Templeton Eastern Europe Fund A (acc) EUR Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details 1 Fund Assets 326615602.78 Fund Inception Date 10/11/1997 Number of Issuers 39 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category Overall Morningstar Rating TM 3 TEMEAEI LX LU0078277505 EUR Value MSCI Emerging Markets Europe Index Emerging Europe Equity Asset Allocation 2 % Equity 97.00 Cash & Cash Equivalents Fixed Income 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. Key Points European emerging markets rose in October but underperformed emerging markets as a whole. The fund moved higher over the month, driven by holdings in Turkey, Georgia and Russia. Romania and the Czech Republic also added to performance. However, Poland was the main detractor, and Hungary and Greece also detracted slightly. From a sector perspective, energy, industrials and information technology were the top contributors. In contrast, materials, consumer staples and health care had a negative impact. Performance Data Performance Net of Management Fees as at 31/10/2017 (Dividends Reinvested) (%) 4 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (10/11/1997) A (acc) EUR 0.20 7.77 14.75 21.79 7.44 3.15-4.60 5.45 MSCI Emerging Markets Europe Index 1.38 6.34 4.22 17.06 2.76 0.11-3.25 5.91 Calendar Year Returns (%) 200% 100% 0% -100% 98.51 80.39 20.37 30.08 4.84 17.37 23.20 24.91 25.22 10.89 17.91-4.41-3.97-19.49-19.78-8.01-20.78-40.02-66.02-66.32 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 A (acc) EUR Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review Improved global economic growth and supportive monetary policy continued to fuel market optimism globally. Following a pause in September, the emerging-market (EM) asset class continued on an upward trend in October, driven by generally positive earnings growth, encouraging macroeconomic data, continued fund inflows and higher global commodity prices. As a group, European emerging markets rose in October but underperformed emerging markets as a whole. Generally solid economic data supported performances in Central Europe with Hungary, Poland and the Czech Republic among the top regional performers. In contrast, equity prices in Greece declined, while the Russian market also lost ground despite higher oil prices and continued monetary policy easing. Gains in Turkey were limited by depreciation in the lira. By sector, industrials, materials and telecommunication services rose the most in the benchmark index. Conversely, consumer staples and real estate were the only sectors that declined. Performance Review The fund moved higher over the month, driven by holdings in Turkey, Georgia and Russia. Romania and the Czech Republic also added to performance. From a sector perspective, energy, industrials and information technology (IT) were the top contributors. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
In Turkey, top contributors included catering firm Do & Co and mobile services provider Turkcell Iletisim, the latter benefitting from strong thirdquarter revenue and earnings growth. Georgia Healthcare Group, a health care services provider in Georgia and the only portfolio holding in that market, performed well on news of the group s acquisition of an international private-label brand. In Russia, energy equipment producer TMK along with oil and gas companies Gazprom and Lukoil were notable contributors, on the back of higher oil prices. Also in Russia, internet services provider Yandex gained ground on reports of solid growth in revenues for the third quarter. In terms of individual companies, Wizz Air, a low-cost airline, and Stock Spirits, a spirits producer, both with a substantial Eastern European presence, were among the leading contributors to absolute performance. In contrast, Poland was the main detractor, and Hungary and Greece also detracted slightly. In terms of sectors, materials, consumer staples and health care had a negative impact. Significant detractors amongst Polish stocks included health care equipment company Medicalgorithmics, household appliance manufacturer and wholesaler Amica, and biotechnology company Mabion. Hungary-based road transportation company Waberer s International and Greece-listed speciality retailer Folli Follie were the only detractors in their respective markets. The two largest detractors, however, were based in Russia food retailer X5 Retail Group and aluminium producer United Company Rusal. Portfolio Positioning Our portfolios are built on a stock-by-stock basis using fundamental analysis, with country and sector weightings an outcome of the investment process. In October, the fund had its largest country weighting in Russia, followed by Turkey and the Czech Republic. From a sector standpoint, the largest weightings were in consumer staples, consumer discretionary and financials. Outlook & Strategy We generally continue to see a supportive macroeconomic environment across Central and Eastern European economies with low interest rates, growing investment and increasing domestic consumption. There has also been an accelerating trend among international companies to move production and service centres to the region, which could further drive exports. While geopolitical tensions and economic