Templeton Global Balanced Fund A (Qdis) USD Franklin Templeton Investment Funds Fund Manager Report Total Return Multi-Asset Product Details 1 Fund Assets $919,320,003.91 Fund Inception Date 01/06/1994 Number of Issuers 104 Bloomberg ISIN Base Currency Investment Style Benchmark Morningstar Category TEMGBLI LX LU0052756011 USD Total Return Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index USD Moderate Allocation Effective 31 July 2017, Templeton Global Balanced Fund changed its benchmark to the Custom 65% MSCI All Country World + 35% JP Morgan Global Government Bond Index. Asset Allocation 2 Percent of Total % Equity 63.54 Cash & Cash 21.02 Equivalents Fixed Income 15.45 Fund Description The fund seeks capital appreciation and current income by investing principally in equity securities and government debt securities issued by entities throughout the world, including emerging markets. The portfolio manager anticipates that the majority of the fund s portfolio is normally invested in equity or equity-linked securities. Performance Data Performance Net of Management Fees as at 30/09/2018 (Dividends Reinvested) (%) 3,4 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (01/06/1994) A (Qdis) USD 0.43 1.52-1.41 0.26 6.44 2.50 4.72 5.37 Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index -0.08 2.24 1.89 6.09 9.60 6.22 6.83 6.86 Calendar Year Returns (%) 100% 50% 0% -50% 15.56 18.13 3.76 6.22 17.91 12.98 17.92 11.37-6.06-1.88-2.77-5.68-1.82-29.15-25.96 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (Qdis) USD Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index 3.34 5.85 11.22 21.25 23.13 Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review QUARTERLY KEY PERFORMANCE DRIVERS Equity Fixed Income Communication Services (Stock Selection) Currency Positions in Latin America HELPED China (Stock Selection) Energy (Stock Selection) United Kingdom (Overweight, Stock Selection) Currency Positions in Asia ex Japan Select Duration Exposures in Latin HURT Financials (Stock Selection, Overweight) America Information Technology (Stock Selection, Underweight) Our continued overweight to European banks detracted from the equity portfolio s performance as Italian budget deliberations, the Turkish economic crisis and continued Brexit impasse all weighed on the sector, as did trade rhetoric and weaker (but still expanding) European economic data. At quarter-end, Europe s banks were trading at low price-to-tangible book value levels despite generating the highest returns on equity in a decade. Our result in the communication services sector was the strongest relative contributor to equity results for the month. Many investors have remained concerned about the risks of regulatory interference and competitive pressures that threaten top-line growth and necessitate high capital expenditures. However, we believe valuations at period-end unduly emphasised the negatives and overlooked the many positives in what we view as an attractive defensive sector. 1. All holdings are subject to change. Holdings of the same issuers have been combined.
In the fixed income portfolio, select duration exposures in Latin America (Argentina) detracted from absolute performance as yields rose across several local markets in Latin America and Asia ex Japan. We held select duration exposures in specific countries that we believe have attractive risk/return profiles, relatively higher yields and favourable macro conditions for yields to remain relatively stable or shift lower. Currency positions in Latin America contributed to the fixed income portfolio s absolute results (the Mexican peso contributed, while the Argentine peso and Brazilian real detracted). However, currency positions in Asia ex Japan (the Indian rupee) detracted from absolute performance. Emerging-market currencies largely depreciated against a broadly stronger US dollar during the quarter. We expect recent periods of volatility in emerging-market currencies to diminish longer term as fundamentals in select countries are repriced in the markets. ONE-MONTH KEY PERFORMANCE DRIVERS HELPED HURT Equity Fixed Income Energy (Stock Selection, Overweight) Currency Positions in Latin America China (Stock Selection) United Kingdom (Stock Selection, Overweight) Health Care (Stock Selection) Currency Positions in Asia ex Japan Industrials (Stock Selection) United States (Stock Selection) Within the energy sector, shares of Hong Kong-based natural gas distributor KunLun Energy rallied after the firm reported strong first-half earnings growth marked by improved volumes and