Templeton Latin America Fund Fund Manager Report

Transcription

1 Franklin Templeton Investment Funds Templeton Latin America Fund Fund Manager Report Equity LU January 2016 Fund Characteristics Base Currency USD Total Net Assets (USD) 806,048,355 Fund Inception Date Number Of Issuers 40 Primary Benchmark: MSCI EM Latin America Index Bloomberg Code - A(Ydis) TEMLAAI LX Fund Management Mark Mobius, PhD: Hong Kong Overview Markets in Latin America fared much better than their emerging-market peers in January. Peru and Chile were among the strongest performers, posting gains, while Brazil was the weakest regional market. The fund lost ground over the month, weighed down most by positions in Brazil and Mexico. Colombia was the only contributor to absolute performance at the country level. Nearly all sectors detracted from absolute performance, led by financials, consumer discretionary, materials and energy. Only the information technology sector benefited returns. Performance (%) (As of 31 January 2016) Cumulative Performance 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Incept ( ) Templeton Latin America Fund - A(acc)SGD - NAV N/A MSCI EM Latin America Index SGD N/A Annualized Performance (%) Net Of Sales Charge^ (As of 31 January 2016) Historical Performance 1 Yr 3 Yrs 5 Yrs 10 Yrs Portfolio Allocation (%) Sector Breakdown(%) Geographic Breakdown (%) Since Incept ( ) Templeton Latin America Fund - A(acc)SGD - NAV N/A Equity Cash & Cash Equivalents 6.15 Financials Consumer Staples Consumer Discretionary 8.06 Materials 8.02 Industrials 5.22 Energy 4.13 Utilities 1.81 Telecommunication Services 0.61 Information Technology 0.49 Health Care 0.00 Brazil Mexico Chile Peru 6.58 Argentina 4.74 Other 3.98 For information related to the headings Fund Characteristics, Portfolio Allocation, Sector Breakdown, Geographic Breakdown, Templeton Latin America Fund - A(acc) SGD NAV, please see note regarding Fund Characteristics data and Fund Ratings on back page. Source: Franklin Templeton Investments, 31 January Past performance is not an indicator or a guarantee of future performance. Source for MSCI benchmark returns: FactSet Research System, Inc., as of 31 January *Fund performance prior to September 1996 excluded from calculation because a different portfolio allocation strategy was in use. Performance calculated as at 31 January 2016 in SGD; NAV-NAV; dividend reinvested. Past performance is not indicative of future performance. ^Initial sales charge of 5%. For Broker/Dealer and Professional Use Only. Not for public distribution. 1

