Franklin Mutual Global Discovery Composite Value Equity Product Profile Product Details Strategy Assets $20,993,884,798.09 Inception Date 12/31/2009 Base Currency USD Investment Style Value Overview The Franklin Mutual Global Discovery investment strategy typically invests in undervalued equity securities of both U.S. and foreign issuers. The strategy also has opportunistic exposure to merger arbitrage and distressed investments which may provide returns that are less correlated with the global equity market. Each and every investment must present an attractive risk-reward profile, where our assessment of upside potential outweighs downside risk estimates. Overall, the strategy is built from the bottom-up without regard for benchmark weightings. Performance Data Average Annual Total Returns (USD %) 1 Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs (12/31/2009) Franklin Mutual Global -2.44-2.44 3.35 5.17 8.41 9.19 Discovery Composite - GROSS Franklin Mutual Global -2.60-2.60 2.68 4.49 7.71 8.49 Discovery Composite - NET -1.15-1.15 14.20 8.58 10.32 9.98 20% 10% 0% -10% 14.20 8.58 10.32 8.41 7.71 9.19 8.49 9.98 5.17 3.35 4.49 2.68-2.44-2.60-1.15-2.44-2.60-1.15 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception Franklin Mutual Global Discovery Composite - GROSS Franklin Mutual Global Discovery Composite - NET Calendar Year Returns (USD %) 2017 2016 2015 2014 2013 2012 2011 2010 Franklin Mutual 10.90 13.96-2.40 6.38 26.93 14.80-1.69 12.60 Global Discovery Composite - GROSS Franklin Mutual 10.19 13.23-3.04 5.70 26.13 14.07-2.33 11.87 Global Discovery Composite - NET 23.07 8.15-0.32 5.50 27.37 16.54-5.02 12.34 Portfolio Manager Insight Market Review The (in US dollar terms) declined in the first quarter as volatility returned to global financial markets. A synchronized upswing in global economic growth, positive corporate earnings news and the anticipated benefit of major US tax reform legislation for US companies contributed to a solid start for equities in January. However, stocks tumbled in early February. Negative factors included higher bond yields, potential signs of increasing inflation pressures and likely interest rate hikes, primarily in the United States. A spike in US equity market volatility added to investor anxiety. Global equity markets dropped again in March. Fear of escalating tariffs imposed by the United States and its trade partners, particularly China, was the biggest reason. Concern regarding consumer data privacy and potentially tighter regulatory controls of information technology companies also hurt stocks. 1. Periods of more than one year are annualized. Past performance is not an indicator or a guarantee of future performance.
Global economic data were generally upbeat during the period. Labor market conditions continued to improve in the United States, Europe and Japan. Business surveys continued to show a brisk pace of economic activity, although the eurozone composite purchasing managers index, which combines the manufacturing and services sectors, slipped in February and March. The March releases of industrial production, capital spending and retail sales data for China were largely positive. The Federal Reserve (Fed) raised interest rates in March, as widely expected. However, the Fed s Summary of Economic Projections report released in March showed expectations of lower unemployment and faster economic growth, as well as a potentially greater number of interest rate hikes by 2020 than anticipated in the December report. In March, the European Central Bank (ECB) dropped its explicit pledge to expand its bond-buying program if financial conditions worsened or inflation declined. In addition, some ECB officials discussed the possibility of an interest hike in 2019. Performance Review On a relative basis, the largest drag on performance was the consumer staples sector due to stock selection. Stock selection in the industrials sector weighed on performance. A combination of stock selection and overweight exposures in the energy and telecommunication services sectors were additional detractors. Conversely, the utilities, health care and materials sectors were contributors, driven by stock selection. A significant underweight in the real estate sector provided an additional lift to performance. From a geographic perspective, stock selection in the United States was by far the most significant drag on relative results. In addition to a number of positions that negatively impacted performance, a lack of exposure to some growth-oriented information technology companies that performed well during the period also hurt performance. Conversely, stock selection in Finland, France and Germany contributed, as did a meaningful underweight in Japan. Portfolio Characteristics 2 Portfolio Price to Earnings (12 Month Trailing) 13.52x 19.61x Price to Book Value 1.49x 2.31x Price to Cash Flow 7.43x 11.79x Market Capitalization (Millions in USD) 93,971 119,087 Number of Issuers 3 106 - Dividend Yield 2.81% 2.43% 3. Based on a representative portfolio in the composite. Securities will vary among individual accounts in the composite. Portfolio Diversification Top Ten Holdings 4 Top Holdings Sector Country % MEDTRONIC PLC Health Care Equipment & Services United States 2.46 TIME WARNER INC Media United States 2.41 NOVARTIS AG Switzerland 2.32 ROYAL DUTCH SHELL PLC Energy United Kingdom 2.13 BRITISH AMERICAN TOBACCO PLC Food Beverage & Tobacco United Kingdom 2.12 ELI LILLY & CO United States 2.10 KONINKLIJKE PHILIPS NV Health Care Equipment & Services Netherlands 2.09 NN GROUP NV Insurance Netherlands 2.06 ACCOR SA Consumer Services France 2.05 MERCK & CO INC United States 2.04 ftinstitutional.com 2
