Templeton Emerging Markets Bond Fund A (Qdis) USD Franklin Templeton Investment Funds Fund Manager Report Unconstrained Fixed Income Product Details 1 Fund Assets $9,366,982,200.49 Fund Inception Date 05/07/1991 Number of Securities 175 Including Cash Bloomberg TEMEMFI LX ISIN LU0029876355 Base Currency USD Investment Style Unconstrained Benchmark JP Morgan EMBI Global Index Morningstar Category Global Emerging Markets Bond Asset Allocation 2 % Fixed Income 97.21 Cash & Cash 2.79 Equivalents Equity Overall Morningstar Rating TM 3 Fund Description The fund aims to maximise total investment return, consisting of a combination of interest income, capital appreciation and currency gains by investing principally in a portfolio of fixed and floatingrate debt securities and debt obligations issued by government and government-related issuers or corporate entities located in developing or emerging-market countries. Performance Data Performance Net of Management Fees as at 30/09/2018 (Dividends Reinvested) (%) 4,5 1 Mth 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Since Inception (05/07/1991) A (Qdis) USD -3.67-9.51-10.58 4.39 0.27 5.10 8.04 JP Morgan EMBI Global Index 1.77 1.87-3.46-2.94 5.70 4.63 7.25 9.95 Calendar Year Returns (%) 100% 50% 0% -50% 9.85 9.32 9.92 10.19 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 A (Qdis) USD JP Morgan EMBI Global Index 1.23 5.53-5.63-4.44-0.58-6.58 18.20 18.54-1.65 8.46 13.12 12.04 47.97 28.18-18.43-10.91 Past performance is not an indicator or a guarantee of future performance. Portfolio Manager Insight Performance Review QUARTERLY KEY PERFORMANCE DRIVERS HELPED HURT Currencies Duration Credit Latin America Asia ex Japan Latin America Asia ex Japan Currency positions in Latin America and Asia ex Japan detracted from absolute fund results (the Argentine peso, Indian rupee, Brazilian real and Indonesian rupiah detracted, while the Mexican peso contributed). 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. Select duration exposures in Latin America and Asia ex Japan contributed to absolute fund performance as yields rose across several local markets in those regions. 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. The Japanese yen depreciated against the US dollar during the quarter, while the euro modestly weakened. The fund s net-negative positions in the Japanese yen and the euro had largely neutral effects on absolute results. We expect the widening rate differentials between rising rates in the US and low to negative yields in the eurozone and Japan to weaken the euro and yen against the US dollar. 1. All holdings are subject to change.
ONE-MONTH KEY PERFORMANCE DRIVERS HELPED HURT Currencies Duration Credit Japanese Yen (Net-Negative Position) Latin America Latin America Africa Asia ex Japan In emerging markets, yields rose in India, Colombia and Mexico, but declined in Brazil. Select duration exposures in Latin America (Argentina and Brazil) contributed to absolute fund performance, while select duration exposures in Africa detracted. We remain focused on specific countries that are less externally dependent and more domestically driven, and that have responsible, credible central banks that consistently respond with appropriate monetary policies. A number of currencies strengthened against the US dollar in September, with notable exceptions such as the Argentine peso, Indian rupee and Indonesian rupiah. Currency positions in Latin America and Asia ex Japan detracted from absolute fund results (the Argentine peso and Indian rupee detracted, while the Mexican peso and Colombian peso contributed). We continued to hold currency positions in a number of countries that we believe have strong growth fundamentals and compelling interest-rate differentials. The fund s net-negative position in the Japanese yen contributed to absolute performance, while its net-negative position in the euro had a largely neutral effect. The Japanese yen depreciated against the US dollar in September, and we expect it to continue weakening in upcoming quarters on widening rate differentials with the US. Outlook & Strategy Overall, 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 have a positive outlook for US growth and the global economy for 2018, but we re continuing to watch for potential economic disruptions. Overall, we expect US Treasury yields to continue rising as the Fed unwinds its balance sheet and tightens policy, while inflation pressures build on exceptional strength in the US labour market and resilient expansion of the US economy. In the major developed economies, we anticipate continued monetary accommodation and low rates in Japan and the eurozone while rates rise in the US those increasing rate differentials should depreciate the yen and euro against the US dollar, in our view. Outside of the developed markets, we are focused on specific emerging markets that are less externally vulnerable and more domestically driven, and that have responsible, credible central banks that consistently respond with appropriate monetary policies. 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 6 Portfolio JP Morgan EMBI Global Index Yield to Maturity 13.73% 6.49% Yield to Worst 13.73% 6.48% Average Duration 0.98 Yrs 6.82 Yrs Average Credit Quality 7 BB+ BB+ Average Weighted Maturity 3.47 Yrs 11.55 Yrs 7. 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 2
