Franklin Templeton Investment Funds Growth Equity Fund Manager Report Product Details 1 Fund Assets $83,313,772.43 Fund Inception Date 16/06/2008 Number of Issuers 42 Bloomberg ISIN Base Currency Investment Style Benchmark Overall Morningstar Rating TM 3 FTMNAUS LX LU0352132103 USD Growth Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Asset Allocation 2 % Equity 99.94 Cash & Cash 0.06 Equivalents Fixed Income 0.00 Fund Description The fund aims to achieve long-term capital appreciation by investing primarily in equity securities of companies across the entire capitalisation spectrum in the Middle East and North Africa (MENA) region, including, but not limited to, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates. Key Points Stock prices in the Middle East and North Africa fell in February, but less so than stocks in the rest of the world. The fund fared better than its benchmark, mainly due to its overweight allocation to Egypt and selection among Saudi stocks. The absence of Jordanian stocks held back relative performance somewhat, as did the defensive nature of our selection among Qatari stocks. Performance Data 4 Performance Net of Management Fees as at 28/02/2018 (Dividends Reinvested) (%) 5 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs Since Inception (16/06/2008) A (acc) USD -1.51 5.67 3.82 13.59-2.39 6.59-4.31 Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% -1.60 6.37 3.38 5.20-1.28 5.04-2.33 Calendar Year Returns (%) 80% 40% 0% -40% 34.00 24.87 12.75 18.14 19.91 3.93 9.08 9.06 8.11 13.65 5.58 6.97 2.19-5.43-11.03-14.19-15.35-12.66 2017 2016 2015 2014 2013 2012 2011 2010 2009 A (acc) USD Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review Many of the world s financial markets sold off in February, despite improved economic data and stronger corporate results. World stocks fell around 7.5% in early February, but then recovered to a drop of 4.16% by the end of the month, as measured by the MSCI All-Country World Index. Benchmark US Treasury yields rose from 2.71% at the end of January to a high of 2.95% in February, and the US dollar strengthened. Emerging markets sold off as US Treasury yields rose, and the price of Brent Crude oil eased to just under US$65 per barrel by the end of February, as reports showed stable to higher inventories. Stocks in the Middle East and North Africa (MENA) fell 1.60% during February, as measured by the S&P Pan Arab Composite Large Mid Cap Index (with KSA capped at 30%). Stocks in Saudi Arabia fell 2.82% during the month, as political reform continued. King Salman replaced a range of army officers and ministers, in a move that further consolidated Crown Prince Mohammed Bin Salman s hold on power. Saudi consumer prices rose 3.9% in January, compared 1. All holdings are subject to change. Holdings of the same issuers have been combined.
with December, mainly because value-added tax (VAT) was introduced, and Saudi Arabia s Purchasing Managers Index (PMI) fell from 57.3 in December to 53.0 in January. Saudi Arabia announced that it will invest US$64 billion in the entertainment sector over the next decade, and launched a housing programme that aims to increase private-sector participation. Stock prices in the United Arab Emirates (UAE) fell 3.12%. Like Saudi Arabia, the UAE introduced VAT at the beginning of 2018. Its PMI, however, fell only mildly, from 57.7 in December to 56.8 in January, helped by an increase in new orders. Credit rating agency Standard & Poor s (S&P) reported that real estate prices in Dubai could fall by 10% to 15% in the next two years. Stocks in Qatar fell 4.67% in February, as the country continued to cope with the effects of Saudi Arabia s blockade. The Qatari government s budget deficit narrowed from 5.1% of gross domestic product (GDP) in 2016 to 2.5% in 2017, helped by higher oil prices. S&P affirmed Qatar s sovereign rating at AA-, with a negative outlook, citing the security provided by the country s substantial reserves. In Egypt, stocks rose 1.86% in February. GDP growth rose to 5.3% year on year (y/y) in the final quarter of 2017, compared with 3.8% y/y in the final quarter of 2016. Tourism is one of the country s most important sectors, and tourist arrivals rose 43.9% y/y last December. Natural gas output from Egypt s current extraction facilities is expected to rise to 6 billion cubic feet per day by the end of June 2018. Inflation, meanwhile, fell to its lowest reading since Egypt floated its currency in 2016, which allowed the country s central bank to cut its benchmark interest rate by 100 basis points during the month. Egypt s government deficit is falling but the country continues to raise significant financing from international capital markets, from