expanded margins. As the company is more leveraged to volume growth than the commodity price, we remain optimistic about the stock s prospects given strong Chinese gas demand. An undemanding valuation and strong balance sheet further the long-term prospects for KunLun. Shares of UK-based home improvement retailer Kingfisher continued to struggle amidst investor concern regarding the company s restructuring plan. Although a heat wave in the United Kingdom supported sales of outdoor furniture and leisure products at Kingfisher s B&Q chain, sales in France declined and overall gross margins came in below consensus expectations. In our view, recent valuations largely overlooked Kingfisher s improved competitive landscape, significant self-help initiatives and attractive international exposure. A number of currencies strengthened against the US dollar in September, with notable exceptions such as the Argentine peso, Indian rupee and Indonesian rupiah. In the fixed income portfolio, currency positions in Latin America contributed to absolute results (the Mexican peso, Brazilian real and Colombian peso contributed, while the Argentine peso detracted). However, currency positions in Asia ex Japan (the Indian rupee) detracted from the fixed income portfolio s absolute performance. We continued to hold currency positions in a number of countries that we believe have strong growth fundamentals and compelling interest-rate differentials. Outlook & Strategy In global equity markets, conditions remain challenging for value investors. Typically, when interest rates are low, as they have been for some time, the net present value of long-dated cash flows increases and stocks with good growth visibility command a premium. Low interest rates also have coincided with periods of low economic growth, and the laws of supply and demand ensure that when growth is scarce, many investors will pay more for it. On the rare occasions over the past century when value has underperformed to the degree it has done so recently, it has gone on to outperform over the following two years. While extraordinary circumstances have delayed the process of value recognition in our portfolios, we have every confidence that an eventual, and substantial, reversal in trend should lie ahead. From a global fixed income perspective, our investment convictions remain largely unchanged, despite the escalation in emerging-market risk aversion in recent months. Many of the countries that we believed were undervalued earlier this year have become even more undervalued with the recent risk-off cycle. Longer term we continue to have a positive outlook on a number of local-currency markets that we believe are fundamentally stronger than markets have been indicating. We continue to hold select local-currency duration exposures in countries that we believe have healthy fundamentals and significantly higher yields than those available in developed markets. We also expect currency appreciation across a select subset of emerging markets. Portfolio Characteristics 5,6,7 Portfolio MSCI All Country World Index Price to Earnings (12 Month Trailing) 15.45x 18.43x Price to Book Value 1.43x 2.36x Price to Cash Flow 6.34x 11.75x Market Capitalisation (Millions in USD) 96,367 132,605 Dividend Yield 2.68% 2.39% www.franklintempletongem.com 2
JP Morgan Global Government Bond Portfolio Index Yield to Maturity 8.10% 1.73% Yield to Worst 8.10% 1.73% Average Duration 2.40 Yrs 7.87 Yrs Average Credit Quality 8 BBB+ AA Average Weighted Maturity 3.07 Yrs 9.84 Yrs Portfolio Diversification Top Ten Holdings 9 Percent of Total Top Holdings % Government of Mexico, senior note, 1.61 M, 5.00%, 12/11/19 Nota Do Tesouro Nacional, 10.00%, 1.60 1/01/21 BP PLC 1.57 Oracle Corp. 1.55 Royal Dutch Shell PLC, B 1.50 Samsung Electronics Co. Ltd. 1.43 SoftBank Group Corp. 1.22 Alphabet Inc., A 1.17 BNP Paribas SA 1.16 Citigroup Inc. 1.16 Geographic Allocation 2 Percent of Total EUROPE NORTH AMERICA ASIA L. AMERICA/CARIBBEAN MID-EAST/AFRICA CASH & CASH EQUIVALENTS 1.12 7.49 20.38 21.02 24.08 25.37 OTHER 0.55 0% 5% 10% 15% 20% 25% 30% Geographic Allocation 10 Percent of Equity United States United Kingdom France Japan China Germany South Korea Netherlands Switzerland Italy Ireland Canada Denmark Israel Hong Kong Singapore India Sweden Thailand 8.68 7.69 5.48 4.28 3.39 3.11 2.56 2.55 2.26 2.15 2.03 1.66 1.24 1.03 1.00 0.77 0.68 13.68 35.74 0% 5% 10% 15% 20% 25% 30% 35% 40% Geographic Allocation 2 Mexico South Korea India Brazil Colombia Argentina Philippines Ghana N/A N/A Supranational -0.08-0.08 0.31 1.87 2.66 3.77 7.50 14.08 17.09 16.64 36.16-5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 8. 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. www.franklintempletongem.com 3
