Templeton European Fund A (acc) EUR Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details 1 Fund Assets 193,803,707.06 Fund Inception Date 17/04/1991 Number of Issuers 70 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category Overall Morningstar Rating TM 3 TEMEUAA LX LU0139292543 EUR Value Europe Large-Cap Value Equity Asset Allocation 2 % Equity 99.52 Cash & Cash 0.48 Equivalents Fixed Income 0.00 Fund Description The fund aims to achieve long-term capital appreciation by investing primarily in equity securities (common stock) issued by European corporations as well as debt obligations of European corporations and governments. Key Points European equities retreated in November as a more cautious political landscape overshadowed continued economic strength. Investor sentiment became more cautious during the month, with traditionally defensive sectors like telecommunication services and utilities limiting losses, while cyclical sectors like consumer discretionary and industrials led markets lower. In this environment, stock selection in the consumer discretionary, industrials and telecommunication services sectors contributed to relative performance in November. Stock selection in the materials, information technology and consumer staples sectors detracted from relative performance in November. Performance Data Performance Net of Management Fees as at 30/11/2017 (Dividends Reinvested) (%) 4 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (03/12/2001) A (acc) EUR -2.08 4.08 6.96 14.19 6.99 9.80 2.26 3.47 MSCI Europe Index -2.06 3.76 9.99 16.43 6.79 10.15 3.77 4.94 Calendar Year Returns (%) 50% 0% -50% 4.33 3.22 12.46 8.78 7.40-5.12 30.04 20.51 18.90 18.09-7.59-7.51 7.15 11.75 32.55 21.42-42.88-43.29-3.36 3.17-100% 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 European equities retreated in November as a more cautious political landscape overshadowed continued economic strength. On the economic front, a business survey for the eurozone in November hit the highest level in six-and-a-half years. Yet, economic resilience was overshadowed early in the month by the apparent collapse of German coalition talks following disagreements on climate change and immigration. The impasse raised the spectre of another election, though at month-end Chancellor Merkel appeared to be making renewed headway forming a government. Elsewhere on the continent, a judge in Madrid issued arrest warrants for Catalonian leaders, accusing the separatists of sedition following October s illegal referendum on independence from the Spanish state. In the United Kingdom, all seven of Britain s biggest banks passed the annual round of stress tests for the first time since the system s inception in 2014. Bank of England Governor Mark Carney said the banks were prepared to deal with a potentially disorderly Brexit. Global economic growth remained broadly firm during the month, leading the Organisation for Economic Cooperation and Development (OECD) to raise 2018 growth expectations to 3.7%, an eight-year high. The OECD cited still-favourable monetary policy and prospects for additional fiscal stimulus as factors contributing to its upgrade, but cautioned that higher levels of private investment would also be needed to sustain growth. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
Performance Review Investor sentiment became more cautious during the month, with traditionally defensive sectors like telecommunication services and utilities limiting losses, while cyclical sectors like consumer discretionary and industrials led markets lower. Energy was the main exception to this defensive bias, with oil producers and service stocks cushioning downside in a buoyant price environment. In this environment, stock selection in the consumer discretionary, industrials and telecommunication services sectors contributed to relative performance in November. Shares of UK home improvement retailer Kingfisher benefitted from a raft of analyst upgrades following an in-line earnings report that highlighted better-than-expected turnover in its domestic market. While Brexit concerns and scepticism around the company s ability to continue improving operations have kept the stock cheap, in our analysis, we believe the long-term prospects remain attractive given meaningful turnaround potential in the key French market and an encouraging sales response to new product ranges and pricing strategies. From the telecommunications services sector, Norwegian incumbent Telenor continued its ascent, rising to an all-time high during the month amidst continued evidence of solid earnings growth and margin expansion. In the energy sector, we have been more biased towards selling in recent months as moves in the oil price and subsequent rallies in our holdings have made the sector s risk/reward prospects somewhat less attractive. As we have discussed recently, we expect oil prices to remain range-bound and note that West Texas Intermediate crude prices are approaching the critical US$60 per barrel threshold that makes it economical for many of the swing producers in the North American shale fields to resume production. Barring any exogenous shocks, we expect renewed supply above US$60/barrel would likely cap further significant price appreciation, and we look to selectively reduce exposure at this point in the cycle. Stock selection in the materials, information technology and consumer staples sectors detracted from relative performance in November. Irish building materials supplier CRH languished during a period when poor weather conditions pressured its US businesses and a set of broadly in-line results failed to elicit meaningful upgrades amongst Wall Street analysts. We believe the stock looks too cheap, and note that applying a peer multiple to its US business leaves European operations trading at a paltry 4x EBITDA (earnings before interest, taxes, depreciation, and amortisation). CRH has generated strong free cash flow and paid down debt faster than expected, and we believe management s forecasted synergies from recent acquisitions will likely prove conservative. Oxford