bilateral lenders and from multilateral organisations. Stocks in Kuwait advanced 1.57% in February. S&P affirmed its AA rating of Kuwait and forecast 2.5% GDP growth for 2018. During February, Kuwait launched a US$72 billion investment programme, which will include a clean fuel upgrade to the country s two main refineries, a railway network and a waste management plant. Jordanian stocks surged by 7.59% during the month, as a US appeals court rejected a 2014 verdict that had found Arab Bank liable for facilitating terrorist financing. This led the bank s stock, one of the biggest constituents of the local index, to gain 15% during the month. In other news, the United States committed itself to providing around US$6.3 billion in assistance over the next five years, which may lead to additional aid from the International Monetary Fund (IMF) and other donors. Lebanese stocks fell 1.30%. The Lebanese economy is growing and its government s budget deficit is narrowing, but the IMF warned that Lebanon s public debt may reach 180% of GDP in five years time, which would be incompatible with the Lebanese pound s peg to the US dollar. Performance Review The fund suffered a 1.51% loss in February, gross of fees. However, it fared better than the S&P Pan Arab Composite Large Mid Cap Index (with KSA capped at 30%), which fell 1.60% during that time, and it also did much better than the 4.60% loss in the MSCI Emerging Markets Index. On aggregate, the fund s overweight allocation to Egypt was the main contributor to its outperformance, followed by our selection among Saudi stocks. By contrast, the absence of Jordanian stocks, which did well during the month, was the main detractor from the fund s relative performance. Our intentionally defensive selection among Qatari stocks also lost some ground, compared with the index. In terms of individual stocks: An off-benchmark position in Egyptian pharmaceutical distributor Ibnsina Pharma and an overweight position in Egyptian financial group EFG Hermes were the main contributors to the fund s outperformance in February. On the downside, the absence from the portfolio of Jordan s Arab Bank and of First Abu Dhabi Bank in the UAE were the biggest detractors from relative returns in February. Portfolio Positioning Headlines from Saudi Arabia continue to demonstrate that the King and Crown Prince are consolidating their power, which should help them implement wide-ranging reforms to stimulate growth and tackle corruption. Positive headlines in 2018 could include Saudi Arabia s addition to MSCI s emerging-market index, continued improvement in its government finances, the impact of the reinstatement of public-sector employees allowances and the country s recently announced expansionary budget. The political tension between Qatar and Saudi Arabia is undoubtedly negative for the region. Even though the Qatari economy appears to be coping so far, the conflict between Saudi and Iranian regional blocs has raised the political risk premium in the region. We continue to carefully monitor news flow, and we remain hopeful that mediation efforts can lead to a solution. In the meantime, we believe the portfolio is well positioned, with an underweight allocation to Qatar and defensive positioning among those stocks that the fund holds in Qatar. Egypt continues to show significant promise for investors, as the IMF, bilateral lenders and the private sector are continue to support the country s government. This has been borne out by the magnitude of the net foreign-currency inflows since the Egyptian pound was floated. Inflationary pressures are easing, which should give the country s central bank scope to support growth with additional interest rate cuts. Outlook & Strategy Our outlook on the global economy remains cautious, even if economic news from Europe and the United States is increasingly positive. The economic and budgetary reforms that we see across the MENA region recognise the new dynamics caused by oil prices that remain modest, in historical perspective. We have deployed cash to capitalise on a number of opportunities in recent months. This has included investments in companies that may have been trading at depressed multiples compared with their global and emerging-market peers, or as compared with their own historical valuations, even on conservative assumptions. We continue to watch out for similar opportunities. www.franklintempletongem.com 2