Sector Allocation 10 Percent of Equity Sector Allocation 2 Financials Health Care 19.38 21.58 Local Currency Government/Agency Bonds - Investment Grade 79.26 Communication Services Energy Industrials 8.76 12.97 12.54 Local Currency Government/Agency Bonds - Non- Investment Grade Derivatives -0.08 18.16 Information Technology 8.15 Supranational 2.66 Consumer Discretionary 4.78-25% 0% 25% 50% 75% 100% Materials 4.54 Consumer Staples 4.05 Real Estate 1.89 Utilities 1.35 0% 5% 10% 15% 20% 25% Currency Allocation 2 Credit Quality Ratings 11 Mexican Peso 38.82 AAA 2.66 Indian Rupee 19.44 AA 17.08 Brazilian Real 14.08 A- 36.13 US Dollar 10.30 Colombian Peso 7.50 BBB 9.36 South Korean Won 3.92 BBB- 16.63 Argentine Peso 3.77 BB- 14.07 Philippine Peso 1.87 B 4.07 Ghanaian Cedi-New 0.31 0% 5% 10% 15% 20% 25% 30% 35% 40% 0% 20% 40% 60% Investment Grade Non-Investment Grade www.franklintempletongem.com 4
Supplemental Performance Statistics Supplemental Risk Statistics 12 3 Yrs 5 Yrs 10 Yrs Since Inception Standard Deviation (%) Templeton Global Balanced Fund 8.41 8.58 14.26 11.89 Custom 65% MSCI ACWI + 35% JP Morgan Global 6.53 6.72 11.03 10.11 Government Bond Index Beta (%) 4.23 3.67 4.62 5.04 Information Ratio 13-0.75-1.01-0.46-0.28 Beta 1.12 1.17 1.25 1.07 Sharpe Ratio Templeton Global Balanced Fund 0.67 0.23 0.31 0.25 Custom 65% MSCI ACWI + 35% JP Morgan Global 1.34 0.85 0.59 0.44 Government Bond Index Investment Team Portfolio Manager Years with Firm Years Experience Michael Hasenstab, Ph. D., Executive VP & Chief Investment Officer 19 23 Peter Wilmshurst, CFA, EVP, Portfolio Manager, Research Analyst 20 25 Sonal Desai, Ph. D., Senior VP, Portfolio Manager, Director of 8 24 Research Alan Chua, CFA, EVP, Portfolio Manager, Research Analyst 18 28 Tian Qiu, CFA, SVP, Portfolio Manager, Research Analyst 21 21 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, equity-related and debt securities around the world. Such securities have historically been subject to significant price movements that may occur suddenly due to equity and bond market or company-specific factors. As a result, the performance of the Fund can fluctuate considerably over time. The Fund may distribute income gross of expenses. Whilst this might allow more income to be distributed, it may also have the effect of reducing capital. Other significant risks include: credit risk, currency risk, emerging markets risk, liquidity risk, derivatives 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. 12. Beta, Information Ratio and Tracking Error information are measured against the Custom 65% MSCI ACWI + 35% JP Morgan Global Government Bond Index. www.franklintempletongem.com 5
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. 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. 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. 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. 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. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 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.
6. 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. 7. Yield to Maturity, Yield to Worst, Average Duration and Average Weighted Maturity reflect certain derivatives held in Portfolio (or their underlying reference assets). 9. 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 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. 10. 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. 11. Ratings shown are assigned by one or more Nationally Recognized Statistical Rating Organizations ( NRSRO ), such as Standard & Poor s, Moody s and Fitch. The ratings are an indication of an issuer s creditworthiness and typically range from AAA or Aaa (highest) to D (lowest). When ratings from all three agencies are available, the middle rating is used; when two are available, the lowest rating is used; and when only one is available, that rating is used. Foreign government bonds without a specific rating are assigned the country rating provided by an NRSRO, if available. If listed, the NR category consists of rateable securities that have not been rated by an NRSRO. The N/A category consists of nonrateable securities (e.g., equities). Cash includes equivalents, which may be rated. Derivatives are excluded from this breakdown. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 13. 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.