2 Market Review Global equity markets started off the year on a somber note, as signs of slowing economic growth, particularly in Europe and China, led to a rise in risk aversion. The oil price continued to fall as demand data fell short of expectations and investors anticipated a glut of supply with the lifting of sanctions against Iran. Markets in Latin America fared much better than their emerging-market peers. Peru and Chile were among the strongest performers, posting gains, while Brazil was the weakest regional market, declining on concerns about disappointing economic data and persistently high inflation, factors that induced the country s central bank to leave its key interest rate unchanged at a nine-year high of 14.25% in January. Within Brazil, inflation rose to its highest level in more than a decade, with the consumer price index rising to 10.7% y/y in December, compared to 10.5% y/y in November and just over 7% in January In her first interview in 2016, President Dilma Rousseff noted that, fiscal adjustment is our priority. We will guarantee a surplus of 0.5% of the GDP. With this, we will create the conditions to balance inflation. Ms. Rousseff also said that the government wants to end 2016 with inflation at the target ceiling rate of 6.5%. Nearly all sectors within the benchmark index lost ground during the month, with the commodity-related energy and materials sectors recording the largest percentage falls by far. Only the utilities sector gain, while consumer staples and telecommunication services were more resilient than their peers. Performance Review and Contributors to Performance The fund lost ground in January, weighed down most by positions in Brazil and Mexico. Among Brazilian stocks, a position in a retail chain store operator fell amid a weak macro environment and expectations of continued difficult conditions in A meat, dairy and food processing firm traded lower on worries about potentially lower demand in its key Middle East export market, while a securities trading company was pressured by uncertainty about the macroeconomic and political environment in Brazil. In Mexico, a number of financial stocks detracted from absolute performance, pulled lower by the overall market decline. Top detractors included a consumer finance company and a leading banking institution, even though the latter reported generally encouraging fourth-quarter results. In addition, a mining company was impacted by the continued fall in commodity prices, which led it to report quarterly results that were below market expectations. Argentina was also a notable detractor from absolute returns, largely due to a position in a maker of steel pipes primarily used in the oil and gas industry, which was impacted by slowing demand and falling prices. Investments in Chile also weighed on performance, as did a Peru-based financial services provider that retreated on worries about limited earnings visibility and operating headwinds, despite the company reporting solid profitability in At the country level, Colombia was the only contributor to absolute performance, thanks to a position in a leading bank whose stock price recovered over the latter half of the month. Elsewhere, other financial stocks also aided performance, including a Peru-based bank that reported better-thanexpected fourth-quarter results and exhibited robust profitability in 2015 as it refocused on its core business. A Mexico-based stock market operator also ended the month higher, as fourth-quarter results showed that expenses were under control and margins were healthy. The strongest contributor to absolute returns, however, was a Brazil-based brewing company that was buoyed by expectations of solid fourth-quarter results and a positive guidance for Nearly all sectors detracted from absolute performance, led by financials, consumer discretionary, materials and energy. Only the information technology (IT) sector benefited absolute returns, thanks to a position in a Brazil-based software and IT services provider that saw a strong monthend rally. Portfolio Positioning Our portfolios are built on a stock-by-stock basis using fundamental analysis with country and sector weightings an outcome of the investment process. In January, the fund s largest weightings were in Brazil and Mexico, followed by Chile and Peru. From a sector standpoint, financials was the largest position, followed by consumer staples. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail investors. Not for public distribution. 2

3 Portfolio Diversification (As of 31 January 2016) Top Sector Contributor Sector Information Technology Top Security Contributors Security AMBEV SA CREDICORP LTD BOLSA MEXICANA DE VALORES SAB DE CV CLASS A BANCOLOMBIA SA SPONSORED ADR PFD YPF SA SPONSORED ADR CLASS D CCR SA CETIP SA MERCADOS ORGANIZADOS COMPANIA CERVECERIAS UNIDAS SA TOTVS SA FOMENTO ECONOMICO MEXICANO SAB DE CV UNITS CONS OF 1 SHSB AND 4 SHSD Top Sector Detractors Sector Financials Consumer Discretionary Materials Top Security Detractors Security CREDITO REAL SAB DE CV SOFOM ER TENARIS SA SPONSORED ADR INTERCORP FINANCIAL SERVICES INC LOJAS AMERICANAS SA BRF SA BM&FBOVESPA SA BOLSA DE VALORES MERCADORIAS E FUTUROS GRUPO FINANCIERO BANORTE SAB DE CV CLASS O GRUPO MEXICO SAB DE CV CLASS B LOCALIZA RENT A CAR SA BANCO BRADESCO SA SPONSORED ADR PFD Geographic Weightings vs. Benchmark (%) Sector Weightings vs. Benchmark (%) Templeton Latin America Fund MSCI EM Latin America Index Source for Top Sector Contributor and Top Sector Detractors : FactSet Research System, Inc. as of 31 January Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined. Source for Top Security Contributors and Top Security Detractors : FactSet Research System, Inc. as of 31 January Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined. Source for the Fund s Geographic Weightings and Sector Weightings above: Franklin Templeton Investments as of 31 January Holdings of the same issuer have been combined. Weightings as percent of equity. Source for the benchmark s Geographic Weightings and Sector Weightings above: MSCI, as of 31 January The above MSCI Index, the primary benchmark for this Fund, is an equity index calculated by Morgan Stanley Capital International (MSCI). The index measures the total return (gross dividends are reinvested) of equity securities available to foreign (nonlocal) investors in the relevant geographic region as reflected in the name of the index or as defined by MSCI. Securities included in the index are weighted according to their Free Float adjusted market capitalization (Price*Shares outstanding*foreign Inclusion Factor). For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail investors. Not for public distribution. 3

