Franklin Global Growth Fund A (acc) USD Franklin Templeton Investment Funds Fund Manager Report Growth Equity Product Details 1 Fund Assets $75,564,429.59 Fund Inception Date 29/12/2000 Number of Issuers 39 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category FRAGGFA LX LU0122613069 USD Growth MSCI World (Net Dividends) Index Global Large-Cap Growth Equity Asset Allocation 2 % Equity 98.69 Cash & Cash 1.31 Equivalents Fixed Income Fund Description The fund aims to achieve long-term capital appreciation by investing primarily in equity and/or equity-related securities of companies throughout the world (in both developed and emerging markets) of any market capitalisation. Key Points Global equity markets rose in the fourth quarter, as a continued rebound in the global economy, benign monetary policy, robust corporate earnings and optimism about US tax reform underpinned markets. The fund outperformed its benchmark as stock selection and sector allocations contributed to relative performance. Security selection in the industrials, materials and information technology sectors aided relative returns. Conversely, security selection in the consumer discretionary and health care sectors undermined relative performance. An overweight in information technology and lack of exposure to the utilities sector contributed to relative returns. An overweight in health care hampered relative performance. Regionally, an overweight in Europe and underweight in the United States curbed relative returns. Performance Data Performance Net of Management Fees as at 31/12/2017 (Dividends Reinvested) (%) 3 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (29/12/2000) A (acc) USD 1.44 6.00 31.81 31.81 8.33 8.97 3.58 3.64 MSCI World (Net Dividends) Index 1.35 5.51 22.40 22.40 9.26 11.64 5.03 5.24 Calendar Year Returns (%) 200% 100% 0% -100% 55.18 31.81 22.40 17.07 26.68 21.32 29.99 7.51 3.22 4.94 15.83 9.04 11.76-1.28-2.28-0.87-11.26-5.54-49.19-40.71 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (acc) USD MSCI World (Net Dividends) Index Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review Global equity markets rose in the fourth quarter, as a continued rebound in the global economy, benign monetary policy, robust corporate earnings and optimism about US tax reform underpinned markets. Economic data from across the globe continued to indicate that growth has become more durable, even if inflation remains low. Europe, in particular, has shown increasing signs that the recovery is gathering pace but growth in the United Kingdom saw some softness as higher inflationary pressures due to a weak currency ate into consumers spending ability. Growth in the United States and parts of Asia has also been robust. Markets were also encouraged by US tax reform and the potential benefit for corporations and US capital spending. The improving global growth also gave the world s major central banks the leeway to move away from extraordinarily loose policy. The US Federal Reserve (Fed) began reducing its balance sheet during the quarter and raised interest rates in December. The Fed anticipates a few more rate hikes in 2018 as the US economy continues to grow. The European Central Bank (ECB), meanwhile, announced that it would halve its monthly asset purchases to 30 billion starting in January 2018, but would extend its bond-buying through September as it waits for inflation to pick up. The Bank of Japan continues to target the yield curve as it looks to foster a more durable economic recovery. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
On the political front, German Chancellor Angela Merkel hit a stumbling block in forming a new coalition, but talks continue with other major German political parties. Meanwhile, the United Kingdom appeared to reach a deal to honour its financial commitments to the European Union, which may allow Brexit talks to move onto trade and other issues. Elections in Japan saw Prime Minister Shinzo Abe solidify his governing position. Oil prices rose during the quarter on expectations the Organization of the Petroleum Exporting Countries would extend production cuts through next year. Performance Review During the quarter, the fund outperformed its benchmark as stock selection and sector allocations contributed to relative performance. Security selection in the industrials, materials and information technology sectors aided relative returns. Conversely, security selection in the consumer discretionary and health care sectors undermined relative performance. US-based industrials stocks Nordson, a designer and manufacturer of dispensing equipment for consumer and industrial adhesives, and Verisk Analytics, a risk information provider, supported relative performance. Following a strong earnings report, Nordson can grow faster than its peers, in our view, due to its exposure to rapidly growing electronics end-markets and its strong emerging-markets business. Verisk Analytics boosted relative performance as the stock reacted favourably to the company s third-quarter earnings report. The results allayed concerns about weakness in the company s insurance business. Verisk also anticipates faster growth in its financial services and energy businesses in 2018. Also in the sector, Germany-based aircraft engine manufacturer MTU Aero Engines contributed to relative performance on continued strong demand for both new engines and after-market parts and servicing. In materials, Royal DSM, a Netherlands-based health and nutritional ingredients manufacturer, and Umicore, a Belgium-based clean technology materials company, supported