Franklin EAFE Composite Growth Equity Product Profile Product Details 1 Composite Assets $2.671.297.200,43 Inception Date 31.12.1987 Base Currency USD Investment Style Growth Overview We focus on fundamental bottom-up stock analysis to identify and select quality growth companies with sustainable business models and proven management teams that are focused on the creation of shareholder value. We utilise the recommendations from this analysis to build a concentrated, best-ideas portfolio of 35 40 stocks that is benchmark indifferent, yet diversified, due to the limited overlap of economic exposures between companies. Our in-depth research supports our longer-term perspective, seeking to hold companies for three to five years. Performance Data Average Annual Total Returns (USD %) 2 Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (31.12.1987) Franklin EAFE 1,61 7,03 13,83 16,76 8,76 10,05 7,24 8,32 Composite - GROSS Franklin EAFE 1,43 6,48 13,16 16,25 8,32 9,67 6,81 7,76 Composite - NET MSCI EAFE (Net 1,35-1,43 2,74 9,23 4,42 5,38 5,20 5,39 MSCI EAFE 1,53 0,58 5,85 10,26 5,62 6,20 4,58 4,41 Growth (Net 20% 10% 0% -10% 16,7616,25 13,8313,16 9,23 10,26 7,03 8,76 10,05 6,48 8,32 9,67 7,24 8,32 5,85 6,81 7,76 1,61 1,43 1,35 2,74 4,42 5,62 5,38 6,20 5,20 4,58 5,39 4,41 1,53 0,58-1,43 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Franklin EAFE Composite - GROSS Franklin EAFE Composite - NET MSCI EAFE (Net MSCI EAFE Growth (Net Calendar Year Returns (USD %) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Franklin EAFE 36,96 2,14 1,36-3,15 14,74 24,27-10,15 14,83 63,66-50,34 Composite - GROSS Franklin EAFE 36,53 1,73 0,99-3,48 14,40 23,90-10,41 14,49 63,19-50,47 Composite - NET MSCI EAFE (Net 25,03 1,00-0,81-4,90 22,78 17,32-12,14 7,75 31,78-43,38 MSCI EAFE Growth (Net 28,86-3,04 4,09-4,43 22,55 16,86-12,11 12,25 29,36-42,70 Portfolio Manager Insight Market Review International equity markets, as measured by the MSCI EAFE Index, rose during the third quarter in US dollar terms, as solid corporate earnings helped offset concerns about softer growth in Europe and parts of Asia and continued trade tensions. Although economic growth in Europe has weakened, the European Central Bank appeared on course to begin winding down its quantitative 1. As of June 30, 2017, Franklin Non-US Equity Composite was renamed to Franklin EAFE Composite. As of January 1, 2017, the composite excludes accounts with more than 10% exposure to emerging markets. 2. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future performance.
easing program over the remainder of the year. Chinese policymakers took steps during the quarter to bolster growth as trade tensions dampen economic activity. International equities also contended with a stronger US dollar, Brexit-related uncertainty and volatility in a number of emerging markets, including Turkey and Argentina. Performance Review Stock selection, the core of our investment approach, contributed to performance during the quarter relative to the strategy s benchmark, the MSCI EAFE Index. Security selection in the Industrials, Energy and Health Care sectors contributed to returns relative to the benchmark. Stock selection in the Consumer Discretionary, Communication Services and Information Technology sectors weighed on returns relative to the strategy s benchmark. Sector weightings are a result of our stock-selection process and our search for what we believe are attractive, high-quality, sustainable-growth companies. Sector allocation contributed to relative performance versus the strategy s benchmark. An overweight in Health Care and lack of exposure to Consumer Staples supported relative returns. Overweights in Consumer Discretionary and Information Technology curbed relative performance. Regionally, an overweight in the United Kingdom and underweight in Japan curbed performance relative to the MSCI EAFE Index, while exposure to North America dampened relative returns. Outlook & Strategy Heading into year-end, we have seen politics and sentiment begin to have a greater sway on regional and sector returns. With markets looking more expensive to us overall at quarter-end, we expect performance will be driven less by valuation considerations and more by the pockets of excess liquidity that continue to move from market to market and sector to sector based on these shifting risks and political winds. The rotation out of US internet stocks in favour of US health care names in the third quarter was just one example of this trend. As the year draws to a close, we continue to watch for developments