4 Portfolio Diversification (continued) Top Ten Equity Holdings Security Industry % of Total WAL-MART DE MEXICO SAB DE CV Food & Staples Retailing 8.78 ITAUSA - INVESTIMENTOS ITAU SA Banks 7.14 GRUPO FINANCIERO BANORTE SAB DE CV Banks 6.28 AMBEV SA Food Beverage & Tobacco 5.38 CIA CERVECERIAS UNIDAS SA Food Beverage & Tobacco 4.87 ITAU UNIBANCO HOLDING SA Banks 4.66 BM&F BOVESPA SA Diversified Financials 4.60 LOJAS AMERICANAS SA Retailing 4.02 BANCO BRADESCO SA Banks 3.67 BOLSA MEXICANA DE VALORES SA Diversified Financials 3.52 Total Portfolio Characteristics Price to Earnings Price to Book Value Price to Cash Flow Dividend Yield Market Cap (USD Millions) Templeton Latin America Fund (Wtd. Avg.) 10.71x 1.97x 10.45x 3.21% 16,688 MSCI EM Latin America Index (Wtd. Avg.) 19.65x 1.46x 10.57x 3.05% 18,075 Investment Outlook While the drop in commodity prices has taken a toll on resource-oriented markets in Latin America, we believe the current situation could squeeze out higher-cost producers, eventually bringing supply and demand into line and driving prices higher, which is likely to benefit low-cost, wellmanaged producers. From a long-term perspective, we are encouraged by the region s generally robust fundamentals, including solid economic growth, considerable as-yet untapped potential in terms of natural and human resources, favorable demographic profiles, the potential for rapid technological progress, and potential benefits from improving infrastructure and improving standards of governance. The current market environment highlights to us the importance of taking a ground-up approach, looking at individual countries and individual companies in them with a critical eye. Not all markets or all companies within them can be painted with the same broad brushstroke. For example, the world s best-performing markets in 2015 included Venezuela and Argentina, both of which have been dealing with difficult economic and political environments. Even so, there are companies located in each country that have been able to prosper. From our perspective, the upside of the overall market decline is that valuations have become more attractive. Our investment approach has enabled us to identify what we believe are interesting investment opportunities, with recent corrections in stock prices and currency markets providing a potentially attractive opportunity, we think, to build up or expand exposure to the region. Investment Objective Long-term capital appreciation by investing mainly in equity securities of companies incorporated or having their principal business activities in the Latin American region. Investment Philosophy The foundation of the Templeton Emerging Markets Team s investment philosophy value-oriented, patient, bottom-up, global investing has remained consistent for several decades. Its strategy is grounded in patience and the belief that on a short-term basis, stocks overreact to news and noise. On a long-term basis, markets are efficient and patience will reward those who have identified undervalued stocks. Through proprietary research, Templeton seeks to identify quality investments in frequently unfashionable and undervalued stocks. For the Top Ten Equity Holdings above, please note that top ten equity holdings information is historical and may not reflect current or future fund characteristics. All holdings are subject to change. Holdings of the same issuers have been combined. 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 in the top 10 holdings list. For information related to the heading Portfolio Characteristics above, please see note regarding Fund Characteristics data on back page. Source: Franklin Templeton Investments, 31 January Past performance is not an indicator or a guarantee of future performance. For Professional Broker/Dealer investor and use only. Professional Not for distribution Use Only. to retail investors. Not for public distribution. 4

