Franklin Templeton Shariah Funds Franklin Global Sukuk Fund Fixed Income Fund Profile Fund Details Inception Date 10 September 2012 Investment Style Benchmark(s) Fixed Income Dow Jones Sukuk (USD) Index FUND OBJECTIVE Franklin Global Sukuk Fund (the Fund ) seeks to maximise, consistent with prudent investment management, total investment return, consisting of a combination of profit income and capital appreciation. The Fund invests principally in a portfolio of fixed- and floating-rate Shariah-compliant securities (including noninvestment grade securities), including Sukuk, Murabaha placements and other short-term instruments issued by government, government-related and corporate entities located in developed and developing countries. Mohieddine Kronfol Investment Officer, Global Sukuk and MENA Fixed Income From our perspective, Sukuk are attractive because they provide access to growing MENASA economies, offer potential diversification benefits and have a growing investor base. WHY CONSIDER THIS FUND Access to a rapidly growing asset class. Over the past several years, the Sukuk market has both grown considerably and become increasingly diversified by country, issuer type and sector. Despite the rise in issuance, demand from investors still outstrips supply, reflecting the fast growth of the Islamic banking industry and the increasing appetite for credible, Shariah-compliant, liquid securities. Franklin Global Sukuk Fund makes this growing asset class available to investors. Excellent addition to Shariah-compliant and conventional portfolios. Adding global Sukuk to a portfolio may have investment merit whether or not your client adheres to Shariah investment principles. First, a global Sukuk fund provides access to Middle East, North Africa and South Asia (MENASA) economies, which have exhibited strong growth characteristics over the past decade. Global Sukuk have also exhibited very low correlations to other asset classes, which may help reduce portfolio volatility and enhance returns. Moreover, global Sukuk have provided attractive yields, making them a strong addition to the income component client portfolios. Recognized expertise in managing global Sukuk. With a track record of managing Sukuk portfolios since 2008, Franklin Templeton features one of the most experienced investment teams in the Middle East, North Africa and South Asia region. Team members have specialized expertise in managing Sukuk, which helps ensure adherence to Islamic investing principles. Shariah-compliant resources from a global investment leader. The Global Sukuk team draws on both the extensive resources of Franklin Templeton s integrated global investment platform and Shariah compliant resources through the Amanie International Shariah Supervisory Board. This board provides initial approval on investment objectives and strategy as well as on going supervisory and monitoring services to ensure continuous adherence to internationally accepted Shariah principles and standards. A fatwa was issued by the Amanie Supervisory Board for Franklin Global Sukuk Fund on September 30, 2011. For Professional Investor Use Only. Not for Distribution to Retail Investors.
INVESTMENT PHILOSOPHY & PROCESS The Sukuk portfolio management team is guided by a specific investment philosophy based on the core belief that a portfolio of diversified, actively managed positions has the potential to generate attractive returns over a full market cycle. The Sukuk investment process uses a mix of bottomup, top-down and quantitative approaches. The process and structure were designed with the Sukuk universe in mind and are well suited to deal with the research requirements, challenges and opportunities the Sukuk market presents. The investment process is based primarily on fundamental credit research and benefits from company visits, proprietary equity and credit models, and integration with Franklin Templeton s global platform as well as scalable research support in India. The investment team seeks to identify credits that will perform on an absolute return basis, optimising portfolios with appropriate characteristics that meet a proposed mandate s target risk and return profile. The investment process also incorporates significant legal due diligence and has adopted a formal risk matrix for material positions. Fundamental analysis and product development, as well as investment universe screening and monitoring constitute an important percentage of the investment process. Company statements, interviews with management and in house research constitute the bulk of primary research. Where the issuer is unlisted and/or company financials are unobtainable, ratios and analysis are based on publicly available information such as the company prospectus and market intelligence. The initial screen incorporates product guidelines and proprietary liquidity scores to determine the portfolio s investment universe, which is analysed and rated on broad risk and return parameters that meet the portfolio s target profile. The resulting investible universe is then researched and rated by the portfolio management team. Proprietary credit reports consist of two modules. The first module is a proprietary financial model with detailed forecasts based on internal and external (management meetings) assumptions, forming the basis for the assignment of a proprietary credit score to the company used for relative value purposes. The investment team differentiates models for different industries based on issuer classifications. We currently work with four industry templates for non-financial corporates, along with dedicated banking and sovereign models. The second module is a relative value assessment that includes the relevant credits yield curve analysis, security analysis as well as comparisons to regional, emerging market and global peers. The relative value analysis is conducted monthly or when needed. The core portfolio, which typically comprises two-thirds of the final portfolio, is