Templeton Composite Value Equity Product Profile Product Details Composite Assets 766,037,723.81 Inception Date 31/12/1990 Base Currency USD Investment Style Value Overview Our time-tested investment approach focuses on identifying stocks trading at a significant discount to their longer-term business value based on our estimates of future normalised earnings and cash flow generation. We utilise a disciplined, consistent investment process that is based on our philosophy of value, patience and bottom-up stock picking. Templeton s long-term perspective and in-depth research give us the insight and conviction to purchase out-of-favour securities and the patience to wait for potential value recognition. Performance Data Average Annual Total Returns (GBP %) 1 Since Inception 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs (31/12/1990) Templeton 6.19 0.91 5.25 11.46 11.06 10.30 8.16 11.31 Composite - GROSS Templeton 6.07 0.67 4.76 10.97 10.58 9.82 7.72 10.85 Composite - NET MSCI All Country 7.01 2.33 9.51 15.31 13.09 10.83 7.08 9.53 World Index 30% 20% 10% 0% 15.31 11.46 13.09 11.06 10.30 11.31 9.51 10.97 10.58 9.82 10.83 10.85 8.16 6.19 7.72 9.53 6.07 7.01 7.08 5.25 4.76 0.91 2.33 0.67 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Templeton Composite - GROSS Templeton Composite - NET Calendar Year Returns (GBP %) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Templeton 10.17 26.97 1.33 6.75 30.61 16.24-6.54 10.85 17.29-18.55 Composite - GROSS Templeton 9.68 26.43 0.90 6.29 30.06 15.75-6.94 10.37 16.77-18.89 Composite - NET MSCI All Country World Index 13.84 29.40 3.84 11.22 21.15 11.67-6.17 16.77 20.56-19.48 Portfolio Manager Insight Market Review Global equity markets collectively closed 2018 s second quarter with a slight gain in US-dollar terms. Intensifying trade tensions and their potential to slow global economic growth weighed on sentiment. Concerns also arose that the synchronised global growth story might be coming to an end, as the US economy looked resilient, while pockets of Europe, Asia and Latin America faced various challenges. Developed-market stocks, as measured by MSCI indexes, advanced ahead of a gauge of global equities and outperformed their emerging- and frontier-market peers, which generally suffered fairly steep declines. 1. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future performance.
Performance Attribution The composite underperformed its benchmark, the, in the second quarter, primarily due to holdings in the information technology, financials and consumer staples sectors. We remain sceptical about the sustainability of the information technology sector s outperformance given that recent strength has been driven primarily by multiple expansion, not earnings growth. We have continued to underweight the sector amidst what appears to be the biggest divergence between tech valuations and fundamentals since the late 1990s. The wave of optimism that supported European banks last year as eurozone growth exceeded expectations and France avoided a populist election victory has been replaced by concerns about Italian political risk and the European Central Bank s ability to normalise monetary policy. We believe investor concerns about Italy are overblown. After reducing exposure to European financials amid last year s strength, we have viewed more recent volatility as a selective buying opportunity. Encouragingly, strong performance during the quarter was concentrated among high-conviction overweight sectors like health care and energy. In health care, we pay close attention to the earnings and product cycles of each holding, but we also believe we have assembled a balanced portfolio of stocks that appear to excessively discount well-known macro headwinds and offer idiosyncratic catalysts for potentially sustainable outperformance. In energy, we have continued to manage the commodity cycle by selling into the strength of higher-beta oil services stocks as the price of crude rises. We have been increasing exposure to high-quality integrated oil producers with the potential for further multiple expansion as new-found capital discipline generates the cash flows required to sustain generous dividend pay-outs. Regionally, stock selection in China and Israel contributed to relative performance for the quarter. Stock selection in the United States detracted. Outlook and Strategy Looking ahead, we remain optimistic on the prospects for value and believe that companies whose fundamentals are underappreciated by a market focused on the short term should be well positioned for outperformance over time. At the close of the second quarter, global valuation spreads (the gap between the market s cheapest and most expensive stocks) were the widest they have been in at least 30 years. Put another way, value globally has been this cheap only a tiny fraction of the time in the past three decades. Though it certainly doesn t feel like it, such signs suggest that now is a great time for opportunistic value investors. Portfolio Characteristics 2,3 Portfolio Price to Earnings (12 Month Trailing) 16.03x 18.49x Price to Book Value 1.53x 2.27x Price to Cash Flow 7.40x 11.62x Market Capitalisation (Millions in GBP) 77,111 89,706 Number of Issuers 4 143 - Dividend Yield 2.65% 2.43% Number of issuers based on a representative portfolio in the composite. Securities will vary among individual accounts in the composite 4. Based on a representative portfolio in the composite. Securities will vary among individual accounts in the composite. 2
