Franklin Fund A (acc) USD Franklin Templeton Investment Funds Fund Manager Report Equity Product Details 1 Fund Assets $322,204,373.77 Fund Inception Date 12/07/2007 Number of Issuers 88 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category FTNRACU LX LU0300736062 USD S&P North American Sector Equity Energy Asset Allocation 2 % Equity 97.03 Cash & Cash 2.97 Equivalents Fixed Income Fund Description The Fund aims to provide investors with capital appreciation and current income. To achieve this goal, the Fund invests in US dollar- and other currency-denominated securities in the natural resources sector in established and emerging markets. Performance Data Performance Net of Management Fees as at 31/08/2018 (Dividends Reinvested) (%) 3,4 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (12/07/2007) A (acc) USD -5.49-5.99-1.40 15.17 3.22-4.99-3.81-3.08 S&P North American Natural Resources -3.90-2.02 2.28 16.91 6.88-0.04 0.36 0.53 Calendar Year Returns (%) 200% 100% 0% -100% 58.87 32.54 30.87 28.62 1.23 7.94 16.49 23.88 37.54 2.20-0.69-5.50-28.52-24.28-21.14-9.77-12.65-7.35-50.70-42.55 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (acc) USD S&P North American Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review ONE-MONTH KEY PERFORMANCE DRIVERS Stocks Industries Oil and Gas Storage and Transportation Callon Petroleum (Overweight) (Stock Selection) HELPED Targa Resources (Overweight) Silver (Lack of Exposure) Cabot Oil & Gas (Overweight) Antofagasta (Off-Benchmark Exposure) Copper (Overweight) HURT Noble Energy (Overweight) Diversified Metals & Mining (Substantial Overweight) ConocoPhillips (Underweight) Oil and Gas Refining and Marketing (Underweight, Stock Selection) In what turned out to be the most volatile month for metals traders in nearly two years, Antofagasta and all other copper-focused mining companies held by the fund traded lower, with most of them suffering double-digit percentage declines. Metals fell broadly amidst the US dollar s recovery and trade tensions that have sparked concerns about demand from emerging market economies, with copper futures falling to a 13-month low and into bear-market territory, having dropped more than 20% from June s four-year high. Copper lost some support as the overhang of strike risk faded at the world s biggest copper mine in Chile but suffered primarily from negative investor sentiment about the impact of trade tariffs on China, which represents about half of global copper demand. Permian Basin-focused oil and gas exploration and production (E&P) firm Callon Petroleum inspired greater confidence in its investors after it reported second-quarter earnings that were generally in line with consensus estimates and showed an ability to navigate near-term Permian pipeline infrastructure-related setbacks. Moreover, Callon offered an improved 2019 1. All holdings are subject to change. Holdings of the same issuers have been combined.
outlook as it plans to add more pipeline takeaway exposure to Gulf Coast oil prices; this is based on much higher international oil prices versus the current heavily discounted Permian Basin oil prices that at August-end were running about US$18 below the price of international benchmark crude prices due to regional supply bottlenecks. The fund s 2.2% average cash position improved our relative performance as it helped shield a small portion of the portfolio from the August downdraft in energy and materials equity prices. Outlook & Strategy Continuing the trends of July, August saw further commodity and natural resources equity weakness related to signs of slowing global growth, concerns driven by tariff implementation, and heightened concerns surrounding various emerging markets and related currencies amidst broad US-dollar strength. We see these trends persisting in the near term. Although the share prices of many mining companies have retreated, our focus remains on the energy sector, in which we believe commodities can receive some level of support from tighter supply conditions. We also believe energy products should be less susceptible than other commodities to slowing demand from countries facing macroeconomic headwinds. Texas Permian Basin oil-price differentials remained a focal point for investors in August as oil-price discounts in the region expanded to nearly US$18 a barrel the highest level since 2014. While most of our Permian-focused E&P investments are in companies that possess firm takeaway capacity and/or have basis hedges in place, this dynamic has kept a lid on producer equities and valuations due to uncertainty surrounding the duration and magnitude of regional pipeline capacity constraints. However, as in 2014, wide price differentials are likely to be relatively short-lived and can present potential buying opportunities in high-quality producers as investors cease to discern between companies specific attributes. Lately, the oilfield services industry has borne the brunt of energy sector selling tied to Permian Basin constraints, which