin Templeton Investments shall not be liable to any user of this document or to any other person or entity for the inaccuracy of information contained in this document or for any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission. 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. Issuance of this document may be restricted in certain jurisdictions. This document does not constitute the issuance of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such issuance or offer is not authorised or to any person to whom it is unlawful to issue such a document or make such an offer or solicitation. Australia: Issued by Franklin Templeton Investments Australia Limited (ABN ) (Australian Financial Services License Holder No ) to persons who are wholesale investors within the meaning of the Corporations Act 2001 (Cwlth) and/or to whom this document may otherwise lawfully be communicated to give preliminary information about the investment propositions described herein. This document is a confidential communication to, and solely for the use of, and may only be acted on by, such persons. The document is not addressed to any other persons and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the services or other matters described herein to the individual circumstances, objectives, financial situation or needs of any recipient. It is not directed at private individuals and in no way does it constitute investment advice. A disclosure document for any Franklin Templeton funds referred to in this document is available from Franklin Templeton at Level 19, 101 Collins Street, Melbourne, Victoria, 3000 or or by calling Franklin Templeton Investments Australia Limited Level 19 Level 30, Aurora Place 101 Collins Street 88 Phillip Street Melbourne Vic 3000 Sydney NSW franklintempleton.com.au For Clients and Sophisticated Investor Use Only. Not for Distribution to Retail Investors Franklin Templeton Investments. 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