Templeton Asian Growth Fund A (Ydis) USD Franklin Templeton Investment Funds Fund Manager Report Value Equity Product Details 1 Fund Assets $4,472,298,470.36 Fund Inception Date 04/16/1991 Number of Issuers 52 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category TEMFREI LX LU0029875118 USD Value MSCI All Country Asia ex-japan Index Asia ex Japan Equity Asset Allocation 2 % Equity 98.65 Cash & Cash Equivalents Fixed Income Fund Description The Fund aims to achieve long-term capital appreciation by investing primarily in equity securities listed in Asia (excluding Australia, New Zealand and Japan). Key Points Asian equities nudged higher over a volatile quarter, trailing their emerging-market peers but faring better than developed-market stocks. Pakistan, Thailand and Malaysia were the top performers, while the Philippines, Indonesia and India posted the largest declines. The fund declined over the quarter. China led absolute returns lower, followed by Indonesia and India. However, Thailand, South Korea and Singapore were key areas of strength. At the sector level, consumer discretionary, materials and financials were the largest detractors from returns, while energy, information technology and industrials were the main contributors. Performance Data Performance Net of Management Fees as at 03/31/2018 (Dividends Reinvested) (%) 3 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (06/30/1991) A (Ydis) USD -3.18-1.19-1.19 15.20 3.17 1.57 3.56 5.50 MSCI All Country Asia ex-japan Index -1.50 0.69 0.69 26.15 9.53 8.50 5.81 8.06 Calendar Year Returns (%) 200% 100% 0% -100% 103.10 72.53 29.60 42.08 19.46 7.21 16.36 22.70 29.99 5.76 19.93 5.11 3.33-8.90-7.78-26.82-14.91-17.07-60.18-52.23 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (Ydis) USD MSCI All Country Asia ex-japan Index Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Market Review Asian equities nudged higher over a volatile quarter, trailing their emerging-market (EM) peers but faring better than developed-market stocks. 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. Pakistan, Thailand and Malaysia were the top performers within the benchmark. Pakistan introduced measures to shore up its economy, including a devaluation of the rupee to cope with a growing current account deficit. Thailand rose as soaring exports underpinned the government s robust economic outlook for 2018. Malaysia benefitted from the ringgit s advance against the US dollar to its highest level in nearly two years. Conversely, the Philippines, Indonesia and India posted the largest declines. The Philippines and Indonesia experienced drops in their currencies. India fell following the reintroduction of a long-term capital gains tax on equities. Across sectors, health care led the way up, followed by utilities and energy. Telecommunication services, consumer discretionary and industrials fell the most. Performance Review The fund declined over the quarter. China led absolute returns lower, followed by Indonesia and India. However, Thailand, South Korea and Singapore were key areas of strength. At the sector level, consumer discretionary, materials and financials were the largest detractors from returns, while energy, information technology (IT) and industrials were the main contributors. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
China accounted for the top individual detractors from results mining company Aluminum Corporation of China, auto maker Brilliance China Automotive and container manufacturer China International Marine Containers (CIMC). Brilliance China declined as its full-year profit growth missed market expectations. Fears of a US-China trade war weighed on sentiment towards CIMC. Nevertheless, China-based Yanzhou Coal Mining was amongst the top portfolio contributors. The coal producer s full-year profit rose more than four times, thanks to higher coal prices and sales volumes. In Indonesia, Astra International fell as the auto distributor posted weaker-than-expected full-year profit growth. Heavy equipment and mining company United Tractors lost ground. India-based telecommunication services provider Idea Cellular was another detractor from returns. Conversely, rising oil prices provided a positive backdrop for Thailand-based energy company PTT and its subsidiary PTT Exploration & Production. PTT also rose on better-than-expected full-year earnings and a planned stock split. In South Korea, engineering and construction firm Samsung Engineering rose on the back of contract wins. Samsung Heavy Industries was lifted by hopes of a turnaround for the ship-building industry as the company, together with its peers, clinched new orders. In Singapore, ship and rig builder Sembcorp Marine closed higher. Portfolio Positioning We construct portfolios on a stock-by-stock basis, and country and sector weightings are an outcome of this process. At the end of the quarter, the largest country positions were in China, Thailand, Indonesia and South Korea. The largest sector exposures were to IT, financials and energy. Outlook & Strategy We believe that prospects for emerging markets remain sound despite the recent increase in volatility. Emerging markets, including Asia, 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. 4 Emerging Asia stands out with a projected GDP growth of 6.5%. 