TARGET A MORE PRECISE OUTCOME Franklin Target Return Fund
A TRANSFORMATIVE EVENT The investment world changed in 2008 and 2009. In a brief period of time, the Global Financial Crisis wiped out trillions of dollars in wealth across many asset classes. As a result, this transformative event changed the way many people think about portfolio construction and risk management. High Net Worth Portfolio Allocation (Global Average) 2 As of December 31, 2016 33.6 % Other 1 The risks of playing it safe 25.6 % Cash & Equivalent to Cash 26.8 % Equity 18 % Fixed Income The broad based downturn caused some rattled investors to abandon the markets altogether or move their money to safer options such as cash equivalents like money market funds and Guaranteed Investment Certificates (GICs). Unfortunately, these investors could be inadvertently exposing their portfolios to risk because of the negative impact that inflation can have on the purchasing power of their money. Investors have continued to hold almost a quarter of their financial wealth in cash, an allocation they perceive as necessary to fund their lifestyles as well as to protect against market volatility. 2 Money market funds average yield before and after inflation 3 10-year period ended September 30, 2018 6% 4% 2% 0% 0.66 % -2% -1.51 % Inflation-Adjusted -4% 01/00 09/02 05/05 01/08 09/10 05/13 01/16 09/18 Canadian Money Market Funds Canadian Money Market Funds (Inflation-Adjusted) 1. Other consists of Real Estate and Alternative Investments. 2. Source: Capgemini and RBC Wealth Management Global HNW Insights Survey, 2016. 3. Morningstar Research Inc. as of September 30, 2018. Canadian Money Market Fund Yield of 0.26% based on the Morningstar Money Market CAD Peer Group Average which contained 215 funds.
GOALS HAVEN T CHANGED Despite these challenges, investors are still looking forward to their retirements. They are still looking to provide for their children s education. They are still looking to save for home purchases. The goals haven t changed, but the way forward may. Because of market volatility, many investors are no longer seeking ways to simply outperform benchmark indices. They want to invest in solutions that are designed to deliver clear performance targets, with a smoother experience. Franklin Target Return Fund was developed with these investors in mind. CLEAR TARGETS An investment that sets out a clear target that is not dependent on market ups and downs A SMOOTHER EXPERIENCE An investment that seeks to limit volatility to offer investors more comfort and security franklintempleton.ca Target a More Precise Outcome 3
NEXT-LEVEL ACTIVE MANAGEMENT At its heart traditional asset allocation seeks to manage risk by reducing correlation among a variety of investment solutions. Diversifying portfolios by style, asset class and geography has traditionally worked for many years, but the Global Financial Crisis taught us that even the best strategy can run into challenges. For example, our analysis has shown that a traditional asset allocation may lead to a portfolio split of 60/40 percent between equity and fixed income. However, when you take a clear view of the underlying risk you d find that the 60% allocation to equity has the potential to contribute 85% of the risk in a given portfolio. 15 % RISK CONTRIBUTION ASSET ALLOCATION VIEW 60 % Equity 40 % Bonds 85 % RISK CONTRIBUTION Franklin Target Return Fund seeks to better understand the behaviour of different securities. With this knowledge investment managers are able to develop an allocation that better reflects the risk contribution of each underlying security. 4 Target a More Precise Outcome franklintempleton.ca
A NEW WAY TO LOOK AT PORTFOLIO CONSTRUCTION Looking at the various risk factors of a security can help you better understand and predict the behaviour of a given security. However, when you shift your focus from asset classes to asset behaviours you need to use an expanded toolset. Franklin Target Return Fund tools Traditional Multi-Asset Fund tools Beta hedging strategies Credit & equity tail risk hedging Multi-asset risk premia Momentum, quality, carry, value, liquidity, term-structure Relative value, beta targeting Stocks Canada, US & International Corporate bonds High yield & Investment grade Government bonds Canada, US & International Stocks Canada, US & International Corporate bonds High yield & Investment grade Government bonds Canada, US & International Commodities Currency hedging Gold Currency hedging Franklin Target Return Fund focuses on three distinct behaviours of securities and weights the portfolio between them to take advantage of different market opportunities. GROWTH DEFENSIVE STABLE Investments that aim to find opportunities offering growth potential. Investments that aim to protect investors against significant losses from major market downturns. Investments that aim to offer consistently higher returns than money markets while taking on modestly higher amounts of risk. franklintempleton.ca Target a More Precise Outcome 5