Instruments, a UK manufacturer of advanced instrumentation equipment, was a top detractor in IT. The shares have come under pressure recently amidst mounting concerns about a lack of organic sales growth. Until the recent weakness, the stock had been a solid performer, re-rating significantly through the first half of 2017. We remain positive on management s strategy of refocusing on its core nanotechnology expertise, and see attractive long-term growth prospects in its key end-markets, which include health care, energy, advanced materials and quantum technology. Originally spun out of a laboratory at Oxford University, Oxford Instruments research background offers key insights into the academic applications of its instrumentation technology, as well as associated scalable commercial opportunities. Portfolio Positioning During the period, the portfolio was overweight in the health care, energy, financials and information technology sectors, and underweight in the consumer staples, consumer discretionary, industrials and real estate sectors. Outlook & Strategy In Europe, the credit cycle has been improving from a low base, unemployment has been falling, the yield curve has been steepening and political dramas have been successfully contained thus far. We would not be surprised to see the continued passing of the baton from the United States to international equity markets in 2018, as was the case intermittently in 2017, though the prospects for a stronger US dollar amidst fiscal stimulus and policy tightening could complicate this rotation. Another rotation that seems inevitable to us at some point is an eventual shift away from hypercyclical market leadership. The price-to-book ratio of global cyclical stocks to defensives is at levels reached only twice in the past two decades: the peak of the Tech Bubble and the stimulus-fuelled, China-led commodity bull market of 2011. We anticipate an eventual rotation away from what we view as expensive (and largely US-domiciled) growth stocks and towards cheaper, international value stocks, and believe the fund is well positioned to potentially benefit from such a dynamic over a long-term investment horizon. Portfolio Characteristics 5,6 Portfolio Price to Earnings (12 Month Trailing) 18.25x 19.75x Price to Book Value 1.44x 1.88x Price to Cash Flow 6.57x 10.03x Market Capitalisation (Millions in EUR) 43,167 56,891 Dividend Yield 2.79% 3.26% Portfolio Diversification Top Sector Detractors 7,7 Total Sector Effect (%) Financials -0.57 Health Care -0.50 Energy -0.40 Materials -0.37 Consumer Staples -0.30 Contributors/detractors data shown is for the period from 01/11/2017 to 30/11/2017. www.franklintempletongem.com 2
Top Security Contributors 7,8 Security Total Effect (%) LIVANOVA PLC 0.37 INTERTRUST NV 0.18 MORPHOSYS AG 0.17 AEGON NV 0.09 TELENOR ASA 0.09 Top Security Detractors 7,8 Security Total Effect (%) GETINGE AB -0.20 SUBSEA 7 SA -0.16 QIAGEN NV -0.15 CRH PLC -0.14 H LUNDBECK AS -0.10 Contributors/detractors data shown is for the period from 01/11/2017 to 30/11/2017. Geographic Weightings vs. 2 United Kingdom 23.86 27.43 Germany 15.42 19.73 France 13.65 16.81 Netherlands 5.71 12.88 Italy 5.72 3.79 Switzerland 5.16 12.70 Belgium Portugal Spain Sweden Norway Denmark Ireland Austria Cash & Cash Equivalents 3.22 1.78 3.08 0.24 2.97 5.27 2.10 4.33 2.02 1.05 1.94 2.86 1.79 0.69 1.39 0.41 0.48 0.00 0% 25% 50% Sector Weightings vs. 2 Financials 25.52 21.07 Health Care 23.70 12.32 Energy 16.84 7.29 Industrials 7.31 13.18 Materials 6.94 8.07 Information Technology 6.39 4.92 Telecommunication Services 4.71 3.80 Utilities 3.44 3.71 Consumer Discretionary 3.34 10.50 Consumer Staples 1.33 13.80 Real Estate 0.00 1.35 Cash & Cash Equivalents 0.48 0.00 0% 5% 10% 15% 20% 25% 30% Templeton European Fund Templeton European Fund Top Ten Holdings 9 Top Holdings Sector Country % ROYAL DUTCH SHELL PLC Energy United Kingdom 3.21 GALP ENERGIA SGPS SA Energy Portugal 3.08 BP PLC Energy United Kingdom 2.75 LIVANOVA PLC Health Care Equipment & Services United Kingdom 2.49 LANXESS AG Materials Germany 2.46 UNICREDIT SPA Banks Italy 2.34 BNP PARIBAS SA Banks France 2.31 SAP SE Software & Services Germany 2.27 ENI SPA Energy Italy 2.18 HSBC HOLDINGS PLC Banks United Kingdom 2.16 www.franklintempletongem.com 3
Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton European Fund 13.99 12.51 15.56 16.19 12.96 11.33 15.28 14.94 Tracking Error (%) 3.92 4.27 4.51 4.95 Information Ratio 11 0.05-0.09-0.33-0.29 Beta 1.01 1.01 0.96 1.02 Sharpe Ratio Templeton European Fund 0.54 0.81 0.12 0.12 0.57 0.93 0.22 0.23 Investment Team Portfolio Manager Years with Firm Years Experience Dylan Ball, EVP, Portfolio Manager, Research Analyst 10 17 Heather Arnold, CFA, EVP, Director of Research, Portfolio Manager, 12 33 Research Analyst Peter Moeschter, CFA, EVP, Portfolio Manager, Research Analyst 20 25 Templeton Global Equity Team Number of Members Average Years Experience Portfolio Managers/Analysts 26 23 Research Analysts 10 11 10. Beta, Information Ratio and Tracking Error information are measured against the. www.franklintempletongem.com 4
Important Legal Information 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 Luxembourg-domiciled SICAV Franklin Templeton Investment 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. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. 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. 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. 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. 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 Franklin Templeton Investment Funds 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. 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. 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 www.franklintempletongem.com 2017 Franklin Templeton Investments. All rights reserved.
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. 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 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 www.franklintempletongem.com 2017 Franklin Templeton Investments. All rights reserved.