Templeton Euroland Fund A (acc) EUR Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details 1 Fund Assets 565870786.10 Fund Inception Date 08/01/1999 Number of Issuers 58 Bloomberg Base Currency Investment Style Benchmark Morningstar Category Asset Allocation 2 % Equity 99.63 Cash & Cash 0.37 Equivalents Fixed Income Overall Morningstar Rating TM 3 TEMGROA LX EUR Value Eurozone Large-Cap Equity Fund Description The Fund aims to achieve long-term capital appreciation by investing primarily in equity and debt securities of European Monetary Union member country governments and companies with at least 75% of its total assets in equity securities issued by companies which have their head office in the European Union. Performance Data Discrete Annual Performance (%) as at 31/12/2018 12/17-12/18 12/16-12/17 12/15-12/16 12/14-12/15 12/13-12/14 A (acc) EUR -16.69 8.49 9.33 16.70-4.20 MSCI EMU -12.01 13.30 5.25 10.55 5.08 Index EUR Performance Net of Management Fees as at 31/12/2018 (Dividends Reinvested) (%) 4,5 Since Inception 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs (08/01/1999) A (acc) EUR -7.49-14.59-16.69-16.69-0.40 2.01 6.72 3.57-5.87-12.66-12.01-12.01 1.62 4.04 7.64 3.42 Calendar Year Returns (%) 80% 40% 0% -40% 8.49 13.30 9.33 30.36 24.42 28.66 16.70 22.80 20.61 18.09 5.25 10.55 5.08 0.98 3.29-4.20-16.69-12.01-9.15-14.08 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 A (acc) EUR Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review QUARTERLY KEY PERFORMANCE DRIVERS Helped Hurt Stocks Sectors Countries Amer Sports Oyj Class A Consumer Discretionary (Stock Selection) Belgium (Stock Selection) Flow Traders NV Health Care (Stock Denmark (Off-benchmark Selection) Exposure) Merck KGaA Materials (Stock Selection) Finland (Stock Selection) CGG Financials (Stock Selection) Italy (Stock Selection) Outotec Oyj Energy (Stock Selection) France (Stock Selection) LANXESS AG Communication Services (Underweight) Spain (Stock Selection, Underweight) Lanxess is a specialty chemicals company. Its shares were weak in the fourth quarter on general cyclical and growth worries, due to the company s remaining exposure to the auto sector. However, several of the company s segments have been performing very strongly (including engineering plastics and specialty additives), and earnings have been solid overall. As of year-end, the stock traded at what we view as an excessive discount to its average historical multiples and to chemical peers, which we believe does not accurately reflect its earnings and cash flow power through the cycle. Amer Sports, based in Finland, holds an attractive portfolio of well-known global sports equipment brands that have driven strong operating performance. In September 2018, a consortium made an offer for Amer Sports, and the shares rose in anticipation of the deal, which is expected to close 30 June 2019. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
We continued gradually repositioning our financials portfolio in 2018 to consolidate and rationalise holdings amidst heightened uncertainty, selectively reducing exposure to a handful of domestically focused banks in Europe with concentrated political risk. Unhealed scars from the global financial crisis assure that banks will remain an easy target for market bears during periods of rising risk aversion. Yet, despite depressed valuations, we see fewer excesses and more resiliency in the European banking system today than during past crisis periods. Deep value opportunities have remained, in our view. ONE-MONTH KEY PERFORMANCE DRIVERS Helped Hurt Stocks Sectors Countries Amer Sports Oyj Class A Consumer Discretionary (Stock Selection) Finland (Stock Selection) Orsted Belgium (Stock Selection) Flow Traders NV Denmark (Off-benchmark Exposure) Siemens Gamesa Renewable Energy, S.A. Financials (Stock Selection) France (Stock Selection) zooplus AG Information Technology (Stock Selection) Italy (Stock Selection) Aegon N.V. Health Care (Overweight) Germany (Stock Selection) Health care remains an attractive sector to us at this point in the cycle. Unlike other defensive sectors such as consumer staples and utilities, health care appears to be less of a simple bond proxy, offering defensiveness independent of interest rate fluctuations. The sector also offers growth possibilities through innovation and untapped market potential. Concerns persist about regulation and pricing in the global pharma industry, but history suggests that companies capable of innovating to provide products that address unmet medical needs can continue to thrive and profit. It is these kinds of companies in which we seek to invest. Denmark-based Orsted is the world s largest developer and owner of offshore wind generation projects. The stock performed well as the company continued to build out its pipeline of offshore wind projects, including an expansion into new markets in Asia and North America. Aegon is a Netherlands-based life insurer that mainly operates in the United States, Europe, Asia and Latin America. The shares performed well in October on expectations of a continued rise in bond yields, but retreated during November and December as yields sharply retraced. Aegon has resolved some differences with the regulator and helped its capital position with asset sales. While the shares still appeared cheap as of year-end, we believe the risks are now too great relative to the potential upside. Outlook & Strategy As we enter 2019, European economic indicators remain quite mixed, reducing confidence that the economy will bounce back from last year s summer lull as strongly as initially expected. Political events will likely have considerable influence, for better or worse, on the direction of economic growth, financial market performance, and investor sentiment in 2019. The potential for Brexit without a deal by the March deadline may be the first big negative risk of the year, while resolution of US-China trade tensions could be the first positive. The consensus view is for modest economic and corporate profit growth in Europe. However, downside risks have risen, while