Portfolio Diversification Geographic Allocation 2 NON-US Brazil Argentina Mexico Colombia Bermuda Peru El Salvador USA India Indonesia Thailand MIDDLE-EAST/AFRICA Egypt Ghana Senegal Ethiopia Kenya Zambia United Republic of Tanzania South Africa Ivory Coast Ukraine Bosnia and Herzegovina SUPRANATIONAL ST CASH & CASH EQUIVALENTS OTHER Currency Allocation 2 0.18 0.15 0.77 0.76 0.72 0.64 0.50 0.27 0.01 0.52 0.50 2.08 0.71 6.84 7.30 13.27 12.91 12.04 10.38 10.20 14.51 25.61 24.75 46.17 45.40 0% 10% 20% 30% 40% 50% 60% 84.81 NON-US DOLLAR 56.61 Mexican Peso 23.88 Brazilian Real Argentine Peso Colombian Peso Peruvian Nuevo Sol 13.70 12.03 6.84 0.15 US DOLLAR MIDEAST/AFRICA Egyptian Pound Ghanaian Cedi-New EX-JAPAN Indian Rupee Indonesian Rupiah Thai Baht 28.20 21.81 14.51 7.30 10.66 21.60 11.73 10.20 Australian Dollar JAPANESE YEN -5.36-10.94-17.28-40% -20% 0% 20% 40% 60% 80% 100% Geographic Weightings vs. JP Morgan EMBI Global Index 2 NON-US Brazil Argentina Mexico Colombia Bermuda Peru El Salvador USA India Indonesia Thailand MIDDLE-EAST/AFRICA Egypt Ghana Senegal Ethiopia Kenya Zambia United Republic of Tanzania South Africa Ivory Coast NON-EMU Ukraine Bosnia and Herzegovina SUPRANATIONAL ST CASH & CASH EQUIVALENTS OTHER -19.24-18.39 7.03 6.26 9.41 8.46-0.27 4.22 0.18-1.57-0.66 0.77-2.18 9.87 1.88 11.44 12.93 6.83 0.49 0.61 0.19 0.25 0.27-2.59-0.48-1.30 2.08 0.71-25% 0% 25% Currency Weightings vs. JP Morgan EMBI Global Index 2-15.19 NON-US DOLLAR 56.61 Mexican Peso Brazilian Real Argentine Peso Colombian Peso Peruvian Nuevo Sol 23.88 13.70 12.03 6.84 0.15 US DOLLAR -71.80 MIDEAST/AFRICA Egyptian Pound Ghanaian Cedi-New EX-JAPAN Indian Rupee Indonesian Rupiah Thai Baht 21.81 14.51 7.30 10.66 21.60 11.73 10.20 Australian Dollar JAPANESE YEN -100% -75% -50% -5.36-10.94-17.28-25% 0% 25% 50% 75% www.franklintempletongem.com 3
Supplemental Risk Statistics 9 3 Yrs 5 Yrs 10 Yrs Since Inception Templeton Emerging Markets Bond Fund A (Qdis) USD Sector Weightings vs. JP Morgan EMBI Global Index 2 Credit Ratings Quality 8 Local Currency Government/Agen 47.11 AAA Local Currency Government/Agen 44.64 A 12.19 Non-Local Currency Sovereign B 4.33 40.86 BBB 32.45 Derivatives 0.77 BB 13.27 Corporate Bonds - Non-Investmen 0.20 B 36.60 Non-Local Currency Sovereign B 59.14 C 0.18 Supranational Cash & Cash Equivalents 0% 2.79 10% 20% 30% 40% 50% 60% 70% NR 0.29 N/A Cash & Cash Equivalents 2.07 2.79 Templeton Emerging Markets Bond Fund JP Morgan EMBI Global Index 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Investment Grade Non-Investment Grade Cash & Cash Equivalents Supplemental Performance Statistics Standard Deviation (%) Templeton Emerging Markets Bond Fund 9.28 8.59 11.86 11.85 JP Morgan EMBI Global Index 5.70 5.74 8.63 11.95 Beta (%) 7.15 6.29 6.38 5.95 Information Ratio 10-0.18-0.69-0.34-0.33 Sharpe Ratio Templeton Emerging Markets Bond Fund 0.38-0.03 0.40 0.45 JP Morgan EMBI Global Index 0.85 0.72 0.80 0.61 Investment Team Portfolio Manager Years with Firm Years Experience Michael Hasenstab, Ph. D., Executive VP & Chief Investment Officer 19 23 Laura Burakreis, Portfolio Manager, Research Analyst 12 31 Sonal Desai, Ph. D., Senior VP, Portfolio Manager, Director of Research 8 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 invests mainly in debt securities of any quality issued by entities located in developing and emerging markets. Such securities have historically been subject to price movements, generally due to interest rates, market factors or movements in the bond market. As a result, the performance of the Fund can fluctuate 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, derivatives 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. 9. Information Ratio and Tracking Error information are displayed for the product versus the JP Morgan EMBI Global Index. www.franklintempletongem.com 4
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. 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. 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. 2018 Morningstar, Inc. All rights reserved. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. 4. 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. 5. 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. 6. Yield to Maturity, Yield to Worst, Average Duration and Average Weighted Maturity reflect certain derivatives held in Portfolio (or their underlying reference assets). 8. 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 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.
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. 10. 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.