Franklin Templeton Investment Funds Value Equity Fund Manager Report Product Details 1 Fund Assets $906480749.69 Fund Inception Date 25/10/2005 Number of Issuers 49 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category Overall Morningstar Rating TM 3 TEMBRAC LX LU0229945570 USD Value BRIC Equity Asset Allocation 2 % Equity 93.75 Cash & Cash 6.25 Equivalents Fixed Income Fund Description The Fund aims to achieve long-term capital appreciation by investing primarily in equity securities of companies organised under the laws of or having their principal office in Brazil, Russia, India and China (including Hong Kong and Taiwan) (BRIC), as well as in companies that derive the principal portion of their revenues or profits from BRIC economies, or have the principal portion of their assets there. Key Points Together, BRIC markets advanced over the quarter and outpaced broader emerging markets. The fund rose over the quarter. Brazil and Russia were the key drivers of absolute returns, while India detracted. At the sector level, information technology, energy and financials led returns higher, while consumer discretionary, telecommunication services and consumer staples detracted. Performance Data Discrete Annual Performance (%) as at 31/03/2018 3/17-3/18 3/16-3/17 3/15-3/16 3/14-3/15 3/13-3/14 A (acc) USD 32.91 27.22-14.00-4.05-5.89 MSCI BRIC Index USD 30.14 23.72-15.11 3.93-3.17 Performance Net of Management Fees as at 31/03/2018 (Dividends Reinvested) (%) 4 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (25/10/2005) A (acc) USD -3.20 2.35 2.35 32.91 13.29 5.60-0.30 5.58-3.15 2.24 2.24 30.14 10.98 6.59 2.06 8.92 Calendar Year Returns (%) 200% 100% 0% -100% 89.13 93.52 46.19 42.04 14.09 12.37 6.97 14.89 11.84 9.78-15.81-13.25-7.77-2.56-5.43-3.25-26.91-22.67-61.35-59.34 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (acc) USD Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review Emerging-market (EM) equities posted modest gains in a volatile quarter marked by concerns that sent developed-market stocks lower. Economic optimism that buoyed returns at the start of the year gave way to worries of resurgent US inflation, followed by rising trade tensions as the United States announced a series of protectionist trade measures. Together, BRIC markets advanced over the quarter and outpaced broader emerging markets. Brazil and Russia led the way up. Brazil climbed amidst receding political uncertainty and expectations of continued monetary policy easing following a 50-basis-point cut in the benchmark interest rate over the quarter to a new record low. Russia was boosted by higher oil prices, stronger earnings growth prospects and undemanding valuations. Comparatively, China finished moderately higher. Its economic growth accelerated in 2017, though fears of a potential US-China trade war curbed investor sentiment. Bucking the uptrend, India fell following the reintroduction of a long-term capital gains tax on equities. By sector, energy, real estate and financials were the top gainers, while telecommunication services, industrials and consumer discretionary fell the most. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
Performance Review The fund rose over the quarter. Brazil and Russia were the key drivers of absolute returns, while India detracted. At the sector level, information technology (IT), energy and financials led returns higher, while consumer discretionary, telecommunication services and consumer staples detracted. Brazil s economic recovery and an upswing in investor sentiment lifted several financial stocks over the quarter, including Itausa - Investimentos Itau and its principal asset, commercial bank Itau Unibanco. Banco Bradesco was another contributor to returns. In Russia, private freight rail transportation company Globaltrans advanced. Energy company Lukoil rallied on the back of higher oil prices, betterthan-expected fourth-quarter earnings, and plans to increase distributions to shareholders. China, which added to returns overall, accounted for some of the top individual contributors but also some of the top detractors. Chinasoft International rose as the IT solutions provider reported a jump in its full-year net profit. However, Brilliance China Automotive declined as the auto maker s full-year profit growth missed market expectations. Telecommunication services provider China Mobile closed lower. In India, ICICI Bank lost ground after its quarterly net profit fell more than expected. Diversified financial services group Bajaj Holdings & Investment finished lower. Elsewhere, Naspers was another notable detractor. The internet and media group, which is a major shareholder in Chinese technology company Tencent, trimmed its stake to raise funds for e-commerce investments; it retains a 31.2% stake in Tencent and said it would not reduce this in the next three years. Portfolio Positioning We construct portfolios using stock-by-stock fundamental analysis, and country and sector positions are an outcome of this process. At the end of the quarter, the largest market exposure was to China, followed by India. The largest sector weightings were in IT, financials and consumer discretionary. Outlook & Strategy We believe that prospects for emerging markets remain sound despite the recent increase in volatility. Emerging markets, including BRIC markets, have historically bounced back from external shocks, and they displayed a healthy resilience amidst choppy trading in early 2018. We still see strong tailwinds underpinning EM equities even as we are mindful of the challenges that may arise. Importantly, EM economies look poised for further growth. The International Monetary Fund estimates 4.9% gross domestic product (GDP) growth for emerging markets in 2018, up from 4.7% in 2017. 