constructed with credits that currently offer value from credit or security-specific dislocations or those with projected credit improvements. Portfolio construction then incorporates additional securities guided by diversification, liquidity, currency, duration and other risk considerations. The portfolio is monitored on an ongoing basis using both historical and forward-looking risk parameters. The mapping of individual Sukuk to relevant fixed income benchmarks and markets for use in traditional risk analysis software is ongoing and supports this mandate. PORTFOLIO CONSTRUCTION The Franklin Global Sukuk team s global currency, interest and credit outlooks are supported through interaction with Franklin Templeton fixed income platform, which is composed of more than 170 investment professionals based in New York, San Mateo, London and Singapore, combined with local asset management teams in Australia, Brazil, Canada, China, India, Korea, Malaysia, Mexico and UAE. In addition, our team s own sovereign scores and overall macro rating process affect country allocations and identify key economic variables that influence sovereign spread and currency performance. Sukuk Investment Process Three Research Perspectives Three Potential Alpha Sources Portfolio Construction & Implementation Macroeconomic Country Analysis Currency and Profit Rate Models Identifies Market Inefficiencies Risk Management Bottom-Up Credit Analysis Fundamental Credit Research Proprietary Credit Models Quantitative Analysis Risk Mapping of Sukuk Universe Quantitative Risk Analyses Profit Rates Ideas Credit Ideas Currency Ideas Identification of High-Conviction Sukuk Opportunities Portfolio Management Portfolio Optimisation Trading GLOBAL SUKUK PORTFOLIO Full Integration of Amanie Int l Shariah Supervisory Board Ongoing Portfolio Monitoring by Risk Management and Compliance For Professional Investor Use Only. Not for Distribution to Retail Investors. 2
Sukuk that we believe currently offer value (from credit or security-specific dislocations), or those with projected credit improvements, form the core portfolio. Portfolio construction then incorporates additional securities mindful of diversification, liquidity, currency, duration and other risks to construct the final portfolio. The core portfolio typically comprises two-thirds of the final portfolio. Franklin Templeton Investments has set up an infrastructure through which to trade the secondary markets. This infrastructure offers competitive pricing, funding and access to sophisticated trade implementation. As the universe grows and new products and innovations are introduced, so will the opportunities to realise benefits from credit rating changes (positive and negative), basis trades, and secondary market inefficiencies. RISK MANAGEMENT Although portfolio managers make the final risk management decisions for their respective strategies, they rely on the risk analysis and recommendations of two groups the Quantitative Research Group, which is dedicated to fixed income strategies, and the Performance Analysis and Investment Risk team, an independent group that monitors and manages portfolio risk across all Franklin Templeton Investments strategies. Franklin Templeton s Portfolio Analysis and Investment Risk (PAIR) Group works with the portfolio managers to measure and manage the investment risk for all key investment strategies. PAIR is able to integrate investment risk management into the portfolio construction process and continues to improve on detailed decomposition of various risk factors to which the portfolios may be exposed. On a regular basis, the risk groups conduct the following risk monitoring specifically for Sukuk portfolios managed by the Global Sukuk team; Daily risk decomposition and reporting via an internal website deployed to all portfolio managers, Weekly risk report summarizing risk statistics and Monthly risk and return attribution reports. Through the use of Barra and Barclays POINT risk systems, the PAIR Group is able to indicate the active risk or tracking error of the portfolio versus the benchmark. They can also highlight the sources of active risk such as country, industry, currency, duration and style differences, as well as the specific issues that are the largest contributors to active risk. Additionally, these quantitative techniques are used to compare each portfolio with its relevant composite, or all other similar accounts, to estimate the potential future difference in returns. All of these findings are summarized in a report format and distributed to portfolio managers and the Chief Investment Officer. This risk report is a significant tool for understanding investment risk at the portfolio level. To help ensure appropriate independence, PAIR does not have direct reporting lines to portfolio management but instead reports directly to the Executive Vice President of Portfolio Operations. During the weekly peer review meetings, each portfolio is reviewed at a security, country and industry level, using the risk report generated by the PAIR Group and distributed to portfolio managers and the Chief Investment Officer prior to the meetings. When a portfolio s country and industry exposure is outside the prescribed range imposed by the Chief Investment Officer, specific actions to remedy the situation are agreed upon and documented. During this session, a senior advisor from the PAIR Group, as well as portfolio managers and analysts, contribute ideas on how the portfolio may be improved. In this way, each Franklin Templeton portfolio receives input from every member of the team as well as from the PAIR Group. The weekly discussion also seeks to ensure that all portfolio managers not just the manager involved in that week s specific review, are continually reviewing the stocks in their portfolios and generating discussion and debate with the relevant analysts. This feedback is also enhanced by the regular contributions of the traders. In addition to