Franklin K2 Global Macro Opportunities Fund A (acc) USD Franklin Templeton Investment Funds Fund Manager Report Multi Strategy Alternatives Product Details Fund Assets $24972720.70 Fund Inception Date 04/11/2016 Bloomberg FGMOAAU LX ISIN LU1446802784 Base Currency USD Investment Style Multi Strategy Benchmark HFRX Macro/CTA Index Morningstar Category Alt - Global Macro Value-at-Risk (VAR) -3.40 Fund Description The Fund s investment goal is to achieve total return over a full market cycle through capital appreciation. The Fund seeks to achieve its investment goal by allocating its net assets across global macro-oriented alternative strategies. Performance Data Discrete Annual Performance () as at 31/07/2018 7/17-7/18 7/16-7/17 7/15-7/16 7/14-7/15 7/13-7/14 A (acc) USD -1.97 - - - - ICE BofAML US 3-Month Treasury Bill Index USD HFRX Macro/CTA Index USD 1.43 0.54 0.22 0.01 0.05-0.64-2.72-2.89 6.44-0.40 Performance Net of Management Fees as at 31/07/2018 (Dividends Reinvested) () 1,2 1 Mth 3 Mths YTD 1 Yr Since Inception (04/11/2016) A (acc) USD -0.11-1.56-3.08-1.97-3.15 ICE BofAML US 3-0.16 0.48 0.97 1.43 1.08 Month Treasury Bill Index HFRX Macro/CTA Index -1.10-1.34-2.90-0.64 0.42 Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review ONE-MONTH KEY PERFORMANCE DRIVERS HELPED HURT Manager Allocation (Fund Level) Countries (Fund Level) Emso Equity Indices (long) United States (short) Aspect Emerging-Market Sovereign Bonds (long) Argentina (long) Developed-Market Sovereign Bonds (short) Czech Republic (short) P/E Investments Currencies (short) Mexico (short) Graham Metals and Industrials (short) European Countries (short) Energy (long) Australia (short) Contributing to Emso s performance was long exposure to Argentine sovereign bonds, which recovered in July from a liquidity-driven selloff in May and June. Short exposure to Czech Republic interest rates also contributed as the country s inflation rate was higher than consensus expectations. For Aspect, long exposure to regional stock indices was a contributor to returns, including Europe (the EuroStoxx 50, the Netherlands AEX Index and France s CAC 40), Canada and the United States. Conversely, currencies were the key detractor for P/E Investments, driven primarily by short Mexican peso and Australian dollar positions against the US dollar. Renewed market optimism surrounding the North American Free Trade Agreement negotiations contributed to significant Mexican peso appreciation during the month. Graham s results were hampered by long exposure to energy commodities. A bearish reversal in oil prices followed the US administration s threat of tariffs on another US$200 billion of Chinese goods, in tandem with supply-related concerns in the Middle East.
Outlook & Strategy The potential for choppy market conditions to return has led us to maintain a cautious outlook for some subadvisors that pursue systematic strategies. We retain a favourable outlook for emerging-market managers. The recent selloff in emerging markets may present directional buying and relative value opportunities in the medium term, in our opinion, particularly for subadvisors focused on idiosyncratic opportunities in countries disproportionately affected by foreign investor selling, rather than fundamental concerns. We continue to monitor market conditions and the political calendar. Positioning amongst subadvisors was largely unchanged in July. Manager Allocations 3 Discretionary of Invested Capital Emso Asset Management Limited 31.83 Systematic of Invested Capital Graham Capital Management, L.P. 18.00 P/E Investments, LLC 22.44 Aspect Capital Limited 27.73 Portfolio Diversification Strategy Allocation 4 Percent of Invested Capital Target () Systematic 0-80 68.17 Discretionary 0-80 31.83 Historical Strategy Allocation 5 Percent of Invested Capital 125 100 75 50 25 0 31/12/2016 31/03/2017 30/06/2017 30/09/2017 31/12/2017 31/03/2018 30/06/2018 Discretionary Systematic Asset Class Exposure 6,7 Currency 67.43 Fixed Income 4.14 Commodities 16.20 Equity 12.23 Security Type Exposure 6,7 Single Security Derivatives 89.10 Index/Multi-Security Derivatives 12.23 Direct Securities 10-1.33 Asset Class Exposure 6,7 Currency 8-98.11 Equity 21.31 Commodities 2.21 Fixed Income 9-1.77 Security Type Exposure 6,7 Index/Multi-Security Derivatives 21.31 Direct Securities 11.81 Single Security Derivatives 11-109.48 8,9,10,11. The negative cash position reflects a temporary position that is a result of a delay in securities settlement transactions. franklintempleton.lu 2
