Franklin Global Absolute Return Fixed Income Composite (AUD Hedged) Absolute Return Fixed Income Product Profile Product Details Strategy Assets $482,005,922.94 Inception Date 31/10/2007 Number of Securities 465 Including Cash Base Currency AUD Investment Style Absolute Return Overview 1 A global multisector strategy seeking to generate consistent absolute returns through reducing systematic (i.e., market) risk while capitalising on sectors that our analysts believe have the potential to provide alpha Strategy aims to balance long alpha positions against hedging techniques used to actively manage systematic risk Performance target: Short-Term Cash Benchmark + 150-300 basis points (gross of fees) Non-leveraged strategy Performance Data Average Annual Total Returns (AUD %) 2 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception (31/10/2007) Franklin Global 0.64 2.49 3.63 3.93 4.61 4.14 Absolute Return Fixed Income (AUD) Composite - GROSS Franklin Global 0.58 2.31 3.40 3.70 4.38 3.91 Absolute Return Fixed Income (AUD) Composite - NET Bloomberg AusBond Bank Bill Index 0.43 1.32 1.76 2.14 2.43 3.74 6% 4% 2% 0% 4.61 4.38 3.63 3.93 3.40 3.70 4.14 3.91 3.74 2.49 2.31 2.14 2.43 1.76 1.32 0.64 0.58 0.43 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception Franklin Global Absolute Return Fixed Income (AUD) Composite - GROSS Franklin Global Absolute Return Fixed Income (AUD) Composite - NET Bloomberg AusBond Bank Bill Index 1. Based on client risk schemes and objectives. Targets are not intended to represent historical performance. Targets represent the goal that the strategy seeks against the stated index and do not take into account management fees or other expenses an investor would incur in the management of its account, which would reduce any returns. The composite objective is measured against the Bloomberg AusBond Bank Bill Index for comparative purposes only. The actual benchmark used for an absolute return strategy portfolio managed to a different currency may differ. There is no assurance that employment of the Global Absolute Return strategy will result in investment objectives or the intended targets being achieved. Performance for the Franklin Global Absolute Return Fixed Income Composite (AUD Hedged) is provided for informational purposes only and is not intended to represent Franklin s performance results for the absolute return strategy managed to any currency other than AUD. Managing an unhedged strategy and/or hedging to a different currency may result in significantly different performance results. Information for Franklin s active and/or discontinued composites for this strategy which may have a different base currency is available upon request. 2. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future performance.
Calendar Year Return (AUD %) Franklin Global Absolute Return Fixed Income (AUD) Composite - GROSS Franklin Global Absolute Return Fixed Income (AUD) Composite - NET Bloomberg AusBond Bank Bill Index 2016 2015 2014 2013 2012 2011 2010 2009 2008 4.62 3.28 5.42 4.74 13.17 3.42 9.90 18.97-19.65 4.38 3.05 5.19 4.51 12.92 3.19 9.65 18.70-19.84 2.07 2.33 2.69 2.87 3.97 5.00 4.66 3.47 7.60 Portfolio Characteristics of a Representative Account 3,4 Portfolio Number of Securities Including Cash 465 Yield to Maturity 3.19% Yield to Worst 3.15% Average Duration 0.64 Yrs Average Credit Quality 5 A Average Weighted Maturity 4.71 Yrs Portfolio Diversification of a Representative Account 3 Sector Allocation 6 Percent of Total Investment Grade Corporates 24.65 Residential Mortgage-Backed 16.98 Securities Collateralized Loan Obligations 12.19 Covered Bonds Basis Trades 6.91 6.14 Commercial Mortgage-Backed 4.97 Securities Non-Dollar Developed 3.11 U.S. TIPS Muni Taxable Bank Loans Sovereign EM Sovereign Developed High Yield Corporates Asset-Backed Securities Muni Tax Exempt U.S. Treasuries Preferred Non-Dollar EM 3.00 2.36 2.30 1.83 1.42 1.25 1.19 0.94 0.79 0.31 0.21 Interest Rate Derivatives -0.09 Agency Mortgage-Backed -0.14 Securities Cash & Cash Equivalents 9.67-5% 0% 5% 10% 15% 20% 25% 30% Currency Allocation 6 Percent of Total Australian Dollar US Dollar Mexican Peso Indian Rupee Swedish Krona Indonesian Rupiah Polish Zloty New Zealand Dollar Chilean Peso Japanese Yen Singapore Dollar Euro South Korean Won British Pound Canadian Dollar -0.19-0.19-0.25-0.51-0.53-0.62-1.08 1.92 0.70 0.47 0.22 0.21 0.20 0.10 99.55-20% 0% 20% 40% 60% 80% 100% 120% 5. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different agencies, is provided to indicate the average credit rating of the portfolio s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default increases as a bond s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio s default risk because a simple, weighted average does not measure the increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivatives are excluded from this breakdown. franklintempleton.com.au 2
