Franklin Templeton Investment Funds Franklin European Dividend Fund Flex-Cap Blend Fund Profile Fund Details Inception Date 29 July 2011 Investment Style Flex-Cap Blend Benchmark(s) MSCI Europe Index Fund Objective The Franklin European Dividend Fund s (the Fund ) investment objective is to provide a combination of current income and long-term capital appreciation. The Fund seeks to achieve its investment objective by investing principally in the equity and/or equity-related securities (including warrants and convertible securities) of companies of any market capitalisation incorporated or having their principal business activities in European countries. In particular, the Fund seeks income by investing in stocks the Fund manager believes offer attractive dividend yields at the time of purchase and/or the prospect for attractive dividend yields in the future. Uwe Zoellner, CFA Head of Pan European Equities We seek to capitalise on dividend-paying stock opportunities in Europe by focusing on high and sustainable dividend yields at reasonable valuations. WHY CONSIDER THIS FUND Access to attractive dividend opportunities. Strong European dividend yields are an attractive alternative to safe-haven bonds in a yield-scarce environment. The dividend pay-out potential remains strong as debt levels of European companies are declining and the current dividend pay-out ratio remains quite modest. Active search for dividend income beyond the mainstream. Franklin European Dividend strategy employs a bottom-up, research driven investment process focused on building a relatively concentrated portfolio of high and sustainable dividend-paying European companies. The team s flexible investment approach across all sectors and market capitalisations, combined with a long-term perspective has the potential to identify the most attractive dividend paying stock opportunities beyond the mainstream. Collaborative team approach. Our unconstrained bottom-up research approach allows the team to pursue stock opportunities beyond the mainstream and often before they are recognised by the broader market. We use a rigorous, open team discussion to get as many perspectives as possible. No stock will be added to our portfolios that has not been scrutinised multiple times by the entire team in an iterative research process. Our qualitative bottom-up stock analysis cannot be replicated by quantitative screens to understand all aspects of the underlying business model. Relentless focus on downside risk. A key component of the bottom up research process is the team s focus on downside risk to help ensure that we fully understand each of our investments. We view downside risk as the permanent loss of capital and not solely as market volatility. Our in-depth research focus is on understanding a company s long-term competitive advantage enabling us to select companies with sufficient barriers to entry and low threat of product substitution. We focus on strong balance sheets and use of scenario analysis help avoid permanent loss of capital. For Professional Investor Use Only. Not for Distribution to Retail Investors.
INVESTMENT PHILOSOPHY & PROCESS The philosophy as applied to the Franklin European Dividend Fund is built upon a disciplined, yet flexible investment approach, pursuing a bottom-up, fundamental investment process, but with significant latitude across the style spectrum to find attractive investment opportunities to create potential capital appreciation that, when viewed collectively, will also generate sufficient income to meet the portfolio level objective. The team has remained steadfast in its research-driven approach across market environment, focused on welldefined and consistent investment criteria. Analysts seek companies that generate solid cash flow, have strong balance sheets, and that have what they believe to be a clear competitive advantage. The team believes that a relatively concentrated portfolio of high quality income generating companies, with above average and sustainable yields has the potential to produce average risk-adjusted returns over the long-term. Idea Generation beyond the Mainstream We employ selective stock picking that looks beyond dividend yields. Our analysts look for fundamentally undervalued stocks fulfilling three stringent criteria: Above Average Yield: We target stocks with at least 1.1x MSCI Europe Index yield and focus on both income and total return. Sustainable Cash Flows: We believe that dividend yields should be sustainable and search for strong balanced sheets and attractive pay-out policies. Therefore we conduct thorough analysis of business models, end markets and competitive strength. Attractive Total Return Outlook: We search for companies out of favour and focus on attractive overall valuation beyond yield. Companies deemed suitable are then subject to in-depth fundamental research, examined from multiple angles and debated at length by the entire investment team. In-Depth Fundamental Research Given the Fund s long-term investment horizon the team views intense, bottom-up analysis as the most crucial aspect of their investment process. Fundamental research is the core driver of portfolio construction, with over 90% of research generated in-house. Formal weekly team meetings serve as a forum for the members of the investment team to discuss each new investment idea and exchange insights and information. Together, the investment team discusses each potential new idea, utilising the key investment criteria as a guide, to ensure that the opportunity is analysed from every perspective. Analysts may spend four to eight weeks deeply investigating a company, as well as its industry and competitors. Both quantitative and qualitative resources support analysts efforts to identify companies trading at attractive valuations that meet our investment criteria and track the competitive landscape, suppliers, and industries. For each stock they recommend, analysts produce a report that includes a detailed analysis of the key investment criteria that make the company attractive. The report also includes financial analysis and models, an assessment of management, an evaluation of the competitive landscape, and corporate insights. Utilizing a variety of valuation methods, analysts establish strict buy and sell targets for each stock they recommend. They apply what they believe to be the optimal valuation tools to properly assess a company. As a result of the high degree of discussion among the members of the Franklin European Equity Team, and the depth of research conducted, analysts can be confident in their stock recommendations. Investment Process Fundamental Research Focused on Downside Risk, Strengthened by Rigorous, Open Team Discussion For Professional Investor Use Only. Not for Distribution to Retail Investors. 2