sanctions may have weighed on investor sentiment in Russia over the year, macroeconomic fundamentals have continued to improve, with the country returning to growth in 2017. In our opinion, the market remains one of the most undervalued in the EM space, and we continue to see value in energy, financials and IT companies. We feel the rebound in commodity prices also bodes well for the economy. In term of stock valuations, equities in the region continue to trade at attractive valuations and at a discount to peers in emerging and developed markets, in our view. Companies in the consumer space as well as banks, which could benefit from the expected increase in interest rates, are among those that appear attractively valued to us. Portfolio Characteristics 5,6 Portfolio Price to Earnings (12 Month Trailing) 10.71x 9.40x Price to Book Value 1.27x 0.97x Price to Cash Flow 6.42x 5.21x Market Capitalisation (Millions in EUR) 12,955 21,622 Dividend Yield 2.91% 3.77% Portfolio Diversification Top Sector Contributors 7,7 Total Sector Effect (%) Consumer Staples 0.70 Real Estate 0.03 Utilities 0.01 Contributors/detractors data shown is for the period from 01/10/2017 to 31/10/2017. Top Security Contributors 7,8 Security Total Effect (%) MAGNIT PJSC 1.17 WIZZ AIR HOLDINGS PLC 0.41 TMK PAO 0.40 STOCK SPIRITS GROUP PLC 0.22 BGEO GROUP PLC 0.14 Top Sector Detractors 7,7 Total Sector Effect (%) Materials -0.66 Financials -0.41 Health Care -0.17 Consumer Discretionary -0.13 Energy -0.12 Top Security Detractors 7,8 Security Total Effect (%) X5 RETAIL GROUP NV -0.49 UNITED CO RUSAL PLC -0.32 PKO BANK POLSKI -0.27 MMC NORIL SK NICKEL PJSC -0.24 MEDICALGORITHMICS SA -0.24 franklintempleton.lu 2
Geographic Weightings vs. 2 Russia 45.31 50.22 Turkey 11.32 16.66 Czech Republic 10.64 2.77 Poland 8.29 20.37 United Kingdom 5.59 Switzerland 3.50 Romania 3.22 United States Hungary Austria Greece Ukraine Georgia Cash & Cash Equivalents 2.40 1.69 5.25 1.44 1.43 4.74 1.11 1.09 0% 25% 50% 75% Sector Weightings vs. 2 Consumer Staples 20.59 4.98 Consumer Discretionary 18.70 4.47 Energy 15.83 31.98 Financials 15.52 35.85 Information Technology 10.98 Industrials 6.85 2.53 Health Care 5.04 1.04 Materials 3.49 10.52 Telecommunication Services 4.93 Utilities 3.30 Real Estate 0.40 Cash & Cash Equivalents 0% 5% 10% 15% 20% 25% 30% 35% 40% Templeton Eastern Europe Fund Templeton Eastern Europe Fund Top Ten Holdings 9 Top Holdings Sector Country % SBERBANK OF RUSSIA PJSC Banks Russia 9.51 FORTUNA ENTERTAINMENT Consumer Services Czech Republic 6.83 GROUP NV LUKOIL PJSC Energy Russia 5.90 STOCK SPIRITS GROUP PLC Food Beverage & Tobacco United Kingdom 5.59 X5 RETAIL GROUP NV Food & Staples Retailing Russia 5.32 MAIL.RU GROUP LTD Software & Services Russia 5.03 GAZPROM PAO Energy Russia 4.65 MONETA MONEY BANK AS Banks Czech Republic 3.81 YANDEX NV Software & Services Russia 3.55 WIZZ AIR HOLDINGS PLC Transportation Switzerland 3.50 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) Templeton Eastern Europe Fund 14.45 14.12 25.27 17.83 16.29 25.02 Tracking Error (%) 8.28 7.42 10.24 Information Ratio 11 0.56 0.41-0.13 Beta 0.71 0.76 0.92 Sharpe Ratio Templeton Eastern Europe Fund 0.55 0.24-0.20 0.19 0.03-0.15 Investment Team Portfolio Manager Years with Firm Years Experience Grzegorz Konieczny, Director of Specialty Strategies 22 25 10. Beta, Information Ratio and Tracking Error information are measured against the. franklintempleton.lu 3
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. 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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. 2017 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. 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. 6. 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. 7. Past performance is not an indicator or a guarantee of future performance. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Source: FactSet. Important data provider notices and terms available at www.franklintempletondatasources.com. Total Effect represents the excess return by sector as compared to the index. Performance attribution is calculated in the base currency of the fund. 8. Top Security Contributors and Top Security Detractors are holdings based on the last one month period for rolling months or on the last three months period for quarter end months. These securities do not represent all the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in the security listed was or will be profitable. Holdings are subject to change, holdings of the same issuer have been combined. The information provided is not a recommendation to purchase, sell or hold any particular security. The security identified does not represent the Fund s entire holdings and in the aggregate, may represent a small percentage of such holdings. There is no assurance that security purchased will remain in the Fund, or that security sold will not be repurchased. 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. Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2017 Franklin Templeton Investments. All rights reserved.
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 International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2017 Franklin Templeton Investments. All rights reserved.