FRANKLIN TARGET RETURN FUND The Fund seeks to... Achieve an average return of 4% above the FTSE TMX Canada 91-Day T bill index over a 3 year period A standard deviation that ranges between 6 9% over the same period There can be no guarantee that the Fund will achieve its return target, nor that it will remain within the above volatility range. All investment performance is inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the manager. In considering the return target and the volatility range, prospective investors should bear in mind that such targeted performance and volatility is not a guarantee, projection or prediction and is not indicative of future results of the Fund. Expected portfolio composition GROWTH 65% Equities High-yield bonds Commodities Emerging market debt and currency DEFENSIVE 19% Dynamic hedging Gold Index-linked bonds STABLE Pure risk premia Relative value strategies Tail risk Safe-haven currencies Government bonds 55% Market neutral strategies Cash (domestic and foreign) Fund details Series Management fee Fund codes Minimum investment A FE TML 3954 A LL 2.10% TML 3955 $500 A DSC TML 3956 F TML 3957 1.10% F ADM* ADM 5012 $500 PF TML 3958 0.85% PF ADM* ADM 5080 $100,000 O 0.85% TML 3959 $200,000 * ADM refers to the Investment Advisory Services Fee purchase option for series F, FT, PF, PF (Hedged) and PFT. Please see the simplified prospectus for further details. 6 Target a More Precise Outcome franklintempleton.ca
INVESTMENT EXPERTISE Local team with global support With management and analyses spread through the globe you can be assured that the investment team is leaving no stone uncovered in order to meet their targets. PORTFOLIO MANAGEMENT MATTHIAS HOPPE, CFA Portfolio Manager Frankfurt, Germany MICHAEL GREENBERG, CFA, CAIA Portfolio Manager Toronto, Canada Calgary Toronto Short Hills Boston San Francisco New York City Washington DC Los Angeles Fort Lauderdale Miami Mexico City Nassau Bogota Edinburgh Warsaw Leeds Frankfurt Vienna London Budapest Bucharest Milan Istanbul Dubai Mumbai Hyderabad Chennai Singapore Seoul Shanghai Hong Kong Bangkok Ho Chi Minh City Kuala Lumpur Rio de Janeiro São Paulo Buenos Aires Cape Town Sydney Melbourne 40+ Locations with Franklin Templeton Investment Professionals 12 Locations with Franklin Templeton Multi-Asset Solutions Professionals
TERM GLOSSARY Risk Premia Is the expected return above a risk free rate. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Relative Value a measure of a securities intrinsic value relative to other similar securities. Dynamic Hedging a technique that is widely used by derivative dealers to hedge the rate of change for the price of a security or that security s sensitivity to changes in the volatility of an underlying asset. Tail Risk a form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. Market Neutral a type of investment strategy that seeks to profit from both increasing and decreasing prices in one or more markets, while attempting to completely avoid some specific form of market risk. Carry is the strategy of borrowing to invest at a lower rate than the expected return. Momentum the rate of acceleration of a security s price or volume, used to help identify trend lines. Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset s price. Speak to your financial advisor today to determine if Franklin Target Return Fund is right for you! At Franklin Templeton Investments, we re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple world-class investment teams in a single firm, we re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe. Franklin Templeton Investments Canada is a business name used by Franklin Templeton Investments Corp. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Franklin Templeton Investments Canada 200 King Street West, Suite 1500 Toronto, ON M5H 3T4 fax: (866) 850-8241 (800) 387-0830 www.franklintempleton.ca/targetreturn 2018 Franklin Templeton Investments Corp. All rights reserved. CAFTR BE 09/18