Portfolio Characteristics 6 Hybrid: MSCI Arabian Markets SA Capped 20% until 30 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Portfolio Capped at 30% Price to Earnings (12 Month Trailing) 12.58x 12.82x Price to Book Value 1.54x 1.47x Price to Cash Flow 8.19x 7.79x Market Capitalisation (Millions in USD) 8,114 15,296 Price to Earnings Growth Ratio 0.62x 1.31x 3-Year Sales Growth 13.60% 8.02% Estimated 3-5 Yr EPS Growth 13.42% 7.88% Price to Earnings (12 Month Forward) 10.98x 11.76x Portfolio Diversification Top Sector Contributors 7 Total Sector Effect (%) Consumer Staples 0.38 Health Care 0.37 Telecommunication Services 0.21 Real Estate 0.12 Industrials 0.11 Top Sector Detractors 7 Total Sector Effect (%) Financials -0.40 Energy -0.32 Utilities -0.11 Top Security Contributors 7,8 Security Total Effect (%) IBNSINA PHARMA SAE 0.31 EFG HERMES HLDGS 0.24 QATAR NATIONAL BANK 0.16 MALATH COOPERATIVE 0.16 INSURANCE CO SIX OF OCTOBER DEVELOPMENT 0.15 & INVESTMENT CO Contributors/detractors data shown is for the period from 01/02/2018 to 28/02/2018. Past performance is not an indicator or a guarantee of future performance. Top Security Detractors 7,8 Security Total Effect (%) ARAB BANK PLC -0.26 GULF MARINE SERVICES PLC -0.19 NATIONAL BANK OF ABU DHABI -0.18 BUPA ARABIA FOR COOPERATIVE -0.17 INSURANCE CO EMAAR PROPERTIES PJSC -0.13 www.franklintempletongem.com 3
Geographic Weightings vs. Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% 2 Saudi Arabia United Arab Emirates Egypt Kuwait Qatar Oman Cash & Cash Equivalents 1.03 0.06 0.00 2.88 4.69 6.19 14.75 13.99 14.21 0% 25% 50% MENA Fund MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Ca 18.05 19.88 25.20 30.19 32.89 Sector Weightings vs. Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% 2 Financials Industrials Real Estate Consumer Discretionary Consumer Staples Health Care Energy Telecommunication Services Utilities Materials Cash & Cash Equivalents 17.50 6.08 12.02 8.05 10.87 1.01 8.10 2.74 6.82 0.71 3.38 1.12 2.59 11.87 2.22 1.80 2.04 12.39 0.06 0.00 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% MENA Fund MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Cap 34.40 54.21 Top Ten Holdings 9 Top Holdings Sector Country % Al Rajhi Bank Banks Saudi Arabia 6.89 Samba Financial Group Banks Saudi Arabia 4.23 Human Soft Holding Co. KSCC Consumer Services Kuwait 3.46 Egyptian Financial Group-Hermes Diversified Financials Egypt 3.26 Holding Co. DP World Transportation United Arab Emirates 3.23 Emaar Development PJSC Real Estate United Arab Emirates 3.22 Agility Public Warehousing Co. K.S.C. Transportation Kuwait 3.04 Banque Saudi Fransi Banks Saudi Arabia 2.90 Middle East Healthcare Co. Health Care Equipment & Services Saudi Arabia 2.69 Commercial International Bank (Egypt) SAE Banks Egypt 2.63 www.franklintempletongem.com 4
Supplemental Performance Statistics Supplemental Risk Statistics 10 3 Yrs 5 Yrs Since Inception Standard Deviation (%) Franklin MENA Fund 14.38 14.80 21.01 Hybrid: MSCI Arabian Markets SA Capped 20% until 29 12.16 13.30 18.28 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Tracking Error (%) 5.84 6.36 6.52 Information Ratio 11-0.19 0.24-0.31 Beta 1.08 1.00 1.10 Sharpe Ratio Franklin MENA Fund -0.20 0.42-0.21 Hybrid: MSCI Arabian Markets SA Capped 20% until 29-0.14 0.36-0.13 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Investment Team Portfolio Manager Years with Firm Years Experience Stephen Dover, CFA 20 34 Bassel Khatoun 10 15 Purav Jhaveri, CFA, CPA, FRM 17 24 Salah Shamma 10 16 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 located in or doing significant business in the MENA (Middle East and North Africa) region. Such emerging markets have historically been subject to significant price movements, frequently to a greater extent than equity markets globally. As a result, the performance of the Fund can fluctuate considerably over time. Other significant risks include: emerging markets risk, currency risk, liquidity risk, operational 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. 10. Beta, Information Ratio and Tracking Error information are measured against the Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30%. 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. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. 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. 2018 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. The benchmark performance shown is derived from a combination of the MSCI Arabian Markets SA Capped 20% Index from the Fund s inception to 29 September 2010 and the S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Index from 29 September 2010 to current reporting period. 5. 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. 6. 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 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.
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. 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 2018 Franklin Templeton Investments. All rights reserved.