5 India and China stand out with projected GDP growth rates of 7.4% and 6.6%, respectively. While protectionist trade actions taken by the United States have cast a shadow over the synchronised global growth that lifted stock markets, the long-term outcome remains to be seen. The scope and strength of international trade flows should not be underestimated, as shown by the historical growth in intra-asia trade. We believe that the key drivers for emerging markets technology and consumerism remain intact. Companies in emerging markets, including in China and Russia, have not only embraced the use of technology but have also become global innovators in many areas, ranging from e-commerce to mobile banking and more. Rising wealth in emerging markets is another secular driver. We expect demand for goods and services to continue growing as incomes head higher. And as consumers meet their basic needs, aspirational wants usually follow. This premiumisation trend could boost demand for high-end products such as luxury cars or for services such as entertainment and wealth management. One-Month Performance Review The fund fell in March. Absolute returns were held back by all BRIC markets, especially China and India. In terms of sectors, consumer discretionary, financials and materials were the top detractors, while energy and industrials were the main contributors. Portfolio Characteristics 6,7 Portfolio Price to Earnings (12 Month Trailing) 15.94x 16.04x Price to Book Value 1.95x 1.93x Price to Cash Flow 7.20x 11.25x Market Capitalisation (Millions in USD) 124,791 127,424 Dividend Yield 1.93% 2.02% Portfolio Diversification Top Sector Contributors 8 Total Sector Effect (%) Information Technology 1.23 Industrials 0.75 Energy 0.46 Consumer Staples 0.13 Top Sector Detractors 8 Total Sector Effect (%) Consumer Discretionary -1.34 Financials -0.33 Real Estate -0.18 Materials -0.15 Telecommunication Services -0.08 franklintempleton.lu 2
Top Security Contributors 8,9 Security Total Effect (%) CHINASOFT INTERNATIONAL LTD 0.77 ITAUSA - INVESTIMENTOS ITAU SA 0.57 GLOBALTRANS INVESTMENT PLC 0.45 LUKOIL HOLDINGS 0.44 TAIWAN SEMICONDUCTOR 0.43 MANUFACTURING CO LTD Past performance is not an indicator or a guarantee of future performance. Contributors/detractors data shown is for the period from 01/01/2018 to 31/03/2018. Geographic Weightings vs. 2 China India Russia Brazil Taiwan South Africa Hong Kong 0.35 7.33 6.79 8.60 13.82 12.73 12.24 16.49 15.21 6.25 Cash & Cash Equivalents 0% 25% 50% 75% 39.23 60.96 Top Security Detractors 8,9 Security Total Effect (%) NASPERS LTD -0.79 BRILLIANCE CHINA AUTOMOTIVE -0.75 HOLDINGS LTD BAJAJ HOLDINGS AND -0.35 INVESTMENT LTD PING AN BANK -0.35 ICICI BANK LTD -0.31 Sector Weightings vs. 2 Information Technology 28.31 27.75 Financials 22.31 25.70 Consumer Discretionary 16.86 8.23 Energy 11.36 10.83 Health Care 4.21 2.77 Telecommunication Services 4.17 3.71 Materials 3.91 5.81 Industrials 2.46 4.17 Consumer Staples 0.17 5.13 Utilities 2.49 Real Estate 3.40 Cash & Cash Equivalents 6.25 0% 5% 10% 15% 20% 25% 30% 35% Templeton BRIC Fund Templeton BRIC Fund Top Ten Holdings 10 Top Holdings Sector Country % ALIBABA GROUP HOLDING LTD Software & Services China 8.15 NASPERS LTD Media South Africa 6.79 TAIWAN SEMICONDUCTOR Semiconductors & Semiconductor Taiwan 6.33 MANUFACTURING CO LTD Equipment TENCENT HOLDINGS LTD Software & Services China 5.03 SBERBANK OF RUSSIA PJSC Banks Russia 4.24 LUKOIL PJSC Energy Russia 3.89 CHINASOFT INTERNATIONAL LTD Software & Services China 3.22 CHINA MOBILE LTD Telecommunication Services China 3.17 BAJAJ HOLDINGS & INVESTMENT Diversified Financials India 2.90 LTD ITAUSA - INVESTIMENTOS ITAU SA Banks Brazil 2.86 franklintempleton.lu 3
Supplemental Risk Statistics 11 3 Yrs 5 Yrs 10 Yrs Since Inception Templeton BRIC Fund A (acc) USD Supplemental Performance Statistics Standard Deviation (%) Templeton BRIC Fund 19.18 17.82 25.59 25.55 19.71 18.08 25.35 25.71 Tracking Error (%) 3.47 4.60 4.64 4.57 Information Ratio 12 0.67-0.21-0.51-0.74 Beta 0.96 0.95 0.99 0.98 Sharpe Ratio Templeton BRIC Fund 0.67 0.30-0.02 0.17 0.53 0.35 0.07 0.30 Investment Team Portfolio Manager Years with Firm Years Experience Chetan Sehgal, CFA, Executive Vice President / Director of Global 23 23 Emerging Markets / Small Cap Number of Members Average Years Experience Portfolio Managers/Analysts 42 14 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 securities of companies located in or doing significant business in the BRIC countries. 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 significantly over relatively short time periods. Other significant risks include: emerging markets risk, currency risk, liquidity risk, derivatives risk, Shanghai-Hong Kong Stock Connect 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. 11. Beta, Information Ratio and Tracking Error information are measured against the. franklintempleton.lu 4
Important Legal Information This document does not constitute legal or tax advice nor is it investment advice or an offer for shares of Franklin Templeton Investment Funds (the Fund ). Subscriptions to shares of the Fund can only be made on the basis of the current prospectus and, where available, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report accessible on our website www.ftidocuments.com or which can be obtained, free of charge, from Franklin Templeton International Services, S.à r.l. - 8A, rue Albert Borschette, L-1246 Luxembourg. 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. 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. 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. Source: International Monetary Fund, World Economic Outlook Update, January 2018. 2018 By International Monetary Fund. All Rights Reserved. 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 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. 7. 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. 8. 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. 9. 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 Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2018 Franklin Templeton Investments. All rights reserved.
will remain in the Fund, or that security sold will not be repurchased. 10. 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. 12. 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 International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2018 Franklin Templeton Investments. All rights reserved.