Fund plc Unconstrained Fixed Income Product Profile Product Details Fund Assets $164,346,883.87 Fund Inception Date 12/07/1996 Number of Securities 93 Including Cash SEDOL 0336114 Bloomberg FTGEMHI ID ISIN IE0003361148 Base Currency USD Investment Style Unconstrained Overview 1 Emerging market debt strategy that takes an absolute return approach, whereby we will only invest in countries or securities we find attractive, irrespective of benchmark weights Diversified portfolio of hard and local currency emerging market issuers Return Target: 8 10% per annum over the course of a full market cycle Performance Data Average Annual Total Returns (USD %) 2 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception (12/07/1996) Fund - GROSS 3.23 3.23 10.04 9.92 5.59 7.96 11.77 11.45 Fund - NET JP Morgan EMBI Global Diversified (USD Based) JP Morgan GBI- EM Broad Diversified BofA Merrill Lynch Emerging Market Corporate Plus (USD Hedged) 3.00 3.00 9.05 8.87 4.60 6.96 10.71 10.39-1.74-1.74 4.30 5.78 4.69 7.04 8.48 9.41 4.19 4.19 11.97 5.38 0.45 3.80 - - -0.98-0.98 3.11 4.77 3.76 6.46 - - 20% 10% 0% -10% 10.04 11.97 9.92 11.77 9.05 8.87 10.71 11.45 10.39 3.23 3.23 5.59 7.96 6.96 3.00 3.00 4.30 5.78 4.60 4.69 7.04 8.48 9.41 4.19 4.19 3.11 5.38 4.77 6.46 3.76 3.80 0.45-1.74-0.98-1.74-0.98 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Fund - GROSS Fund - NET JP Morgan EMBI Global Diversified (USD Based) JP Morgan GBI-EM Broad Diversified BofA Merrill Lynch Corporate Plus (USD Hedged) Calendar Year Returns (USD %) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 11.44 13.52 0.07 0.07 4.16 18.42 2.38 17.23 60.87-29.25 Fund - GROSS 10.44 12.50-1.01-0.84 3.22 17.36 1.46 16.18 59.45-29.94 Fund - NET JP Morgan EMBI Global Diversified (USD Based) 10.26 10.15 1.18 7.43-5.25 17.44 7.35 12.24 29.82-12.03 1. Targets represent the goal the strategy seeks against the JP Morgan EMBI Global Diversified (USD Based) and do not take into account management fees or other expenses an investor would incur in the management of its account, which would reduce any returns. There is no assurance that employment of the strategy will result in the intended targets being achieved. 2. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future performance.
Fund plc Portfolio Manager Insight Market Review Emerging-market (EM) hard-currency government bonds suffered a 1.74% fall during the quarter, as per the JP Morgan s Bond Global Diversified (EMBIGD). Ten-year US Treasury yields rose 33 basis points (bps), to 2.74% at the end of March. In addition, the spread-to-worst of US dollar-denominated EM sovereign debt over US Treasuries widened by some 18 bps. EM hard-currency corporate bonds fell by 0.98%, as per the ICE BofAML s Corporate Plus, hedged into US dollars. EM local-currency government bonds returned 4.19% for the quarter, unhedged in US-dollar terms, as per the JP Morgan Government Bond s (GBI-EM) Broad Diversified. EM local-currency bond yields fell during the quarter, and EM currencies mostly appreciated against the US dollar. Performance Review The strategy s position in South African local-currency bonds was the main contributor to its performance during the quarter. South Africa s Deputy President Cyril Ramaphosa became president in February 2018, and is generally considered to stand for prudent government, ethical leadership and a constructive attitude toward business. Since he became president, South Africa s central bank has raised its forecast of the country s economic growth to 1.9% for 2018. In addition, local interest rates moved lower after South Africa s Reserve Bank cut its policy rate by 25 bps in March, as headline inflation fell to its lowest level in three years. The strategy s position in Venezuelan oil warrants also contributed to performance. Venezuela defaulted on a number of bonds in late 2017, but these warrants were one of the last instruments to be serviced. Payments on these warrants are connected to oil prices, which rose during the quarter after Saudi Arabia announced that it was working on a long-term oil production agreement with Russia. This means that the semi-annual payment due in April is certain to be triggered, although it remains unclear whether payment will be made. The strategy s position in Uruguayan local-currency bonds was the main detractor from returns. These bonds rallied in 2017 but have performed poorly since the beginning of this year, when Uruguay s quarterly debt report highlighted the need for additional borrowing. Uruguay s government is estimated to need around US$2.7 billion in financing in 2018, which