Fund plc Unconstrained Fixed Income Product Profile Product Details Fund Assets $154,243,636.34 Fund Inception Date 12/07/1996 Number of Securities 97 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 -4.34-1.28 5.32 6.54 5.44 7.18 11.86 11.07 Fund - NET JP Morgan EMBI Global Diversified (USD Based) JP Morgan GBI- EM Broad Diversified ICE BofAML Corporate Plus (USD Hedged) -4.53-1.67 4.50 5.67 4.54 6.24 10.83 10.04-3.54-5.23-1.60 4.63 5.15 6.75 8.55 9.12-9.44-5.64-1.93 2.18-0.24 2.82 - - -1.45-2.42 0.14 3.86 4.37 6.23 - - 40% 20% 0% -20% 5.32 6.54 5.44 7.18 11.86 11.07 4.50 5.67 4.54 6.24 10.83 10.04 4.63 5.15 6.75 8.55 9.12 0.14 2.18 3.86 4.37 2.82 6.23-4.34-4.53-3.54-1.45-1.28-1.67-5.23-1.60-9.44-5.64-2.42-1.93-0.24 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 ICE BofAML 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.
Fund plc Portfolio Manager Insight Market Review Emerging-market (EM) hard-currency government bonds suffered a 3.54% fall during the quarter, as per the JP Morgan s Bond Global Diversified (EMBIGD). Ten-year US Treasury yields peaked above 3% for the first time since 2014, but they fell back to 2.86% by the end of the June, just 12 basis points (bps) higher for the quarter. In addition, the spread-to-worst of US dollar-denominated EM sovereign debt over US Treasuries widened by 66 bps. EM hard-currency corporate bonds fell by 1.45%, as per the ICE BofAML s Corporate Plus, hedged into US dollars. EM local-currency government bonds posted a loss of 9.44% 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 rose substantially during the quarter, and nearly all EM currencies depreciated, relative to the US dollar. Performance Review 3 The strategy s position in a US-dollar loan to Chad s state-owned oil firm was the main contributor to returns. During the first quarter, Chad s government agreed with several lenders to restructure this loan. The value of this position rose during the second quarter, while the parties were finalizing the necessary documentation. Significant rises in the price of oil during the second quarter helped this positive trend. The strategy s exposure to the weaker South African rand was the main detractor from returns in the second quarter of 2018. Growth projections for South Africa s economy have come down since the first quarter, which has limited the central bank s room to maneuver. Meanwhile, international trade tensions have increased, putting the spotlight firmly on those emerging markets with the largest current account deficits, including South Africa. At the security level, the strategy s position in oil warrants issued by the government of Venezuela was the main detractor from performance. Rising oil prices at the beginning of the year triggered the coupon payment on these warrants at the end of March. The actual payment due on April 16, however, was not made. Outlook & Strategy EM debt started 2018 with fairly stretched valuations, but those have come down during the year. In our view, yields and valuations of the various classes of EM debt are now more attractive again, for the first time since the end of 2016. This trend is mainly the result of geopolitical headlines, which have caused modest losses in the various classes of EM debt this year. Protectionist US rhetoric and the risk of a trade war with China have dominated recent news. Deteriorating relations with Russia have also made the front pages. US President Trump s withdrawal from a nuclear agreement with Iran has added to these headwinds. Volatility has picked up around the world as well. From a macroeconomic perspective, further escalation into a full-blown trade war would be negative, with possible knock-on effects on global growth, including growth in emerging markets. However, we expect that the United States will adopt a more conciliatory approach going forward. Certain emerging markets could even benefit from connecting to each other as alternative trade partners. International politics continue to influence the performance of EM debt, but so do domestic events. The Mexican and Malaysian elections signaled significant change, but high-quality institutional frameworks should help the political transitions in both countries. Asset prices in Argentina and Turkey were volatile during the second quarter, but we believe that the risk of contagion beyond these countries is low. We continue to monitor the upcoming election in Brazil, which may be important for the whole of Latin America. Portfolio Characteristics 3,4 JP Morgan EMBI Global Diversified (USD Portfolio Based) Number of Securities Including Cash 97 672 Yield to Maturity 9.50% 6.26% Yield to Worst 9.50% 6.25% Average Duration 3.63 Yrs 6.66 Yrs Average Credit Quality 5 B+ BB+ Average Weighted Maturity 7.17 Yrs 11.03 Yrs Duration to Worst 4.00 Yrs 6.66 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 Risk Category Allocation 6 One Colombia South Africa Mexico Russia Azerbaijan Peru Trinidad and Tobago China Ukraine Iraq 19.25 Argentina Nigeria Turkey Uruguay Georgia Brazil Tunisia El Salvador Kazakhstan Indonesia Republic of Angola Ghana Chad Republic of Armenia GRENADA Ethiopia One Two Three Residual Supranational Funds Geographic Allocation 6 MIDDLE EAST / AFRICA Kenya Mozambique Venezuela Gabon CAMEROON Bosnia and Herzegovina Egypt Dominican Republic Suriname Jamaica Jordan Republic of Belarus Uganda Cash Supranational Mixed 39.46 Two 44.51 LATIN AMERICA 30.91 Three 32.18 EASTERN EUROPE 15.86 Residual 1.53 FAR EAST / ASIA RESIDUAL 1.53 9.70 Supranational 1.89 FUNDS Funds SUPRANATIONAL 1.89 0% 10% 20% 30% 40% 50% Currency Allocation 6 US Dollar Japanese Yen Colombian Peso Mexican Peso Uruguayan Peso South African Rand Ghanaian Cedi-New Turkish Lira Kenyan Shilling Georgian Lari Euro Peruvian Nuevo Sol Egyptian Pound Dominican Peso Argentine Peso Kazakhstn Tenge Russian Ruble Indonesian Rupiah Ugandan Shilling Brazilian Real Azerbaijani Manat 60.27 7.80 4.37 3.47 3.35 3.14 2.24 2.19 1.64 1.24 1.20 1.10 1.04 1.04 1.01 0.99 0.99 0.98 0.74 0.62 0.57 0% 20% 40% 60% 80% Sector Allocation 6 Sovereign Quasi-Sovereign Corporates Residual Funds 1.54 0% 10% 20% 30% 40% 50% 18.80 17.61 61.40 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 6.25 6.09 12.16 11.88 JP Morgan EMBI Global Diversified (USD Based) 5.31 5.41 8.89 10.59 Tracking Error (%) 4.10 4.03 7.03 6.14 Information Ratio 8 0.25-0.15-0.07 0.16 Sharpe Ratio Fund 0.80 0.68 0.49 0.67 JP Morgan EMBI Global Diversified (USD Based) 0.75 0.87 0.72 0.66 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 10 10 Stuart Lingard 7 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. 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. 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 Intercontinental Exchange ( ICE ) and/or its licensors and has been licensed for use by Templeton. ICE 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.