in the United States trade war with China, any changes on Europe s political front, ongoing volatility in emerging markets, any eventual slowdown in the US economy resulting from tariffs and higher interest rates, and results of the US midterm elections. Although these various issues may influence market performance over the final quarter of 2018, we see reason to be cautiously optimistic as emerging market volatility has been relatively contained and the US economy has remained modestly healthy. Portfolio Characteristics 3 Portfolio MSCI EAFE (Net Market Capitalisation (Millions in USD) 17,193 55,189 Number of Issuers 4 39 - Return on Equity 12,33% 14,86% Price to Earnings Growth Ratio 2,33x 1,46x Estimated 3-5 Yr EPS Growth 17,49% 9,32% Price to Earnings (12 Month Forward) 27,14x 14,28x Number of issuers based on a representative portfolio in the composite. Securities will vary among individual accounts in the composite 4. Based on a representative portfolio in the composite. Securities will vary among individual accounts in the composite. 2
Portfolio Diversification Geographic Weightings vs. MSCI EAFE (Net 5 Percent of Total EUROPE UNITED KINGDOM NORTH AMERICA JAPAN EMERGING MARKETS ASIA/PACIFIC EX JAPAN CASH & CASH EQUIVALENTS 4,79 3,37 Franklin EAFE Composite MSCI EAFE (Net 7,93 7,27 12,13 11,77 17,50 26,48 24,56 38,04 46,17 0% 25% 50% 75% Sector Weightings vs. MSCI EAFE (Net 5 Percent of Total Consumer Discretionary 21,23 10,99 18,33 Information Technology 5,82 Health Care Industrials 17,36 10,81 13,53 14,60 8,99 Materials 8,04 Financials 8,41 19,81 5,63 Communication Services 5,69 Energy Consumer Staples 3,16 6,25 11,18 Real Estate 3,38 Utilities 3,43 3,37 Cash & Cash Equivalents 0% 5% 10% 15% 20% 25% Franklin EAFE Composite MSCI EAFE (Net Top Ten Holdings 6 Percent of Total Top Holdings Sector Country % SHOPIFY INC Software & Services Canada 3,63 SOPHOS GROUP PLC Software & Services United Kingdom 3,22 DOLLARAMA INC Retailing Canada 3,21 DSV A/S Transportation Denmark 3,19 JOHN WOOD GROUP PLC Energy United Kingdom 3,16 SYMRISE AG Materials Germany 3,16 FERGUSON PLC Capital Goods Switzerland 3,14 CYBERAGENT INC Media & Entertainment Japan 3,11 MTU AERO ENGINES AG Capital Goods Germany 3,09 EXPERIAN PLC Commercial & Professional Services United Kingdom 3,05 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Franklin EAFE Composite 11,43 11,59 17,74 16,60 MSCI EAFE (Net 10,62 10,95 17,37 16,62 Beta (%) 5,19 4,87 6,05 6,97 Information Ratio 9 1,45 0,89 0,77 0,42 Beta 0,96 0,96 0,96 0,91 Sharpe Ratio Franklin EAFE Composite 1,39 0,71 0,55 0,31 MSCI EAFE (Net 0,79 0,36 0,29 0,13 7. Risk statistics are calculated using gross of fees composite performance. 8. Beta, Information Ratio and Tracking Error information are measured against the MSCI EAFE (Net. 3
Investment Philosophy Research-Driven Portfolio Concentrated portfolio with approximately 35 40 holdings Benchmark Indifferent Longer-Term Investment Horizon Investment Horizon of 3 to 5 years Typical holding period of 4+ years Seek to Manage Risk by Limiting Economic Overlap among Holdings Select companies whose earnings streams are not highly correlated Has typically resulted in a diversified portfolio across MSCI Global Industry Classification Standard (GICS) sectors and industries Global Opportunity Set Search without borders Average allocation to emerging markets has been less than 10% Investment Process STOCK SELECTION DISCIPLINE Growth Quality Valuation Free cash flow analysis to assess: Sus ainable b sine sm del Long-t r c mpe itiv adv nt ge Va u - ener ting reinv st en r c r Framework to assess: Financial transparency and accounting quality Corporate governance including share, board and management structure and compensation metrics Environmental management, social and labor practices Common discount cash flow/dividend model to assess: Relative attractiveness of company Valuation support under different scenarios Investment Team Portfolio Manager Years with Firm Years Experience Coleen Barbeau, Senior Vice President 35 37 John Remmert, Senior Vice President 16 31 Don Huber, CFA, Senior Vice President 16 36 Franklin Global Large Cap Team Number of Members Average Years Experience Research Analysts 8 18 Additional Resources Investment Risk Management Group Group Franklin Global Small Cap Team Global Trading Platform Research Associates Franklin US Equity Team Global Portfolio Compliance Product Managers Years with Firm Years Experience Amber Saft 14 16 4
