Templeton Eastern Europe Fund A (acc) EUR Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details 1 Fund Assets 220,866,400.20 Fund Inception Date 10.197 Number of Issuers 46 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category Asset Allocation 2 % Equity 98.81 Cash & Cash Equivalents Fixed Income Overall Morningstar Rating TM 3 TEMEAEI LX LU0078277505 EUR Value MSCI Emerging Markets Europe Index Emerging Europe Equity Fund Description The Fund aims to achieve long-term capital appreciation by investing primarily in listed equity securities of issuers organised under the laws of or having their principal activities within the countries of Eastern Europe, as well as the New Independent States, i.e. the countries in Europe and Asia that were formerly part of or under the influence of the Soviet Union. Performance Data Performance Net of Management Fees as at 30.11.2018 (Dividends Reinvested) (%) 4,5 Since Inception 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs (10.197) A (acc) EUR 0.67 4.25-17.10-14.58 3.50-0.85 4.24 4.36 MSCI Emerging 2.40 6.12-3.32 1.15 6.78-0.22 6.38 5.54 Markets Europe Index Calendar Year Returns (%) 200% 100% 0% -100% 17.61 6.59 20.37 30.08 4.84 17.37 23.20 24.91 25.22 98.51 80.39-4.41-3.97-19.49-19.78-8.01-20.78-40.02-66.02-66.32 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (acc) EUR Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review ONE-MONTH KEY PERFORMANCE DRIVERS HELPED HURT Stocks Sectors Countries Tatneft Consumer Discretionary (Overweight) Russia (Stock Selection) Mavi Giyim Sanayi ve Greece (Stock Selection, Materials (Stock Selection) Ticaret Underweight) Nova Ljubljanska banka Slovenia (Off-benchmark Exposure) OMV Petrom Health Care (Stock Selection) Poland (Stock Selection) Luxoft Holding Financials (Underweight) Turkey (Underweight) Rosneft Communication Services (Stock Selection) Romania (Off-benchmark Exposure) Energy companies were hampered by weaker oil prices in November. The fund s overweights to Romania-based OMV Petrom and Russia-based Rosneft held back relative returns, while its underweight to Tatneft in Russia was a relative contributor. Though concerns of oversupply weighed on oil prices, we remain mindful of a potential supply shortage in the next few years, given OPEC s (Organization of the Petroleum Exporting Countries) limited spare capacity and infrastructure constraints in key US shale-producing areas. Technology services provider Luxoft fell. The company, which is headquartered in Switzerland, has considerable operations in Central and Eastern Europe. Luxoft issued a weaker-thanexpected performance outlook as its major clients in the financial services segment faced headwinds. Nonetheless, Luxoft has taken steps to diversify its revenue base, and its growth in the automotive segment appears promising, in our view. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
Conversely, Slovenia-based lender Nova Ljubljanska banka (NLB) closed higher following its initial public offering in November. The stock is a new position in the fund. NLB is a leading bank in Slovenia and we believe its strong regional franchise positions it favourably for longterm growth. Outlook & Strategy Investor sentiment towards emerging Europe improved recently due to several factors, including dovish comments from US Federal Reserve Chairman Jerome Powell, which raised expectations of an interest rate hike pause in 2019. Despite slowing global growth, several emerging European markets are still widely expected to achieve faster economic growth than developed markets (DMs) in the foreseeable future. According to forecasts from the International Monetary Fund, for example, Romania could grow more than 3.0% in 2019, exceeding the 2.1% estimate for DMs collectively. 6 Many emerging European markets are highly integrated with the European Union today. Backed by large pools of skilled and affordable labour, countries such as Poland have developed into major manufacturing hubs and technology outsourcing centres. While short-term market volatility may continue, as value-oriented and long-term investors, we continue to seek companies that demonstrate sustainable earnings power and trade at a discount relative to their intrinsic value and other investments available in the market. Portfolio Characteristics 7,8 Portfolio Price to Earnings (12 Month Trailing) 6.78x 7.53x Price to Book 1.00x 0.98x Price to Cash Flow 4.36x 4.80x Market Capitalisation (Millions in EUR) 21,197 26,093 Dividend Yield 5.33% 4.74% Portfolio Diversification Geographic Weightings vs. 2 Russia Turkey Poland Romania Slovenia Czech Republic Kazakhstan Moldova Ukraine Greece United Kingdom Switzerland Georgia Cash & Cash Equivalents 4.24 3.20 3.10 2.88 2.19 1.84 1.83 1.83 4.13 1.27 1.01 0.40 9.13 10.93 7.56 Templeton Eastern Europe Fund 19.21 61.21 57.89 0% 25% 50% 75% Sector Weightings vs. 2 Energy Financials Materials Consumer Discretionary Consumer Staples Communication Services Health Care Information Technology Industrials Real Estate Utilities Cash & Cash Equivalents 3.11 4.43 6.17 4.80 2.35 0.86 1.01 0.86 2.26 0.17 2.88 Templeton Eastern Europe Fund 12.95 11.11 10.99 10.50 18.75 29.39 35.22 40.99 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% www.franklintempleton.co.za 2