Geographic Weightings vs. 5 NORTH AMERICA EUROPE ASIA MID-EAST/AFRICA CASH & CASH EQUIVALENTS 1.66 0.17 0.00 2.33 4.79 10.91 23.52 35.48 55.74 62.89 0% 25% 50% 75% Sector Weightings vs. 5 Financials 25.82 17.94 Consumer Discretionary 15.97 12.65 Information Technology 12.48 17.61 Health Care 11.12 11.71 Energy 9.06 6.07 Industrials 6.19 11.63 Consumer Staples 5.99 8.68 Materials 4.22 5.08 Telecommunication Services 3.49 2.66 Utilities 3.28 2.97 Real Estate 0.04 3.01 Cash & Cash Equivalents 2.33 0.00 0% 5% 10% 15% 20% 25% 30% Franklin Mutual Global Discovery Composite Franklin Mutual Global Discovery Composite Supplemental Performance Statistics 3 Yrs 5 Yrs Since Inception Standard Deviation (%) Franklin Mutual Global Discovery Composite 9.56 8.96 10.39 10.47 10.11 12.89 Tracking Error (%) 3.67 3.62 4.31 Information Ratio 8-0.93-0.53-0.18 Beta 0.86 0.83 0.77 Sharpe Ratio Franklin Mutual Global Discovery Composite 0.49 0.90 0.86 0.77 0.99 0.76 Investment Philosophy Deep Value Investment Strategy dates back to 1949 Driven by the desire to buy a dollar s worth of assets at a discount Fundamental research drives bottom-up construction of portfolios Seek to understand and limit downside risk through our collaborative one-team approach Think and act as owners of the business, looking to maximize value for our investors Willing to take an activist approach, communicating with company management if we believe it is in the best interests of clients 6. Risk statistics are calculated using gross of fees composite performance. 7. Beta, Information Ratio and Tracking Error information are measured against the. ftinstitutional.com 3
Investment Process Collaborative investment process that begins with original fundamental research Research & Idea Generation Investment Decision Portfolio Construction A Signature Mutual Series Portfolio Team Review and Debate Team of global sector analysts Best Ideas Sell target Set Team Review and Debate Reflects Bottom-up Analysis Benchmark Agnostic Undervalued Stocks Distressed Debt Merger Arbitrage Bottom-up search for opportunities trading at market prices below assessments of intrinsic value Focus on identifying value unlocking catalysts Every member of investment team plays an integral role in the review of investment ideas Ongoing communication with company management teams may help catalysts come to fruition Each investment presents an attractive risk-reward profile Diversified portfolios help limit single security risk Ability to hedge foreign currency exposure Risk managed throughout security selection and portfolio construction processes Continuous monitoring of company fundamentals and risk-reward profiles Investment Team Years with Firm Years Experience Peter Langerman, Chief Investment Officer 28 32 Philippe Brugère-Trélat, Executive Vice President 22 34 Tim Rankin, CFA, Portfolio Manager/Research Analyst 14 26 Number of Members Average Years Experience Franklin Mutual Series 38 21 ftinstitutional.com 4
Important Legal Information Franklin Mutual Advisers, LLC. ( Firm ) is a wholly-owned subsidiary of Franklin Resources, Inc. managing primarily equity strategies for retail and institutional clients. The investment team applies a bottom-up, value-oriented approach to invest opportunistically in the equity securities of both U.S. and foreign companies. To a lesser extent, the strategies may also invest in merger arbitrage securities and the debt and equity of distressed companies. The Franklin Mutual Global Discovery Composite consists of all fully discretionary portfolios managed by Franklin Mutual which invest primarily in the undervalued equity securities of U.S. and non-u.s. issuers following a bottom-up approach. To a lesser extent, portfolio(s) may also invest in merger arbitrage securities and the equity and debt securities of distressed companies. The composite s inception date (12/31/2009) reflects the tenure of the current portfolio management team. During this tenure, cash weights for accounts in the composite are believed to be more reflective of the intended investment strategy for institutional investors and, in this context, the composite s performance should be more relevant than the longer historical performance of the pooled retail investment vehicle that has followed a similar investment strategy. Related historical performance prior to the composite s inception date will be provided upon request. 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. Past performance is not an indicator or a guarantee of future performance. The, the benchmark for this composite, is an equity index calculated by Morgan Stanley Capital International (MSCI). The MSCI World Index is a free float-adjusted market capitalization weighted equity index comprised of securities in MSCI s developed market country-specific indexes. 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 Templeton composites (including any single account mutual fund composite) for any composite, contact your Franklin Templeton institutional representative at (800) 321-8563. Intended for Recipient only. FTI has provided these materials to you with the understanding that you have or control more than $50 million in assets under management (if this is not correct please let FTI promptly know). FTI is not undertaking to provide impartial advice. Nothing herein is intended to provide fiduciary advice. FTI has a financial interest. 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. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 4. 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. 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. 8. 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). This piece is intended for institutional investment management consultants or investors interested in institutional products and services available through Franklin Templeton Institutional and its affiliates. Various account minimums or other eligibility qualifications apply depending on the investment strategy or vehicle. Franklin Templeton Institutional One Franklin Parkway San Mateo, CA 94403-1906 Tel: (800) 321-8563 ftinstitutional.com 2018 Franklin Templeton Investments. All rights reserved.