Portfolio Diversification Geographic Weightings vs. 5 Percent of Total EUROPE NORTH AMERICA ASIA MID-EAST/AFRICA CASH & CASH EQUIVALENTS 1.41 1.11 0.00 4.04 Templeton Composite 17.81 17.86 20.81 35.36 41.39 56.71 0% 25% 50% 75% Sector Weightings vs. 5 Percent of Total Financials Health Care Information Technology Consumer Discretionary Energy Industrials Materials Consumer Staples Telecommunication Services Utilities Real Estate Cash & Cash Equivalents 5.93 5.24 5.58 4.75 2.80 2.43 2.94 1.16 3.03 4.04 0.00 0% 5% 10% 15% 20% 25% Templeton Composite 6.82 8.66 8.10 9.85 9.54 11.12 11.65 10.50 12.38 19.25 17.45 17.17 19.61 Top Ten Holdings 6 Percent of Total Top Holdings Sector Country % BP PLC Energy United Kingdom 2.28 ROYAL DUTCH SHELL PLC Energy United Kingdom 2.09 ORACLE CORP Software & Services United States 2.06 SAMSUNG ELECTRONICS CO LTD Technology Hardware & Equipment South Korea 1.95 BNP PARIBAS SA Banks France 1.55 CITIGROUP INC Banks United States 1.55 ENI SPA Energy Italy 1.46 SANOFI Pharmaceuticals, Biotechnology & Life France 1.45 Sciences STANDARD CHARTERED PLC Banks United Kingdom 1.45 SIEMENS AG Capital Goods Germany 1.45 3
Supplemental Performance Statistics Supplemental Performance Statistics (GBP) 7,8 Standard Deviation (%) 3 Yrs 5 Yrs 10 Yrs Templeton 9.57 9.67 14.32 Composite MSCI All Country World 9.50 9.31 13.62 Index Tracking Error (%) 4.08 3.89 3.81 Information Ratio 9-0.94-0.52-0.14 Beta 0.92 0.95 1.01 Sharpe Ratio Templeton 1.16 1.10 0.68 Composite MSCI All Country World Index 1.58 1.36 0.75 Historical Long-term Performance Quarterly rolling five-year gross returns in USD (%) since 31/12/1990 as of 30/06/2018 Templeton Composite 60 40 20 0-20 -20 0 20 40 60 Investment Philosophy Templeton utilises a disciplined, consistent approach based on three timeless principles of investing: Value Patience Bottom-up stock picking Our flexible approach is applied within a disciplined framework and seeks to identify companies trading at large discounts to their business value. Our long-term focus gives us a framework to take advantage of price volatility to reveal potential longterm investment opportunities. Patience allows for potential long-term value recognition. Our portfolio management process seeks to buy pessimism and sell optimism. We build portfolios spanning regions and sectors made up of securities identified through this process. Investment Process 10 1 2 3 4 5 Identify Potential Bargains Experienced analysts Focus on global industry sectors Quantitative and qualitative assessment Identify material ESG issues In-Depth Fundamental Analysis Five-year financial forecasts Management/supplier/ competitive evaluation Upside/downside return quantification Recommendation of Bargain List candidates Research Team Evaluation Presentation of investment thesis Investment debate and critique: Devil s Advocate ESG Devil s Advocate Director of research approval Bottom-Up Portfolio Construction Investment parameters Industry and sector framework Build and diversify portfolio Long-term approach: 20% historical turnover TEMPLETON S BOTTOM-UP STOCK SELECTION PROCESS Portfolio Monitoring and Risk Management Ongoing valuation analysis Ongoing ESG monitoring Disciplined sell methodology Weekly peer review and risk analytics 10. Historical turnover is based on Templeton s experience as a Firm, over a five-year period as of most recent quarter end. The turnover is a byproduct of Templeton s long-term approach to managing portfolios, but various factors, such as a portfolio s specific investment guidelines and market or economic conditions may cause actual portfolio turnover to vary. For more information regarding an individual strategy s historical turnover ratio please contact your Franklin Templeton marketing representative. 7. Risk statistics are calculated using gross of fees composite performance. 8. Beta, Information Ratio and Tracking Error information are measured against the. 4
Investment Team Templeton Management Team Years with Firm Years Experience Dr. Sandy Nairn, Ph. D., CFA, Chairman 25 33 Norman Boersma, CFA, Chief Investment Officer 26 32 Heather Arnold, CFA, EVP, Director of Research, Portfolio Manager, 13 34 Research Analyst Antonio Docal, CFA, President - TIC LCC, Director of Portfolio 17 39 Management, Portfolio Manager, R Templeton Team Number of Members Average Years Experience Portfolio Managers/Analysts 27 23 Research Analysts 11 12 Additional Resources Investment Risk Management Group Group Global Research Library Junior Research Analysts Global Portfolio Compliance Product Managers Years with Firm Years Experience Ann Reitman, CFA 18 25 Iris Glikin, CFA 12 17 5