in addition to pipeline takeaway capacity also includes labor shortages; both factors appear to be leading to indications of a slowdown in drilling activity. While we have been taking a somewhat cautious and measured approach to investing in the oilfield services industry, further equity price weakness may present new opportunities to increase portfolio positions at valuation levels we believe reflect a temporary slowing in activity while offering significant longer-term appreciation potential tied to the spending increases necessary to maintain market balance over time. Portfolio Characteristics 5 S&P North American Portfolio Market Capitalisation (Millions in USD) 54,518 71,556 Price to Earnings Growth Ratio 0.76x 0.97x 3-Year Sales Growth -1.94% -6.31% Estimated 3-5 Yr EPS Growth 23.57% 19.80% Price to Earnings (12 Month Forward) 16.86x 18.12x Portfolio Diversification Top Ten Holdings 6 Top Holdings % SCHLUMBERGER LTD 3.89 EXXON MOBIL CORP 3.77 CABOT OIL & GAS CORP 3.02 HALLIBURTON CO 2.88 OCCIDENTAL PETROLEUM CORP 2.63 TECHNIPFMC PLC 2.62 CHEVRON CORP 2.58 BHP BILLITON PLC 2.51 DIAMONDBACK ENERGY INC 2.48 ROYAL DUTCH SHELL PLC 2.47 Sector Weightings vs. S&P North American 2 Oil & Gas Exploration & Production 27.77 27.99 Oil & Gas Equipment & Services 10.26 19.05 Integrated Oil & Gas 14.33 22.00 Diversified Metals & Mining 0.84 8.06 Oil & Gas Storage & Transportation 7.88 12.52 Gold 4.85 4.17 Copper 1.00 3.99 Oil & Gas Refining & Marketing 3.28 9.85 Oil & Gas Drilling 2.98 1.28 Diversified Chemicals 1.26 Specialty Chemicals 1.18 Fertilizers & Agricultural Chemicals 0.61 Construction Materials 0.53 1.80 Paper Packaging 0.44 4.01 Trading Companies & Distributors 0.43 Aluminum 0.39 0.41 0% 5% 10% 15% 20% 25% 30% 35% Franklin Fund S&P North American www.franklintempletongem.com 2
Supplemental Risk Statistics 7 3 Yrs 5 Yrs 10 Yrs Since Inception Franklin Fund A (acc) USD Supplemental Performance Statistics Standard Deviation (%) Franklin Fund 21.31 21.33 25.83 25.95 S&P North American 18.56 18.16 22.56 22.90 Beta (%) 4.46 5.08 5.95 5.80 Information Ratio 8-0.82-0.98-0.70-0.64 Beta 1.13 1.15 1.12 1.11 Sharpe Ratio Franklin Fund 0.11-0.26-0.16-0.12 S&P North American 0.33-0.03 0.02 Investment Team Portfolio Manager Years with Firm Years Experience Fred Fromm, CFA, Portfolio Manager/Research Analyst 26 26 Steve Land, CFA, Portfolio Manager/Research Analyst 21 21 Matthew Adams, CFA, Portfolio Manager/Research Analyst 12 20 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 of the natural resources sector worldwide, including emerging markets. Such securities 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. 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. 7. Beta, Information Ratio and Tracking Error information are measured against the S&P North American. www.franklintempletongem.com 3
Important Legal Information This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of any of the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds (the Fund ). Given the rapidly changing market environment, Franklin Templeton Investments disclaims responsibility for updating this material. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. An investment in the Fund entails risks which are described in the Fund s prospectus. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund. A copy of the latest prospectus, the annual report and semi-annual report, if published thereafter can be found on our website: www.franklintempletongem.com or can be obtained, free of charge, from the address below. Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box 506613, Dubai, U.A.E., Tel.: +9714-4284100 Fax:+9714-4284140. 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. 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. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. 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. 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. 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 capitalisation 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. The Estimated 3-5 Year EPS Growth uses simple weighted average means. There can be no assurance that the Estimated 3-5 Year EPS Growth will be realised. Information is historical and may not reflect current or future portfolio characteristics. 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. 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 Franklin Templeton Investments The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box 506613 Dubai, U.A.E. Tel.: +9714-4284100 Fax.: +9714-4284140 www.franklintempletongem.com 2018 Franklin Templeton Investments. All rights reserved.
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. 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). Franklin Templeton Investments The Gate, East Wing, Level 2 Dubai International Financial Centre P.O. Box 506613 Dubai, U.A.E. Tel.: +9714-4284100 Fax.: +9714-4284140 www.franklintempletongem.com 2018 Franklin Templeton Investments. All rights reserved.