Important Legal Information Franklin claims compliance with the Global Investment Performance Standards (GIPS ). Franklin (the firm ) encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective 1 January 2007, the equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of Franklin and Fiduciary Global Advisors form the Franklin Equity Group (formerly Franklin Global Advisers prior to 30 June 2010) unit of Franklin. Effective 1 January 2006, the fixed income assets managed from that date forward by Franklin Templeton Institutional, LLC ( FTI ) or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional Division or FTCI s Institutional Division ) that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed Income unit of Franklin. The primary reason for these changes to the firm definition was to consolidate equity and fixed income asset management for Franklin (as previously defined), Fiduciary Global Advisors (institutional equities) and FTCI s Institutional Division (institutional fixed income) under one firm, Franklin. The firm definition for Franklin does not include multistrategy asset allocation portfolios managed by Franklin Templeton Multi-Asset Solutions (FTMAS), which was previously known as Franklin Templeton Solutions as well as Franklin Templeton Multi-Asset Strategies and the wrap-fee and non-wrap-fee accounts managed by Franklin Separately Managed Accounts (formerly Franklin Portfolio Advisors) or Franklin Europe which integrated into the Templeton firm definition effective 1 December 2017. The Franklin EAFE Composite consists of all portfolios managed on a fully discretionary basis with an investment objective that seeks to outperform its benchmark on a gross of fees basis by investing in non-u.s. equities. Franklin employs a bottom-up fundamental approach to stock selection, utilising in-depth analysis to select companies based on growth, quality and valuation investment criteria. Franklin seeks to invest in those sectors and companies that are expected to grow at a faster rate than the market overall, likely benefiting from secular and cyclical trends in both U.S. and non-u.s. markets. Franklin does not employ leverage or use derivatives in any account in the composite except for the use of foreign currency forward contracts in conjunction with the normal settlement of security trades in currencies other than the base currency of each account. Total returns are presented in U.S. dollars both gross and net of investment advisory fees, are inclusive of commissions and transaction costs, and assume reinvestment of any dividends, interest income, capital gains, or other earnings. Periods greater than one year are shown as average annual total returns. Performance data is shown rounded to the nearest hundredth. The returns presented for periods prior to 1 January 2000 are not in compliance with the GIPS standards. Past performance is not an indicator or a guarantee of future performance. When performance for either the portfolio or its benchmark has been converted, different foreign exchange closing rates may be used between the portfolio and its benchmark. The MSCI EAFE (Net is a free float-adjusted market capitalisation weighted equity index comprised of securities in MSCI s developed market country-specific indexes, excluding the U.S. and Canada. The benchmark is used for comparative purposes only and is provided to represent the investment environment existing during the time periods shown. Effective 12/31/2015, the historical benchmarks were changed from MSCI EAFE Index to MSCI EAFE (Net and from MSCI EAFE Growth Index to MSCI EAFE Growth (Net for all historical periods. The net dividends indices are more representative of the composite strategy, taking into account the impact of foreign withholding taxes. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. To receive a complete list and description of Franklin composites (including any single account mutual fund composite) and/or a presentation that adheres to the GIPS standards for any composite, contact your Franklin Templeton institutional representative listed below. 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. Important data provider notices and terms available at www.franklintempletondatasources.com. 3. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 5. 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. 6. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 9. 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). For Institutional Professional Investors only not for distribution to retail clients. This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. 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