Portfolio Allocation 6,7 and Risk Exposure Net Exposure Equity 12.23 21.31 Non-US Developed 10.95 17.52 US 1.27 3.78 Currency 67.43-98.11 Japan 8.79-10.71 Emerging Markets 0.72-9.39 Europe 40.53-49.55 Australia/NZ 13.39-19.56 Asia Pacific 0.49-1.46 North America 3.51-7.42 Fixed Income 4.14-1.77 Other 0.36-1.97 Europe - Rates 0.27-5.65 Emerging Market Sovereign -0.55 12.38 Non-US Developed Sovereign -0.96 16.21 Emerging Market Corporates -0.04 1.07 North America - Rates 1.95-10.25 U.S. Sovereign 3.11-13.57 Commodities 16.20 2.21 Energy 15.51 5.78 Agriculture -0.38-0.25 Metals 1.07-3.32 Top Risk Allocations by Asset Class Equity 6,7,12,13 DAX INDEX 2.82 FTSE 100 INDEX 1.93 CAC 40 INDEX 1.56 AEX-INDEX 1.17 EURO STOXX 50 PR 1.04 Currency 6,7,12,13 EUR/USD 31.59 AUD/USD 10.76 CHF/USD 5.27 JPY/USD 4.42 USD/JPY 4.36 Commodities 6,7,12,13 Energy 13.95 Gold 2.25 Natural Gas 1.51 Gasoline 0.92 Zinc 0.70 Fixed Income 6,7,12,13 ARAB REPUBLIC OF EGYPT 2.38 90DAY EURO$ FUTR 1.95 US 10YR NOTE (CBT) 1.11 US LONG BOND(CBT) 1.10 US 5YR NOTE (CBT) 0.71 Equity 6,7,12,13 DAX INDEX 3.00 FTSE 100 INDEX 4.05 CAC 40 INDEX 1.81 AEX-INDEX 1.60 EURO STOXX 50 PR 1.16 Currency 6,7,12,13 EUR/USD -40.53 AUD/USD -16.10 CHF/USD -6.09 JPY/USD -5.39 USD/JPY -5.32 Commodities 6,7,12,13 Energy -17.35 Gold -7.82 Natural Gas -1.88 Gasoline 4.25 Zinc -2.26 Fixed Income 6,7,12,13 ARAB REPUBLIC OF EGYPT 3.13 90DAY EURO$ FUTR -10.25 US 10YR NOTE (CBT) -4.54 US LONG BOND(CBT) -4.19 US 5YR NOTE (CBT) -3.33 franklintempleton.lu 3
Liquidity Breakdown 7,14 Percent of Total Gross Exposure 1 to 7 Days 100.00 Performance Contribution by Strategy 15 Strategy Allocation as Ending Weight ( of Invested Capital) 1 Mth YTD Systematic 68.17-0.06-1.49 Discretionary 31.83 0.23-0.01 Past performance is not an indicator or a guarantee of future performance. 0 20 40 60 80 100 120 Supplemental Performance Statistics Supplemental Risk Statistics 16 A (acc) USD Standard Deviation () Since Inception Franklin K2 Global Macro Opportunities Fund 2.84 MSCI World Index 6.64 Alpha Beta 0.23 Sharpe Ratio R-Squared 0.27 Correlation 0.52 Upside Capture Ratio Downside Capture Ratio 44.23 of Positive Months 30.00 of Negative Months 70.00 Maximum Drawdown (Peak-to-Through) 5.40 Drawdown Period 2016-11-30 00:00:00-2018-06-30 00:00:00-7.73-1.60-8.80 Investment Team Portfolio Manager Years with Firm Years Experience Brooks Ritchey 12 34 Robert Christian 8 28 Anthony M Zanolla, CFA 3 24 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 seeks to achieve total return over a full market cycle by allocating its assets across multiple alternative macro-oriented strategies and by investing in a wide range of assets, with the ability to actively use financial derivative instruments. Such assets and investment instruments have historically been subject to price movements due to such factors as general stock market volatility, sudden changes in interest rates, or fluctuations in commodity prices. As a result, the performance of the Fund can fluctuate moderately over time. Other significant risks include: credit risk, currency risk, derivatives risk, operational risk, targeted return risk, liquidity 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. Glossary Gross Exposure: Gross exposure is the sum of the absolute value of all exposures, directly or through derivatives, as a percentage of total assets. The sum of the percentage of long positions and short (in absolute terms) positions. Net Exposure: Net exposure is the sum of the total value of all exposures, directly or through derivatives, as a percentage of total assets. The percentage value of the long positions less the percentage value of the short positions. 16. Alpha, Beta, Correlation, R-Squared, Upside and Downside Capture Ratios information are displayed for the product versus the MSCI World Index. The MSCI World Index is solely utilsed as a reference benchmark to illustrate difference in behaviour between global equity markets and the fund. However, the MSCI World Index is not fully reflective of the risk profile of the fund, which is not limited to investing solely for long global equity market exposures. franklintempleton.lu 4
Value at Risk (VaR): A measure of potential loss in value for a portfolio over a defined period of time at a given confidence level. This statistic reflects an estimated one-month VaR exposure calculated at the 95 confidence level, which implies there is a 5 chance the portfolio will lose that VaR amount or more over that time period, assuming that portfolio holdings remain the same. It s important to note that the actual risk an investment experiences may be higher or lower than the projected VaR estimate, as both portfolio positions and market volatility levels are subject to change. franklintempleton.lu 5
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. Securities mentioned in this report are not a solicitation to purchase those securities, and are examples of some securities which performed well. Not all securities in the portfolio performed well. 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 will remain in the Fund, or that security sold will not be repurchased. 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 the Fund 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. The index data referenced herein is the property of Intercontinental Exchange ( ICE ) and/or its licensors and has been licensed for use by Franklin Templeton. ICE and its licensors accept no liability in connection with this use. See www.franklintempletondatasources.com for a full copy of the Disclaimer. Source: Hedge Fund Research, Inc. - www.hedgefundresearch.com. The HFR indices are being used under license from Hedge Fund Research, Inc., which does not endorse or approve of any of the contents of this report. Unlike most asset class indexes, HFR Index returns reflect fees and expenses. Important data provider notices and terms available at www.franklintempletondatasources.com. 1. 