the Global Sukuk team monitoring the asset allocation and credit exposures for the Fund, the team also draws on the risk management expertise of the Quantitative Research Group, which is dedicated to the Franklin Templeton fixed income platform and intrinsic to the investment process. The portfolio is monitored on an ongoing basis using both historical and forward-looking risk parameters. The mapping of individual Sukuk to relevant fixed income benchmarks and markets for use in traditional risk analysis software is ongoing and supports this mandate. Risk management is almost always inherent in both generating and protecting alpha for the portfolio, but we seek to ensure that active risk is well understood prior to and throughout all phases of the portfolio construction process. Legal due diligence is carried out on an ongoing basis by our Legal and Compliance departments, and outside legal counsel that have been specifically retained to answer specific structural, legal and jurisdictional questions. Amanie Advisors Sdn Bhd, headed by Dr. Mohd. Daud Bakar, has been appointed to be the Shariah advisor to the Global Sukuk investment team and various technical and support teams to ensure Global Sukuk, together with various equity mandates, meet required Shariah guidelines. These teams combine a careful common sense approach with sophisticated proprietary and non-proprietary software tools and models to give portfolio managers the information and support they need to balance risk and return. For Professional Investor Use Only. Not for Distribution to Retail Investors. 3
PORTFOLIO MANAGEMENT TEAM The Local Asset Management (LAM) team consists of wellqualified investment and financial services professionals around the world who have first-hand knowledge of their domestic markets. LAM professionals, based in Brazil, Canada, China, India, Korea, Mexico, Malaysia, the U.A.E. and Vietnam, provide managed investment products to both local and global investors and focus on specialized investing, benchmarks, and client needs while maintaining global quality standards for compliance, risk, service, and investment process. As part of LAM, the Global Sukuk team is fully integrated with the Franklin Templeton global fixed income platform. The Global Sukuk team leverages the bottom-up fundamental research of securities, sectors and countries from the International Bond and Corporate Credit teams, as well as proprietary risk models used to identify potential alpha opportunities from the Quantitative Analysis team. In addition, they collaborate with a dedicated external research team in Mumbai that is focused on global Sukuk. Mohieddine Kronfol Chief Investment Officer, Global Sukuk and MENA Fixed Income Franklin Local Asset Management (LAM) Mr. Mohieddine Kronfol is responsible for the investment process, research and performance of the Global Sukuk investment team. He was previously the Head of SHUAA Capital s Debt Asset Management where he launched and managed the first fund to focus exclusively on MENA debt. Prior to that, Mr. Kronfol was the Head of Capital Markets at SHUAA where he managed investments in global FX, commodity, fixed income and equity markets. Mr. Kronfol holds a bachelor's degree in business administration and a M.B.A. from the American University of Beirut. Stephen Dover, CFA Managing Director, International Chief Investment Officer Franklin Local Asset Management (LAM) Mr. Stephen Dover, CFA is responsible for overseeing the investment functions of the locally managed and distributed products in Australia, Brazil, Canada, China, the Middle East and North Africa, Europe, India, Japan, Malaysia, South Korea, Vietnam and the United Kingdom. He earned a B.A., with honours, in communications and business administration from Lewis and Clark College and a M.B.A. in finance from The Wharton School of the University of Pennsylvania. He is a Chartered Financial Analyst (CFA) Charterholder. For Professional Investor Use Only. Not for Distribution to Retail Investors. 4
Effective 27 th February 2015 Franklin Templeton Global Sukuk Fund was renamed Franklin Global Sukuk Fund. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Luxembourgdomiciled SICAV Franklin Templeton Sharia Funds (the Fund ). Given the rapidly changing market environment, Franklin Templeton Investments disclaims responsibility for updating this material. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. An investment in the Fund entails risks which are described in the Fund's prospectus. 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. Past performance is not an indicator or a guarantee of future performance. 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 and are more fully described in the Fund s prospectus. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. The investment activities will be undertaken in accordance with the Shariah Guidelines. As a consequence, the performance of a Fund may possibly be lower than other investment funds that do not seek to strictly adhere to the Islamic investment criteria. The requirement to purify cash holdings or dividend income will likely result in payments being made to charities. The return to investors will be reduced by the amount of such payments. The International Shariah Supervisory Board of Amanie Advisors Sdn Bhd has certified that the Fund is in compliance with the requirements of the Shariah principles. No shares of the Fund may be directly or indirectly offered or sold to residents of the United States of America. Shares of the Fund are not available for distribution in all jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: www.franklintempletongem.com or can be obtained, free of charge, from the address below. Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box 506613, Dubai, U.A.E., Tel.: +9714-4284100 Fax:+9714-4284140. For Professional Investor Use Only. Not for Distribution to Retail Investors. DE 11-15 2017 Franklin Templeton Investments. All rights reserved.