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 structural drivers for emerging markets remain intact. Technology is one of them. Companies in emerging markets, especially Asia, have not only embraced the use of technology but have also become global innovators in many areas, ranging from e-commerce to mobile banking, robotics, autonomous vehicles and more. One-Month Performance Review The fund fell in March. China had the largest negative impact on returns, followed by Indonesia and Hong Kong; South Korea, Taiwan and Pakistan were the main contributors. In terms of sectors, consumer discretionary, energy and materials were the top detractors, while health care was the sole contributor. Portfolio Characteristics 5,6 Portfolio MSCI All Country Asia ex-japan Index Price to Earnings (12 Month Trailing) 15.12x 14.44x Price to Book Value 1.74x 1.72x Price to Cash Flow 7.73x 9.59x Market Capitalization (Millions in USD) 84,310 98,589 Dividend Yield 2.24% 2.23% Portfolio Diversification Top Sector Contributors 7 Total Sector Effect (%) Energy 1.59 Telecommunication Services 0.28 Industrials 0.14 Consumer Staples 0.10 Real Estate 0.07 Top Security Contributors 7,8 Security Total Effect (%) YANZHOU COAL MINING CO LTD 0.71 PTT PCL 0.68 PTT EXPLORATION & 0.56 PRODUCTION PCL SAMSUNG ENGINEERING CO LTD 0.32 SEMBCORP MARINE 0.26 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 03/31/2018. Top Sector Detractors 7 Total Sector Effect (%) Consumer Discretionary -1.60 Materials -1.41 Financials -0.50 Health Care -0.21 Information Technology -0.09 Top Security Detractors 7,8 Security Total Effect (%) ALUMINUM CORP OF CHINA LTD -1.58 BRILLIANCE CHINA AUTOMOTIVE -1.50 HOLDINGS LTD CHINA INTERNATIONAL MARINE -0.60 CONTAINERS GROUP CO LTD ASTRA INTERNATIONAL -0.45 UNITED TRACTORS -0.41 templetonoffshore.com 2
Geographic Weightings vs. MSCI All Country Asia ex-japan Index 2 China 32.31 34.78 15.09 Thailand 2.80 Indonesia 14.58 2.38 South Korea 14.11 17.52 6.45 Pakistan 0.09 6.01 Hong Kong 11.17 Taiwan 4.89 13.58 India 3.76 9.41 1.38 Singapore 4.20 Vietnam 0.08 Cash & Cash Equivalents 0% 25% 50% Sector Weightings vs. MSCI All Country Asia ex-japan Index 2 Information Technology 24.81 32.04 Financials 16.47 23.53 Energy 16.10 4.37 Industrials 13.54 6.66 Consumer Discretionary 10.28 8.96 Materials 7.23 4.55 Real Estate 4.18 5.80 Consumer Staples 3.79 4.56 Health Care 2.79 Telecommunication Services 0.89 3.86 Utilities 2.87 Cash & Cash Equivalents 0% 5% 10% 15% 20% 25% 30% 35% 40% Templeton Asian Growth Fund MSCI All Country Asia ex-japan Index Templeton Asian Growth Fund MSCI All Country Asia ex-japan Index Top Ten Holdings 9 Top Holdings Sector Country % ALIBABA GROUP HOLDING LTD Software & Services China 7.65 BANK DANAMON INDONESIA TBK Banks Indonesia 6.33 PT SAMSUNG ELECTRONICS CO LTD Technology Hardware & Equipment South Korea 5.49 ALUMINUM CORP OF CHINA LTD Materials China 5.47 BRILLIANCE CHINA AUTOMOTIVE Automobiles & Components China 5.37 HOLDINGS LTD OIL & GAS DEVELOPMENT CO LTD Energy Pakistan 4.69 LAND AND HOUSES PCL Real Estate Thailand 3.80 DAIRY FARM INTERNATIONAL Food & Staples Retailing Hong Kong 3.79 HOLDINGS LTD TAIWAN SEMICONDUCTOR Semiconductors & Semiconductor Taiwan 2.99 MANUFACTURING CO LTD Equipment HYUNDAI DEVELOPMENT CO- ENGINEERING & CONSTRUCTION Capital Goods South Korea 2.95 Supplemental Performance Statistics 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton Asian Growth Fund 15.76 14.33 22.64 - MSCI All Country Asia ex-japan Index 15.71 13.81 21.34 22.92 Tracking Error (%) 7.73 7.57 7.39 - Information Ratio 11-0.82-0.91-0.30 - Beta 0.88 0.89 1.00 - Sharpe Ratio Templeton Asian Growth Fund 0.17 0.09 0.14 - MSCI All Country Asia ex-japan Index 0.57 0.59 0.26 0.24 10. Beta, Information Ratio and Tracking Error information are measured against the MSCI All Country Asia ex-japan Index. templetonoffshore.com 3
Investment Team Portfolio Manager Years with Firm Years Experience Sukumar Rajah 23 27 Eric Mok, CFA, Senior Vice President 19 19 Templeton Global Equity Team Number of Members Average Years Experience Portfolio Managers/Analysts 32 22 Research Analysts 11 11 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 Asia. 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: currency risk, emerging markets 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. templetonoffshore.com 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. 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. In the U.S., this publication is made available to you for informational purposes only by Templeton/Franklin Investment Services, Inc. 100 Fountain Parkway, St. Petersburg, Florida 33716. Tel: (800) 239-3894 (USA Toll-Free), (877) 389-0076 (Canada Toll-Free), and Fax: (727) 299-8736. Investments are not FDIC insured; may lose value; and are not bank guaranteed. Distribution outside the U.S. may be made by Templeton Global Advisors Limited or other sub-distributors, intermediaries, dealers or professional investors that have been engaged by Templeton Global Advisors Limited to distribute shares of the Fund in certain jurisdictions. This is not an offer to sell or a solicitation of an offer to purchase securities in any jurisdiction where it would be illegal to do so. 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. Source: International Monetary Fund, World Economic Outlook Update, January 2018. 2018 By International Monetary Fund. All Rights Reserved. 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 capitalization 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. 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 Franklin Templeton Investment Funds Offshore 100 Fountain Parkway St. Petersburg, FL 33716 templetonoffshore.com 2018 Franklin Templeton Investments. All rights reserved.
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 Investment Funds Offshore 100 Fountain Parkway St. Petersburg, FL 33716 templetonoffshore.com 2018 Franklin Templeton Investments. All rights reserved.