Important Legal Information Templeton claims compliance with the Global Investment Performance Standards (GIPS ). Templeton (or the firm ) as defined encompasses the wholly-owned investment management subsidiaries of Templeton Worldwide, Inc. with global, international, single country or regional, and emerging market equity investment objectives, serving both retail and institutional clients. The firm definition for Templeton does not include the foreign-domiciled investment advisory subsidiaries of Templeton Worldwide, Inc. that primarily offer only locally registered investment mandates or funds and the wrap-fee and non-wrap-fee accounts managed by Templeton Separately Managed Accounts (formerly Templeton Portfolio Advisers). Each investment advisory subsidiary within Templeton employs the same bottom-up, valueoriented investment style whether managing global equity, non-u.s. equity, single country or regional equity, or emerging market equity mandates. Portfolio managers pursuing similar investment mandates share research, have equivalent access to Templeton s bargain and source of funds lists, and are subject to the same peer review process. Templeton believes that the performance shown is representative of its management style and relevant for consideration in selecting any individual investment advisory subsidiary comprising Templeton. Some of the individual investment management subsidiaries which comprise Templeton, however, may have limited or no accounts included in the composite. Effective 1 December 2017, the equity accounts previously defined as Franklin Europe are included in Templeton s firm definition. The Templeton Composite consists of all discretionary tax-exempt institutional portfolios managed by Templeton with global equity investment objectives. No account(s) in the composite use leverage or derivatives other than the use of forward foreign currency contracts in conjunction with the normal settlement of security trades in currencies other than the base currency of each account. As a result, leverage or derivatives do not have a material affect on returns. Total returns are presented in British pounds both gross and net of investment advisory fees, are inclusive of commissions and transaction costs, and assume reinvestment of any dividends, interest income, capital gains, or other earnings. Periods greater than one year are shown as average annual total returns. Performance data is shown rounded to the nearest hundredth. The returns presented for periods prior to 1 January 1994 are not in compliance with the GIPS standards. Past performance is not an indicator or a guarantee of future performance. When performance for either the portfolio or its benchmark has been converted, different foreign exchange closing rates may be used between the portfolio and its benchmark. The is a free float-adjusted market capitalisation weighted equity index comprised of securities in MSCI s developed and emerging market country-specific indexes. The benchmark is used for comparative purposes only and is provided to represent the investment environment existing during the time periods shown. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. To receive a complete list and description of Templeton composites (including any single account mutual fund composite) and/or a presentation that adheres to the GIPS standards for any composite, contact your Franklin Templeton institutional representative listed below. 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. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 3. 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. 5. 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. 6. 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. 9. 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). For Professional Investors only not for distribution to retail clients. This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal. This material is made available by the following Franklin Templeton entities in those countries where it is allowed to carry out relevant business: Europe: Franklin Templeton Investment Management Limited (FTIML), registered office: Cannon Place 5th Floor, 78 Cannon Street, London EC4N6HL. Tel +44 (0) 20 7073 8500. Authorised and regulated in the United Kingdom by the Financial Conduct Authority and authorised to conduct specific investment business in other European countries either via MiFID outward service or via any of the following outward branches in: Germany: FTIML Branch Frankfurt, Mainzer Landstr. 16, 60325 Frankfurt/Main, Germany. Tel +49 (0) 69/27223-557, Fax +49 (0) 69/27223-622, institutional@franklintempleton.de Netherlands: FTIML Branch Amsterdam, World Trade Center Amsterdam, H-Toren, 5e verdieping, Zuidplein 36, 1077 XV Amsterdam, Netherlands. Tel +31 20 575 2890 Romania: FTIML Branch Bucharest, 78-80 Buzesti Street, Premium Point, 7th-8th Floor, 011017 Bucharest 1, Romania. Registered with Romania Financial Supervisory Authority under no. PJM01SFIM/400005/14.09.2009, authorised and regulated in the UK by the Financial Conduct Authority. Tel +40 21 200 96 00, Fax +40 21 200 96 30, www.franklintempleton.ro Spain: FTIML Branch Madrid, Professional of the Financial Sector under the Supervision of CNMV, José Ortega y Gasset 29, Madrid, Spain. Tel +34 91 426 3600, Fax +34 91 577 1857 Sweden: FTIML Branch Stockholm, Blasieholmsgatan 5, SE-111 48, Stockholm, Sweden. 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