Credit Quality Ratings 7 Percent of Total AAA 23.78 AA 13.90 A BBB 19.59 19.08 BB B CCC 2.05 2.95 4.50 CC C D NR 0.14 0.18 0.01 0.96 N/A -0.03 Cash & Cash Equivalents 8.11-5% 0% 5% 10% 15% 20% 25% 30% Investment Grade Non-Investment Grade Cash & Cash Equivalents Supplemental Performance Statistics Supplemental Performance Statistics (AUD) 8,9 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Franklin Global Absolute 1.15 1.14-4.68 Return Fixed Income (AUD) Composite Bloomberg AusBond 0.10 0.14 0.49 0.49 Bank Bill Index Tracking Error (%) 1.13 1.10-4.88 Information Ratio 10 1.58 1.98-0.08 Beta 1.12 0.96 - -3.73 Sharpe Ratio Franklin Global Absolute 0.99 1.09-0.01 Return Fixed Income (AUD) Composite Bloomberg AusBond Bank Bill Index -6.34-6.85-0.71-0.76 Historical Long-term Performance Quarterly rolling three-year gross returns in AUD (%) since 31/10/2007 as of 30/09/2017 Franklin Global Absolute Return Fixed Income (AUD) Composite 16 12 8 4 0 0 4 8 12 16 Bloomberg AusBond Bank Bill Index 7. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ( NRSRO ), such as Standard & Poor s, Moody s and Fitch. The ratings are an indication of an issuer s creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. If listed, the NR category consists of rateable securities that have not been rated by an NRSRO. The N/A category consists of nonrateable securities (e.g., equities). Cash includes equivalents, which may be rated. Derivatives are excluded from this breakdown. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 8. Risk statistics are calculated using gross of fees composite performance. 9. Beta, Information Ratio and Tracking Error information are measured against the Bloomberg AusBond Bank Bill Index. franklintempleton.com.au 3
Investment Philosophy We believe that the optimal approach in seeking to produce consistent absolute returns is through a portfolio of active, low-correlated positions with the potential to extract alpha while also seeking to reduce potential sources of downside volatility. Investment Process Our investment process centres on the portfolio s risk budget, which is based on our judgments regarding global trends, country/regional events, and currencies, interest rates and sector-specific activity. Our portfolio managers then seek to build a diversified portfolio of positions they believe offer the best potential sources of alpha, hedged to manage systematic risk. In seeking to accomplish this, we draw upon the extensive research capabilities of our Franklin Templeton Fixed Income Group s global investment platform, which includes macroeconomic investment views from the Fixed Income Policy Group (FIPC), as well as outlooks and security-specific recommendations from our global sector teams. Macro Strategy Fixed Income Policy Committee (FIPC) sets outlook for markets, sectors, and currencies Portfolio Construction Investment Team Team assesses potential relative value payoffs and risks and provides framework for strategy Best ideas within a context of portfolio diversification, expected returns and investment convictions Monitoring and Risk Management Bottom-Up Approach Research analysts provide recommendations and trades Investment Team Franklin Global Absolute Return Fixed Income Management Team Years with Firm Years Experience David Yuen, CFA, FRM 21 29 Michael Materasso 29 45 Additional Resources Bank Loans Corporates - High Yield Corporates - Investment Grade Global Sovereign/EMD Local Asset Management MBS Municipals Quantitative Product Managers Years with Firm Years Experience Christopher S. Franta, CFA 6 13 franklintempleton.com.au 4
Important Legal Information Franklin claims compliance with the Global Investment Performance Standards (GIPS ). Franklin (the firm ) encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective 1 January 2007, the equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of Franklin and Fiduciary Global Advisors form the Franklin Equity Group (formerly Franklin Global Advisers prior to 30 June 2010) unit of Franklin. Effective 1 January 2006, the fixed income assets managed from that date forward by Franklin Templeton Institutional, LLC ( FTI ) or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional Division or FTCI s Institutional Division ) that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed Income unit of Franklin. The Franklin Global Absolute Return Fixed Income Composite (AUD Hedged) consists of all portfolios managed on a fully discretionary basis with an investment objective that seeks to achieve an absolute return (on a gross basis, before fees) that exceeds the short term cash benchmark by 150-300 basis points (bps), with a volatility target around that objective of 200-500 bps over a market cycle. The strategy looks to disaggregate the excess return (alpha) from a diversified portfolio of global fixed income securities invested across multiple sectors, countries and currencies by hedging out the undesired systematic or market risk (beta), including interest rate risk, credit risk, country risk and currency risk, associated with traditional long-only portfolios. The strategy regularly uses currency forwards, options, interest rate futures