relative returns. Royal DSM is seeing strong demand for its nutritional ingredients across most geographies. Umicore has continued to benefit from strong demand for cathode materials used in electric vehicles. UK-based online food ordering service provider Just Eat aided relative performance in the information technology sector as it benefitted from a strong earnings report and the preliminary approval of a deal to acquire a rival firm. US-based digital media and marketing software provider Adobe Systems boosted relative returns following a strong earnings report. Argentina-based online marketplace operator MercadoLibre contributed as the shares recovered from recent fears that US-based Amazon.com (not a fund holding) would be making an aggressive move into the Brazilian market. We believe MercadoLibre can deal with any potential increase in competition given its strong brand and investment in building out its platform to include payments and shipping. Japanese social media company LINE was also a contributor as the company saw some improvement in its advertising business. In the financials sector, Lazard, an asset manager and financial advisory firm, contributed to relative performance on optimism about the potential benefits of US tax reform on its business. In the consumer discretionary sector, Brazilian higher education provider Kroton Educacional detracted from relative returns after reporting disappointing enrolment numbers. However, we were encouraged by signs that the number of students paying out-of-pocket increased, decreasing Kroton s dependence on students receiving some form of aid. Despite a challenging economic environment, Kroton has been able to limit dropout rates and has continued to open new campuses around Brazil. Detractors in the health care sector included US-based Medicines and Regeneron Pharmaceuticals, and Switzerland-based Roche Holding amid concerns about drug pricing in the United States. Medicines announced plans to restructure its business and sold its infectious diseases division as it looks to fund the late-stage development of its potential blockbuster cholesterol drug. Despite reporting strong financial results, Regeneron Pharmaceuticals curbed relative performance on worries about the health of the company s Eylea drug franchise. However, we remain optimistic about the company s drug pipeline and the growth in Eylea internationally. Canadian retail software company Shopify detracted from relative performance in the information technology sector following a short-seller s report suggesting the business was a Ponzi scheme. We vehemently disagree, and while there are some transient merchants on the Shopify platform, they represent only a small portion of the overall business. We believe Shopify can continue to grow as it gains an increasing share of e-commerce transactions and further innovates its product offering. US-based energy sector holding Schlumberger, an oilfield services company, detracted from relative performance amidst ongoing worries about slower activity in North America and sluggish growth internationally. We continue to believe Schlumberger has made good investments during the downturn that could pay off if oil and gas capital spending improves. In financials, Swiss alternative asset manager Partners Group Holding and Belgian bank KBC Groep curbed relative returns. In terms of sector allocations, an overweight in information technology and lack of exposure to the utilities sector contributed to relative returns. An overweight in health care hampered relative performance. Regionally, an overweight in Europe and an underweight in the United States curbed relative returns. Portfolio Positioning We continue to look for companies we believe have sustainable business models. Our search for new ideas reaches across sectors and regions, researching one company at a time, irrespective of the longer-term direction of global stock markets. Outlook & Strategy Although we believe the economic backdrop is likely to remain largely unchanged in 2018, with a more entrenched global economic recovery giving central banks greater leeway to withdraw stimulus, equity market valuations look to us to have gotten ahead of themselves. Additionally, how markets react as central bank balance sheets are unwound and quantitative easing ends remains to be seen. We believe monetary policy in the United States by the end of 2018 may look almost normal, with the US Federal Reserve likely to hike rates two to three times while continuing to shrink its balance sheet. In addition, the European Central Bank may be in a place to end its quantitative easing program and begin policy normalization by the end of 2018. In terms of market valuations, the US market is looking the most expensive to us at a time when US corporate earnings are already well past their prior peaks. Many other markets are less expensive, but look more fairly valued on a historical basis and will need to see a significant pickup in earnings growth to continue their run. And with the US market having gone nearly 18 months without a major correction, we see heightened potential for the advance to falter. With greater potential hurdles for markets in 2018, we anticipate that non-us companies with compelling secular growth stories and unassailable competitive advantages can stand out regardless of how the broader markets perform over the course of the year. www.franklintempletongem.com 2