Top Ten Holdings 9 Top Holdings Sector Country % SBERBANK OF RUSSIA PJSC Banks Russia 10.10 LUKOIL PJSC Energy Russia 9.60 GAZPROM PAO Energy Russia 8.54 DETSKY MIR PJSC Retailing Russia 4.57 ROSNEFT PJSC Energy Russia 4.49 OMV PETROM SA Energy Romania 4.24 MMC NORILSK NICKEL PJSC Materials Russia 4.05 YANDEX NV Media & Entertainment Russia 3.97 NOVA LJUBLJANSKA BANKA DD Banks Slovenia 3.20 TATNEFT PAO Energy Russia 3.16 Supplemental Performance Statistics Supplemental Risk Statistics 10 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Templeton Eastern Europe Fund 13.12 14.89 21.28 14.70 16.68 21.02 Tracking Error (%) 7.87 7.67 8.86 Information Ratio 11-0.42-0.08-0.24 Beta 0.75 0.79 0.92 Sharpe Ratio Templeton Eastern Europe Fund 0.32-0.03 0.20 0.51 0.01 0.31 Investment Team Portfolio Manager Years with Firm Years Experience Alexey Ilin, CFA, Vice President 10 13 What Are the Key Risks? 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. Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund invests mainly in equity securities of companies located in or doing significant business in Eastern Europe, many of which are emerging markets and subject to significant price movements, frequently to a greater extent than equity markets globally. As a result, the performance of the Fund can fluctuate significantly over relatively short time periods. Other significant risks include: currency risk, emerging markets risk, liquidity risk. For full details of all of the risks applicable to this Fund, please refer to the Risk Considerations section of the Fund in the current prospectus of Franklin Templeton Investment Funds. 10. Beta, Information Ratio and Tracking Error information are measured against the. www.franklintempleton.co.za 3
Important Legal Information Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from Franklin Templeton International Services S.à r.l., 8A rue Albert Borschette, L-1246 Luxembourg. Commission and incentives may be paid and if so, would be included in the overall costs. Franklin Templeton Investment Funds ( FTIF ) are priced on a forward basis and prices are calculated daily. FTIF does not provide any guarantee either with respect to the capital or the return of a portfolio. FTIF is regulated in Luxembourg and the FTIF sub-funds available for public sale in South Africa are approved by the Financial Services Board. Investments in foreign securities may expose the fund to risks such as potential constraints on liquidity and repatriation of funds, macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. For full information on all the risks applicable to this fund, please refer to the fund s prospectus. Franklin Templeton Investments SA (PTY) Ltd ( FTISA ) is an authorised Financial Services Provider. FTISA is a Member of the Association for Savings & Investment SA (ASISA). Copies of the latest prospectus, Minimum Disclosure Document (MDD) and the latest annual and semi-annual reports of FTIF are available on the website www.franklintempleton.co.za or may be obtained free of charge from Franklin Templeton International Services S.à r.l., 8A rue Albert Borschette, L-1246 Luxembourg or your local FTI representative. Performance is calculated as a lump-sum and is quoted in USD or in the base currency of the fund and its respective share classes currencies. Performance is calculated for the portfolio, individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Annualised performance is the fund s total return expressed as an annual equivalent percentage rate over the time period listed. 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. Past performance is not an indicator or a guarantee of future performance. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. 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. For the most current information on the fund, please contact your Franklin Templeton marketing representative. 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 the Fund invests may be substantially different than those represented by the benchmark index. Furthermore, an investment in Franklin Templeton Investment 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. References to indexes are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. 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. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. Past performance is not an indicator or a guarantee of future performance. 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. 2. 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. 3. 2018 Morningstar, Inc. All rights reserved. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and 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. 4. Source for all information is Franklin Templeton Investments. Benchmark related data provided by FactSet. Past performance is not an indicator or a guarantee of future performance. Periods greater than one year are shown as average annual total returns. 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. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 5. 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. 6. Source: International Monetary Fund, World Economic Outlook, October 2018. 2018 By International Monetary Fund. All Rights Reserved. 7. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. 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 the 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 capitalisation figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Source: Factset. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Franklin Templeton Investments Kildare House The Oval, 1 Oakdale Road Newlands, Cape Town, 7700 South Africa Tel.: +27 (21) 831 7400 Fax.: +27 (21) 831 7422 www.franklintempleton.co.za 2018 Franklin Templeton Investments. All rights reserved.
8. The dividend yield quoted here is the yield on securities within the portfolio and should not be used as an indication of the income received from this portfolio. 9. 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. 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. 11. 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). Franklin Templeton Investments Kildare House The Oval, 1 Oakdale Road Newlands, Cape Town, 7700 South Africa Tel.: +27 (21) 831 7400 Fax.: +27 (21) 831 7422 www.franklintempleton.co.za 2018 Franklin Templeton Investments. All rights reserved.