and other derivatives such as swaps (including interest rate swaps, credit default swaps and total return swaps) for hedging purposes, for investment to control risk, or to gain tactical exposure to various foreign currencies or asset classes consistent with the investment objective. The strategy purchases TBA (To Be Announced) mortgage-backed securities and engages regularly in mortgage dollar rolls but does not use leverage, defined as borrowing funds to purchase securities or the purchase of structured notes with embedded leverage. In addition, the strategy regularly uses foreign currency forward contracts in conjunction with the normal settlement of security trades in currencies other than the base currency of each account. The portfolio may invest in both investment grade and non-investment grade securities. Total returns are presented in Australian 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 primary benchmark, Bloomberg AusBond Bank Bill Index, consists of 13 short-term bank bills with a maturity between 7 and 91 days and an average maturity of approximately 45 days. The benchmark represents the target return that the strategy seeks to exceed and is provided for comparative purposes only to represent the investment environment existing during the periods shown. 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 composites (including any single account mutual fund composite) and/or a presentation that adheres to the GIPS standards for any composite, contact your Franklin Templeton institutional representative listed below. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Important data provider notices and terms available at www.franklintempletondatasources.com. 3. Based on a representative portfolio taken from the Franklin Global Absolute Return Fixed Income Composite (AUD Hedged). A representative portfolio may vary significantly from other similarly managed separate accounts, depending on a variety of factors, such as portfolio size, specific investment guidelines and inception date of the account. 4. Yield to Maturity, Yield to Worst, Average Duration and Average Weighted Maturity reflect certain derivatives held in Portfolio (or their underlying reference assets). 6. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 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). This document is intended to be of general interest only, and does not constitute legal or tax advice nor is it an offer of any investment fund or service. Nothing in this document should be construed as investment advice. Investments entail risks, the value of investments can go down as well as up and investors should be aware that they might not get back the full value invested. Franklin Templeton Investments shall not be liable to any user of this document or to any other person or entity for the inaccuracy of information contained in this document or for any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission. 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. Issuance of this document may be restricted in certain jurisdictions. This document does not constitute the issuance of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such issuance or offer is not authorised or to any person to whom it is unlawful to issue such a document or make such an offer or solicitation. Australia: Issued by Franklin Templeton Investments Australia Limited (ABN 87 006 972 247) (Australian Financial Services License Holder No. 225328) to persons who are wholesale investors within the meaning of the Corporations Act 2001 (Cwlth) and/or to whom this document may otherwise lawfully be communicated to give preliminary information about the investment propositions described herein. 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This document has been prepared for circulation to persons reasonably believed to be within one of the professional investor exemptions contained in the Securities and Futures Ordinance or to whom this document may otherwise lawfully be communicated to give preliminary information about the Franklin Templeton Investments Australia Limited Level 19 Level 30, Aurora Place 101 Collins Street 88 Phillip Street Melbourne Vic 3000 Sydney NSW 2000 1800 673 776 1800 673 776 franklintempleton.com.au For Wholesale Clients and Sophisticated Investor Use Only. Not for Distribution to Retail Investors. 2017 Franklin Templeton Investments. All rights reserved.
investment propositions described herein. Malaysia: Issued by Franklin Templeton Asset Management (Malaysia) Sdn. Bhd. & Franklin Templeton GSC Asset Management Sdn. Bhd. Singapore: Issued by Templeton Asset Management Ltd. Registration No. (UEN) 199205211E. Franklin Templeton Investments Australia Limited Level 19 Level 30, Aurora Place 101 Collins Street 88 Phillip Street Melbourne Vic 3000 Sydney NSW 2000 1800 673 776 1800 673 776 franklintempleton.com.au For Wholesale Clients and Sophisticated Investor Use Only. Not for Distribution to Retail Investors. 2017 Franklin Templeton Investments. All rights reserved.