One-Month Performance Review In December, the fund outperformed its benchmark as stock selection supported relative performance. In particular, security selection in the industrials and energy sectors contributed to relative returns. Stock selection in materials weighed on relative performance. An overweight in information technology hindered relative performance, while a lack of utilities exposure was positive. Amongst the contributors were Nordson in industrials and US-based energy stocks Core Laboratories, a reservoir description services provider, and Schlumberger. MercadoLibre and Lazard also boosted relative performance. On the downside, a number of technology stocks lagged during the month, including Adobe Systems, LINE and Just Eat. US-based government software company Tyler Technologies and Shopify were also detractors. Aptiv, an auto parts technology company, curbed relative returns in the consumer discretionary sector. Portfolio Characteristics 4 Portfolio MSCI World (Net Dividends) Index Market Capitalisation (Millions in USD) 56,413 118,271 Price to Earnings Growth Ratio 2.01x 1.56x 3-Year Sales Growth 15.26% 4.05% Estimated 3-5 Yr EPS Growth 16.82% 12.82% Price to Earnings (12 Month Forward) 27.18x 18.24x Portfolio Diversification Top Sector Contributors 5,5 Total Sector Effect (%) Industrials 1.00 Information Technology 0.72 Materials 0.45 Utilities 0.18 Telecommunication Services 0.11 Top Sector Detractors 5,5 Total Sector Effect (%) Consumer Discretionary -0.74 Health Care -0.59 Energy -0.10 Consumer Staples -0.10 Top Security Contributors 5,6 Security Total Effect (%) NORDSON CORP 0.40 JUST EAT PLC 0.37 LAZARD LTD 0.32 ADOBE SYSTEMS INC 0.32 MERCADOLIBRE INC 0.31 Contributors/detractors data shown is for the period from 01/10/2017 to 31/12/2017. Past performance is not an indicator or a guarantee of future performance. Top Security Detractors 5,6 Security Total Effect (%) MEDICINES CO -0.62 REGENERON PHARMACEUTICALS -0.51 INC KROTON EDUCACIONAL SA -0.46 SHOPIFY INC -0.39 SCHLUMBERGER LTD -0.17 www.franklintempletongem.com 3
Geographic Weightings vs. MSCI World (Net Dividends) Index 2 NORTH AMERICA EUROPE UNITED KINGDOM EMERGING MARKETS ASIA/PACIFIC EX JAPAN JAPAN CASH & CASH EQUIVALENTS 2.03 1.31 4.43 4.47 6.63 6.91 10.27 8.95 17.20 27.83 47.22 62.76 0% 25% 50% 75% Sector Weightings vs. MSCI World (Net Dividends) Index 2 Information Technology 27.51 16.80 Financials 17.16 18.10 Industrials 16.80 11.62 Health Care 14.71 11.76 Consumer Discretionary 8.84 12.26 Materials 6.28 5.25 Energy 4.96 6.32 Consumer Staples 2.42 9.04 Telecommunication Services 2.77 Real Estate 3.11 Utilities 2.97 Cash & Cash Equivalents 1.31 0% 5% 10% 15% 20% 25% 30% 35% Franklin Global Growth Fund MSCI World (Net Dividends) Index Franklin Global Growth Fund MSCI World (Net Dividends) Index Top Ten Holdings 7 Top Holdings Sector Country % VERISK ANALYTICS INC Commercial & Professional Services United States 3.37 UMICORE SA Materials Belgium 3.33 LAZARD LTD Diversified Financials United States 3.22 KBC GROEP NV Banks Belgium 3.16 VISA INC Software & Services United States 3.08 DSV A/S Transportation Denmark 2.95 KONINKLIJKE DSM NV Materials Netherlands 2.95 MTU AERO ENGINES AG Capital Goods Germany 2.82 JUST EAT PLC Software & Services United Kingdom 2.79 ADOBE SYSTEMS INC Software & Services United States 2.78 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Franklin Global Growth Fund 12.87 11.89 19.02 17.15 MSCI World (Net Dividends) Index 10.23 9.77 16.27 15.05 Tracking Error (%) 4.69 4.64 5.49 4.96 Information Ratio 9-0.20-0.57-0.26-0.32 Beta 1.19 1.13 1.13 1.09 Sharpe Ratio Franklin Global Growth Fund 0.62 0.73 0.17 0.13 MSCI World (Net Dividends) Index 0.87 1.17 0.29 0.26 8. Beta, Information Ratio and Tracking Error information are measured against the MSCI World (Net Dividends) Index. www.franklintempletongem.com 4
Investment Team Portfolio Manager Years with Firm Years Experience Don Huber, CFA, Senior Vice President 15 36 Coleen Barbeau, Senior Vice President 34 37 Franklin Global Large Cap Team Number of Members Average Years Experience Research Analysts 8 17 What Are the Key Risks? 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. Performance may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund invests mainly in equity and equity-related securities of companies of any market capitalisation worldwide. Such securities have historically been subject to significant price movements that may occur suddenly due to market or company-specific factors. As a result, the performance of the Fund can fluctuate considerably over time. Other significant risks include: currency risk, emerging markets risk, liquidity risk. For full details of all of the risks applicable to this Fund, please refer to the Risk Considerations section of the Fund in the current prospectus of Franklin Templeton Investment Funds. www.franklintempletongem.com 5
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. 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. 4. 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. The Estimated 3-5 Year EPS Growth uses simple weighted average means. There can be no assurance that the Estimated 3-5 Year EPS Growth will be realised. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 5. 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 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 2018 Franklin Templeton Investments. All rights reserved.
the index. Performance attribution is calculated in the base currency of the fund. 6. 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. 7. 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. 9. 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 2018 Franklin Templeton Investments. All rights reserved.