investor sentiment has turned more cautious, and the general level of financial market volatility has moved higher. In our view, 2019 should favour prudent stock pickers with a disciplined approach. From a sector perspective, our portfolio is currently overweight companies in the financial services industries, with a greater focus on insurance companies compared to banks. The portfolio is underweight health care and consumer staples, as despite the recent market selloff, we have not found attractive opportunities in those areas yet. The value style has been out of favour for the past decade, but we remain committed to our approach. Over the long term, we believe that a bottom-up stock picking process based on fundamental analysis will reward investors, while market dislocations offer opportunities to acquire companies in attractive end markets trading at valuation levels that offer downside protection. Over the past year, we have seen an increase in activism in European equities, which we view as encouraging. We believe our approach to actively engaging with management teams and our long-term approach to investing with a disciplined focus on valuation will serve our shareholders well over the long term. Portfolio Characteristics 6,7 Portfolio Price to Earnings (12 Month Trailing) 11.49x 13.48x Price to Book 1.27x 1.43x Price to Cash Flow 7.19x 7.80x Market Capitalisation (Millions in EUR) 28,612 43,073 Dividend Yield 3.59% 3.74% franklintempleton.lu 2
Portfolio Diversification Geographic Weightings vs. 2 Germany France Netherlands Italy Spain Belgium United Kingdom Ireland Finland Denmark Portugal Cash & Cash Equivalents Templeton Euroland Fund 10.85 8.31 7.14 6.21 9.79 5.11 3.00 3.71 3.38 1.71 3.33 3.30 2.46 1.58 0.50 0.37 18.72 25.71 27.87 21.10 35.09 0% 25% 50% Sector Weightings vs. 2 Financials Health Care Energy Industrials Consumer Discretionary Information Technology Materials Utilities Consumer Staples Communication Services Real Estate Cash & Cash Equivalents 0.37 Templeton Euroland Fund 1.34 2.16 6.01 6.06 7.63 9.81 9.75 8.44 8.68 7.59 7.24 7.29 6.25 4.43 11.58 10.87 12.86 14.43 20.56 17.80 18.85 0% 5% 10% 15% 20% 25% Top Ten Holdings 8 Top Holdings Sector Country % MERCK KGAA Germany 3.07 SANOFI France 2.90 TOTAL SA Energy France 2.73 UCB SA Belgium 2.72 ROYAL DUTCH SHELL PLC Energy United Kingdom 2.67 ENI SPA Energy Italy 2.65 ORSTED A/S Utilities Denmark 2.46 ONTEX GROUP NV Household & Personal Products Belgium 2.39 AXA SA Insurance France 2.21 QIAGEN NV Netherlands 2.17 Supplemental Performance Statistics Supplemental Risk Statistics 9 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton Euroland Fund 12.32 13.24 14.89 15.73 11.73 13.24 15.80 17.50 Tracking Error (%) 4.54 4.62 4.45 6.80 Information Ratio 10-0.43-0.42-0.22 0.04 Beta 0.96 0.92 0.90 0.83 Sharpe Ratio Templeton Euroland Fund 0.02 0.19 0.46 0.13 0.20 0.34 0.49 0.10 9. Beta, Information Ratio and Tracking Error information are measured against the. franklintempleton.lu 3
Investment Team Portfolio Manager Years with Firm Years Experience Dylan Ball, EVP, Portfolio Manager, Research Analyst 11 19 Heather Arnold, CFA, EVP, Director of Research, Portfolio Manager, 14 35 Research Analyst Peter Moeschter, CFA, EVP, Portfolio Manager, Research Analyst 21 26 Templeton Global Equity Team Number of Members Average Years Experience Portfolio Managers/Analysts 22 24 Research Analysts 12 11 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 euroland countries. Such securities have historically been subject to significant price movements that may occur suddenly due to market or company-specific factors. As a result, the performance of the Fund can fluctuate significantly over relatively short time periods. Other significant risks include: currency 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. franklintempleton.lu 4
Important Legal Information This document does not constitute legal or tax advice nor is it investment advice or an offer for shares of Franklin Templeton Investment Funds (the Fund ). Subscriptions to shares of the Fund can only be made on the basis of the current prospectus and, where available, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report accessible on our website www.ftidocuments.com or which can be obtained, free of charge, from Franklin Templeton International Services, S.à r.l. - 8A, rue Albert Borschette, L-1246 Luxembourg. Past performance is not an indicator or a guarantee of future performance. 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. Investment in the Fund entails risks which are described in the Fund s prospectus and, where available, in the relevant Key Investor Information Document. Special risks may be associated with a Fund s investment in certain types of securities, asset classes, sectors, markets, currencies or countries and in the Fund s possible use of derivatives. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund s holdings at any one time. 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. Where a Fund invests in emerging markets, this investment can be more risky than an investment in developed markets. No shares of the Fund may be directly or indirectly offered or sold to residents of the United States of America. The Fund is registered in Luxembourg. The Fund may be marketed in Luxembourg and other member states of the EEA, to professional investors only, on the basis of the passport regime set out in article 29 and following of the Law of 12 July 2013. 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. 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. 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. 2019 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. 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. 7. 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. 8. 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. 10. 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). 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Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2019 Franklin Templeton Investments. All rights reserved.