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. 2. 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. 3. Source: HedgeMark. Weightings as a percent of invested capital into fund managers (sub-advisors or co-managers). Percentage may not equal 100 due to rounding. Manager allocation includes managers that have been appointed as sub-advisors or managers of investment funds. K2 may determine in its sole discretion to not allocate to one or more of the managers and/or to add new managers. Accordingly, the allocation is presented for illustrative purposes only, and should not be viewed as predictive of the ongoing composition of the Fund s portfolio (and it s managers), which may change at any time. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 4. Source: HedgeMark. Actual Allocation is a percentage of invested capital into fund managers (sub-advisors or co-advisors) as of the end of the period. Percentage may not equal 100 due to rounding. Target Allocations are as of the end of the period. The Fund may shift allocations among strategies at any time. K2 may determine in its sole discretion to not allocate to one or more Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2018 Franklin Templeton Investments. All rights reserved.
of the strategies and/or to add new strategies. Accordingly, the Target Allocations are presented for illustrative purposes only, and should not be viewed as predictive of the ongoing composition of the Fund s portfolio (and it s managers), which may change at any time. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 5. Source: HedgeMark. Weightings as percent of invested capital into fund managers (sub-advisors or co-managers). Percentage may not equal 100 due to rounding. The Fund may shift allocations among strategies at any time. Further, K2 may determine in its sole discretion to not allocate to one or more of the strategies and/or to add new strategies. Accordingly the above target allocations are presented for illustrative purposes only, and should not be viewed as predictive of the ongoing composition of the fund s portfolio (and its managers), which may change at any time. 6. Source: HedgeMark. The risk allocation data above represents how the fundʼs expected risk is distributed across the various categories or securities shown, based on holdings within the fund for the given as-of-date. Risk is defined as value-at-risk (VaR), which is a measure of potential loss in value for a portfolio over a defined period for a given confidence level. The VaR exposure used to calculated these risk allocation figures is as described in the Glossary section. The fund may hold cash and cash equivalent instruments that are not shown, as they donʼt contribute to the risk exposure of the fund. Where a cash position would contribute to risk (ex. foreign spot currency cash), it is included within the illustration. 7. Source: HedgeMark. 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. 12. The Top Risk Allocation by Asset Class represent the top risk allocations by asset class for the Franklin K2 Global Macro Opportunities Fund as of the date indicated. Issuer exposures include actual security holdings, single security exposures and index/multiple security exposures obtained through the use of derivatives. Direct security holdings and single security derivatives exposures are combined for calculation purposes. These direct holdings and derivatives do not represent all of the securities purchased, sold or recommended for advisory clients, and the reader should not assume that investment in securities of the issuers listed was or will be profitable. 13. The information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 14. Source: HedgeMark. Liquidity estimates assume the quantity of portfolio securities sold each day is equal to the current 90-day average trading volume of each security when available. If average trading volume is not available, liquidity is estimated by the applicable Sub-Manager based on the Sub-Manager s knowledge of applicable security and market factors. Estimates received from Sub-Managers are subject to independent verification from K2 Advisors. 15. A decomposition of the fund s strategy-level performance that depicts each strategy s approximate contribution to the fund s absolute gross returns, based on each strategy s daily returns and weights for the periods shown. The gross returns do not reflect the impact of fees, expenses, or sales charges on performance. If that impact were taken into account, the performance shown would have been lower. Weightings as percent of invested capital into fund managers (sub-advisors or co-managers). 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. Franklin Templeton International Services, S.à r.l. 8A, rue Albert Borschette L-1246 Luxembourg franklintempleton.lu 2018 Franklin Templeton Investments. All rights reserved.