5 Explanatory Notes Fund Characteristics: The Price to Earnings, Price to Cash Flow and Price to Book Value calculations shown herein use harmonic means. Values less than 0.01 (i.e. negative value) are excluded and values in excess of 200x are capped at 200x. Yields above 100% are also excluded. For the benchmarks, no limits are applied to these ratios in keeping with the benchmark s calculation methodology. Market capitalization statistics are indicated in the base currency for the portfolio presented. Yield figures quoted should not be used as an indication of the income to be received. Fund Ratings: Copyright Morningstar, Inc. All rights reserved. Morningstar Rating as of date indicated above, in the respective Morningstar TM Category relevant to the fund. The information contained herein: (1) is proprietary to Morningstar; (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. Fund performance data include reinvested dividends, and is net of management fees. Sales charges, other commissions, taxes and other relevant costs to be paid by the investor are not included. Disclaimers: Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalization figures for both the portfolio and the benchmark are the security level, not aggregated up to the main issuer. The dividend yield quoted here should not be used as an indication of the income to be received from this portfolio. Top Security Contributors and Top Security Detractors are holdings based on the last 12 months period. These securities do not represent all the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in the security listed was or will be profitable. Holdings are subject to change, holdings of the same issuer have been combined. The information provided is not a recommendation to purchase, sell or hold any particular security. The security identified does not represent the composite s entire holdings and in the aggregate, may represent a small percentage of such holdings. There is no assurance that security purchased will remain in the composite, or that security sold will not be repurchased. Performance figures are not based on audited financial statements and assume reinvestment of interest and dividends. When comparing the performance of Franklin Templeton Investment Funds (the Fund ) with a benchmark index, it is important to note that the securities in which Franklin Templeton Investments Funds invests may be substantially different than those represented by the benchmark index. Furthermore, an investment in Franklin Templeton Investments Funds represents an investment in a managed investment company in which certain charges and expenses, including management fees, are applicable. These charges and expenses are not applicable to indices. Lastly, please note that indices are unmanaged and are not available for direct investment. Certain data and other information shown have been supplied by outside sources. While we consider that information to be reliable, we give no assurance that such data and information is accurate or complete. The indices are provided only to show the investment environment during the specific periods shown. The performance of each index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. The indices include a greater number of securities than those held in the Fund. An index is unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. For the most current information on the fund, please contact your Franklin Templeton marketing representative. Stocks mentioned in this report are not a solicitation to purchase those stocks, and are examples of some stocks which performed well. Not all stocks in the portfolio performed as well. 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. For Professional investor use only. Not for distribution to 2016 retail Franklin investors. Templeton Investments. All rights reserved. 5

6 This document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Any research and analysis contained in this presentation has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change. Franklin Templeton Investments accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Past performance or any prediction or forecast is not necessarily indicative of future performance of the Fund. Subscriptions may only be made on the basis of the most recent Prospectus and Product Highlights Sheet which is available at Templeton Asset Management Ltd or our authorised distributors. Potential investor should read the details of the Prospectus and Product Highlights Sheet before deciding to subscribe for or purchase the Fund. This shall not be construed as the making of any offer or invitation to anyone in any jurisdiction in which such offer is not authorised or in which the person making such offer is not qualified to do so or to anyone to whom it is unlawful to make such an offer. In particular, this Fund is not available to U.S. Persons and Canadian residents. Opinions expressed within the promotion are subject to change without prior notice. Investors may wish to seek advice from a financial adviser before making a commitment to invest in shares of the Fund. In the event an investor chooses not to seek advice from a financial adviser, he/she should consider whether the Fund is suitable for him/her. Copyright 2016 Franklin Templeton Investments. All rights reserved. Issued by Templeton Asset Management Ltd. Registration No. (UEN) E For Professional investor use only. Not for distribution to 2016 retail Franklin investors. Templeton Investments. All rights reserved. 6