PORTFOLIO CONSTRUCTION We are benchmark indifferent throughout portfolio construction, considering the most compelling opportunities regardless of industry or domicile. The portfolio includes approximately 45-60 companies. During portfolio construction, the analyst who formally recommended a stock and assigned its rating provides input on the company and shares in-depth sector knowledge. The lead portfolio manager renders all portfolio decisions based on analysts input. All decisions are made at the individual stock level, with sector and regional weightings a residual of this process. Portfolios are reviewed regularly and discussed at weekly team meetings. Individual holdings are weighted according to their valuation and our conviction of their future earnings profile. We purchase shares of a company when it reaches its buy target. Sell Discipline: Positions are sold for one or more of the following reasons: The company reaches its price target. This would reflect when our analysts believe the holding has reached its fair value. A company experiences a change in fundamentals, business model, growth prospects, or management and therefore no longer meets our investment criteria. There may also be a shift in the competitive environment. RISK MANAGEMENT Risk is managed through the Franklin European Equity Team s bottom-up, research-driven investment process, which focuses on building a concentrated portfolio of companies that, in our view, demonstrate clear competitive advantages and strong balance sheets with minimal downside risk. We seek to manage risk in the portfolio through the following key components of our investment process: In-Depth, Fundamental Analysis Analysts focus on achieving an in-depth understanding of a company s long-term competitive advantage in order to reduce the risk of selecting an investment that will be impacted by a shrinking market position, falling revenues, and/or declining profitability. Strict Buy and Sell Targets Analyst use several valuation techniques to establish appropriate buy and sell price targets for each security, discounting the key risk factors over a five-year period. This process helps ensure we own shares when a company s valuation is attractive. We purchase shares when a company reaches its buy target and reduce a position as it nears its sell target i.e., when there is greater risk on the downside. In their research, analysts stress-test the valuation and financial models by performing scenario analysis in order to better understand the potential effects of a variety of micro or macro-economic scenarios, including an economic recession, on individual companies. Collaborative Team Structure The ongoing communication among the members of the Franklin European Equity Team, with each investment idea vetted by the entire team and benefitting from our analysts expertise and experience, supports our risk management process by ensuring that companies are evaluated from varying perspectives on a routine basis. While risk is managed primarily through the Franklin European Equity Team s research and portfolio construction processes, input from the firm s Performance Analysis and Investment Risk Group (PAIR) is beneficial for reviewing and monitoring risk within the portfolio. PAIR works independently of the portfolio management function to monitor investment risk for all portfolios managed by Franklin Templeton. The members of PAIR report directly to the firm s Executive Vice President of Portfolio Operations, the same individual to whom Franklin Templeton s chief investment officers report. PAIR provides the investment team with the following: Portfolio Risk Reports: PAIR communicates actively with portfolio management teams, and with quantitative analysts producing detailed risk reports with risk metrics that include risk exposure stock, sector, country, and currency positions. The portfolio management team utilises these reports to remain aware of the active risks they are taking in client portfolios. Independent Portfolio Risk Monitoring: PAIR further increases risk awareness by quantifying the sources and levels of portfolio risk. As an independent risk management team, PAIR does not have direct reporting lines to portfolio management and conducts periodic reviews of Franklin Templeton portfolios across all asset classes. PAIR suggests methods of effective risk deployment and assists in determining whether portfolio diversification is adequate and whether the appropriate level of risk is being taken to generate excess or incremental returns within prescribed guidelines. For Professional Investor Use Only. Not for Distribution to Retail Investors. 3
In order to ensure that risk and performance data are wellincorporated into portfolio management, PAIR also conducts regular peer reviews. During these formal meetings which are attended by PAIR representatives and investment professionals each portfolio is reviewed at the security, country, and industry levels. In this way, every Franklin European equity portfolio benefits from the expertise and input of the investment team, as well as that of PAIR. PORTFOLIO MANAGEMENT TEAM Uwe Zoellner, CFA Head of Pan-European Equities, Portfolio Manager Franklin Templeton Investments Uwe Zoellner, CFA, is head of the Franklin European Equity team. He joined Franklin Templeton Investments in 2001, and in 2008 was given responsibility to oversee the development of the Franklin European Equity Team, which locally manages Pan-European equity strategies. He is based in Frankfurt. Prior to his current role, Mr. Zoellner was executive vice president and portfolio manager for Templeton Global Equity Group from September 2001 to October 2007. He was lead portfolio manager for a number of global and European accounts and also had research responsibility for industrials. Before that, he was a manager for European equities at Credit Suisse Asset Management in Frankfurt from 1999 to 2001, covering the energy, telecom and media sectors. Prior to joining Credit Suisse Asset Management, Mr. Zoellner was with Sal. Oppenheim KAG in Cologne, serving as portfolio manager for global equity mandates, as well as two funds specializing in commodity stocks. Mr. Zoellner earned a diploma in business administration and economics from the University of Cologne (Germany). He is a Chartered Financial Analyst (CFA) Charterholder. Mr. Zoellner is also a founding member and former treasurer of the German CFA Society. For Professional Investor Use Only. Not for Distribution to Retail Investors. 4
CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. All Morgan Stanley Capital International (MSCI) data is provided as is. The Fund described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the Fund described herein. Copying or redistribution of the MSCI data is strictly prohibited. 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 the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds (the Fund ). Nothing in this document should be construed as investment advice. 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. 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 09-14 2015 Franklin Templeton Investments. All rights reserved.