may include a further extension of the country s nominal-peso curve and the swapping of existing bonds for longer-duration debt. Outlook & Strategy EM debt produced strong returns in 2017. As a result, 2018 started with fairly stretched valuations, despite the continued strengthening of emerging markets economic fundamentals. The global economy s improving health has sparked concerns that long-dormant inflationary pressures will finally emerge. Some investors fear that higher inflation may force central banks to reduce their bond-buying programs and raise interest rates more aggressively than expected. These fears, in turn, led to a spike in volatility at the start of February, followed by rising bond yields in developed markets. Emerging markets, by contrast, have experienced only a marginal correction since early February, partly due to some investor outflows from the asset class. Politics will continue to be an important hurdle for emerging markets this year, with elections due in Mexico, Colombia, Brazil and Venezuela, among others. In addition, US policies and idiosyncratic stories (such as the talks to renegotiate the North American Free Trade Agreement) are likely to remain dominant. Portfolio Characteristics 3,4 JP Morgan EMBI Global Diversified (USD Portfolio Based) Number of Securities Including Cash 93 673 Yield to Maturity 8.23% 5.41% Yield to Worst 8.22% 5.40% Average Duration 3.77 Yrs 6.79 Yrs Average Credit Quality 5 B+ BB+ Average Weighted Maturity 7.26 Yrs 10.93 Yrs Duration to Worst 4.12 Yrs 6.78 Yrs 5. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings from different agencies, is provided to indicate the average credit rating of the portfolio s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default increases as a bond s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio s default risk because a simple, weighted average does not measure the increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivatives are excluded from this breakdown. 2
Fund plc Portfolio Diversification 3 Country Allocation 6 15 10 5 0 Colombia South Africa Mexico Azerbaijan Russia Peru Trinidad and Tobago Ukraine Risk Category Allocation 6 One Iraq 19.64 Nigeria Turkey Argentina Brazil Uruguay El Salvador Tunisia Georgia Kazakhstan Indonesia Republic of Angola Ghana Chad Republic of Armenia GRENADA Ethiopia Gabon One Two Three Residual Supranational Funds Geographic Allocation 6 MIDDLE EAST / AFRICA Kenya Venezuela Mozambique Bosnia and Herzegovina CAMEROON Egypt Dominican Republic Suriname Jamaica Republic of Belarus Uganda Jordan Sri Lanka Cash 38.95 Supranational Mixed Two 44.00 LATIN AMERICA 30.83 Three 32.04 EASTERN EUROPE 15.77 Residual 2.81 FAR EAST / ASIA RESIDUAL 2.81 10.13 Supranational 0.89 FUNDS Funds SUPRANATIONAL 0.89 0% 10% 20% 30% 40% 50% Currency Allocation 6 US Dollar Japanese Yen Colombian Peso Mexican Peso South African Rand Uruguayan Peso Turkish Lira Ghanaian Cedi-New Kenyan Shilling Euro Georgian Lari Egyptian Pound Peruvian Nuevo Sol Kazakhstn Tenge Dominican Peso Ugandan Shilling Brazilian Real Azerbaijani Manat Russian Ruble 7.80 4.59 3.49 3.42 3.27 2.30 2.26 1.41 1.30 1.21 1.11 1.11 1.01 0.96 0.76 0.68 0.55 0.28 62.50 0% 20% 40% 60% 80% Sector Allocation 6 Sovereign Quasi-Sovereign Corporates Residual Funds 2.83 0% 10% 20% 30% 40% 50% 18.97 17.19 60.40 0% 10% 20% 30% 40% 50% 60% 70% 3
Fund plc Supplemental Performance Statistics (USD) 7 Standard Deviation (%) 3 Yrs 5 Yrs 10 Yrs Since Inception Fund 6.23 6.24 12.12 11.92 JP Morgan EMBI Global Diversified (USD Based) 5.24 6.15 8.88 10.62 Tracking Error (%) 4.34 4.22 7.05 6.18 Information Ratio 8 0.71-0.02-0.01 0.17 Sharpe Ratio Fund 1.34 0.68 0.55 0.69 JP Morgan EMBI Global Diversified (USD Based) 1.00 0.71 0.76 0.68 Investment Philosophy Our philosophy is that a diversified portfolio consisting of issues denominated in hard and local currencies has the potential to generate attractive returns at lower levels of absolute risk than the standard emerging market debt benchmarks, which tend to be concentrated in a few issuers. We believe that a bottom up, research-driven, qualitative investment process, combined with a risk-controlled approach, has the potential to achieve our objective of outperforming standard benchmarks at low levels of absolute risk. Investment Process s investment process can be summarised in three integral steps country allocation, currency allocation and issuer selection. Ongoing Monitoring and Risk Management 1. Country Allocation 2. Currency Allocation 3. Issuer Selection Countries are ranked into three risk categories (high/medium/low) Yield vs. Fundamentals Improving Credit Potential to Help the Strategy Meet its Return Target Hard vs. Local Currency Assessment Yield vs. Risk Volatility Liquidity Relative Pricing Sovereign Credit (Sovereign, Quasi-Sovereign, Corporate) Local Asset Management Corporate Credit Global Macro Equity Investment Team Portfolio Manager Years with Firm Years Experience William Ledward 21 33 Additional Resources Corporates - High Yield Corporates - Investment Grade Fixed Income Policy Committee Global Sovereign/EMD Local Asset Management Templeton s Equity Product Managers Years with Firm Years Experience Alberto Landi 9 9 Stuart Lingard 6 20 7. Information Ratio and Tracking Error information are displayed for the product versus the JP Morgan EMBI Global Diversified (USD Based). 4
Fund plc Important Legal Information The s Fund plc (the Fund) is an investment company with variable capital incorporated in Ireland on 17th January 1996 as a public limited company under registration number 243415. The Fund is authorised by the Central Bank of Ireland as a designated investment company pursuant to Section 256 of Part XIII of the Companies Act 1990. The Fund s registered office is JPMorgan House, International Financial Services Centre, Dublin Ireland. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter, can be obtained, free of charge, from the Administrator, J.P. Morgan Administration Services (Ireland) Limited, JPMorgan House, International Financial Services Centre, Dublin 1, Ireland. This document is intended to be of general interest only and does not constitute legal or tax advice, nor does it constitute or form a part of any offer for shares of the Fund or an invitation to apply for shares of the Fund. Nothing in this document should be construed as investment advice. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Subscriptions for shares in the Fund can only be made on the basis of the Fund s most recent Prospectus. 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. References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. es are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. The performance of the index does not include the deduction of expenses and does not represent the performance of any Templeton fund. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund s holding at any one time. No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America. The Fund is not registered for public distribution. Templeton Investments and its management groups have exercised professional care and diligence in the collection and processing of the information in this report. However, the data used in the preparation of this presentation were provided by third-party sources and Templeton Investments has not independently verified, validated or audited such data. Templeton Investments makes no representations or warranties with respect to the accuracy of this presentation. Templeton Investments shall not be liable to any user of this report or to any other person or entity for the inaccuracy of information contained in this presentation or for any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission. Any research and analysis contained in this document has been procured by Templeton Investments for its own purposes. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. The index data referenced herein is the property of Merrill Lynch, Pierce, Fenner & Smith Incorporated ( BofAML ) and/or its licensors and has been licensed for use by Templeton. BofAML and its licensors accept no liability in connection with this use. See www.franklintempletondatasources.com for a full copy of the Disclaimer. Important data provider notices and terms available at www.franklintempletondatasources.com. 3. Portfolio information is based on a representative account taken from the Fund. The information is historical, may not reflect current or future characteristics and may vary significantly among individual separate accounts depending on a variety of factors such as portfolio size, specific investment guidelines and inception dates of the individual accounts. 4. Yield to Maturity, Yield to Worst, Average Duration, Average Weighted Maturity and Duration to Worst reflect certain derivatives held in Portfolio (or their underlying reference assets). 6. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding, use of derivatives, unsettled trades or other factors. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 8. 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). 2018 Templeton Investments. All rights reserved.