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Transcript of Franklin templeton investments
For Professional Investor Use Only. Not for Distribution to Retail Investors.
David Zahn Manager, Templeton Strategic Bond Fund
Franklin Templeton Funds
Meeting the Income Challenge
For Professional Investor Use Only. Not for Distribution to Retail Investors.
Franklin Templeton Fixed Income Group
Global Investment Professionals
1. Includes individuals that are not employees of Franklin Resources, Inc. (FRI) or wholly owned subsidiaries of FRI. However, these individuals are part of our joint venture or
strategic partnership relationships worldwide and are an integral component of our overall fixed income research efforts. 2. Investment professionals include portfolio managers, analysts and traders. As of 30 September 2012.
MEETING THE INCOME CHALLENGE 2
For professional investors only. Not for distribution to retail investors.
3
Franklin Templeton Fixed Income Group Overview
1. Investment professionals include portfolio managers, analysts and traders.
3 MEETING THE INCOME CHALLENGE
Broad Capabilities and Deep Resources in One Platform
• Global platform with more than 30 years of investment experience
• Pursuit of diversified sources of potential alpha across securities, sectors and global markets
Multiple Sources of Expertise
• More than 100 investment professionals globally seek return opportunities across sectors around the
world1
Franklin Templeton Fixed Income Group Overview
Top Down Bottom-Up Quantitative
Dedicated team builds
proprietary risk models to
identify potential alpha
opportunities
Dedicated sector teams
strive to add value through
security- and sector- specific
insights
Senior leaders seek to
capitalise on global
economic trends
Combination of Expertise Aiming to Build:
Diverse Portfolios of Low-correlated Positions
For Professional Investor Use Only. Not for Distribution to Retail Investors.
An Opportunistic and Flexible Approach
Global Investment Opportunities
Greater value can be found by looking globally rather than by just investing in a single market or
currency
Flexible approach
• No set limits in terms of where you can invest and in which sectors.
• Positioned to exploit the best opportunities.
Experienced and stable team
More than 100 investment professionals based in ten different locations globally.
Multiple areas of expertise
A multi-sector investment approach combines a global presence and top-down expertise with
bottom-up sector specialist teams.
4 MEETING THE INCOME CHALLENGE
For professional investors only. Not for distribution to retail investors.
5
Source: Bank of England as of 30 November 2012
• As with many other central banks across the globe, the BoE has indicated that interest rates
will remain at current levels for the mid-term
• In May 2012, the The International Monetary Fund (IMF) urged the BoE to cut rates to even
lower levels
• Investors are therefore looking to compensate a lack of return from deposits by increasingly
turning to income generating investments
Interest Rates Are Expected to Remain Low
MEETING THE INCOME CHALLENGE
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For professional investors only. Not for distribution to retail investors.
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Looking Beyond the UK has Become Increasingly Important
Source: © 2012 Bloomberg L.P. All rights reserved as of 30 November 2012.
Gilt yields have been trending down for the last 20 years
MEETING THE INCOME CHALLENGE
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For Professional Investor Use Only. Not for Distribution to Retail Investors.
Evaluating a Broader Investment Universe
With the aim of generating attractive and consistent yields the fund looks to:
• Invest in a broader investment universe than traditional strategic bond funds, allowing the team to
tap into high yielding securities
• Use its permitted allocation (20%) to hard currencies beyond GBP and local currencies in order to
maximise yields and returns.
Source: Franklin Templeton Investments as of 30 September 2012.
40%
30%
30%
Typical Templeton Strategic Bond Fund Asset Allocation by Region
UK
EM
Global
5%
60%15%
20%
Typical Templeton Strategic Bond Fund Asset Allocation by Sector
Cash
Corporate Bonds
Govt & GovtRelated Bonds
Sovereign Bonds
7
A closer look at sector allocation
Sovereign Bonds – primarily emerging market sovereign bonds.
Corporate Bonds – a diversified mix of investment grade and high yield names. UK names will
feature heavily.
Government & Government Related Bonds – typically bonds of Euro periphery countries e.g. Italy
and Poland.
MEETING THE INCOME CHALLENGE
For professional investors only. Not for distribution to retail investors.
8
G3 Markets Continue to Fall Behind
Source: Copyright © 2012, The International Monetary Fund (IMF), World Economic Outlook as of 30 October 2012.
MEETING THE INCOME CHALLENGE
For Professional Investor Use Only. Not for Distribution to Retail Investors.
Many of the top funds in the
sector are yielding less than
the Templeton Strategic Bond
Fund (4.94%) but appear to
be taking roughly the same
amount of risk.
Source: Financial Express as of 30 November 2012. Does not include fund of funds.
Being More Strategic than its Competitors?
9
Region %
UK 61.89
Developed Europe (ex UK) 21.32
North America 8.21
Cash and Equivalents 3.57
Non-Classified 2.07
South & Central America 0.63
Australia & New Zealand 0.37
Middle East & Africa 0.35
Emerging Europe 0.00
Developed Asia 1.59
Emerging Asia 0.02
Average Regional Breakdown of Top 10 Funds in IMA's £ Strategic Bond
Sector
Developed Markets
Emerging Markets
Cash
Non Classified
Region %
UK 34.75
Developed Europe (ex UK) 27.74
North America 6.61
Cash and Equivalents 1.39
Non-Classified 0.00
South & Central America 12.95
Australia & New Zealand 0.00
Middle East & Africa 1.65
Emerging Europe 13.48
Developed Asia 0.00
Emerging Asia 1.44
MEETING THE INCOME CHALLENGE
For Professional Investor Use Only. Not for Distribution to Retail Investors.
Appendix
For Professional Investor Use Only. Not for Distribution to Retail Investors.
Templeton Strategic Bond Fund
Fund Details
Fund Managers David Zahn, John Beck
Asset Category Fixed Income
IMA Sector IMA £ Strategic Bond
Benchmark BofA Merrill Lynch Sterling Broad Market Index
Launch Date 02/06/2008
Number of Positions 90
Portfolio Size £6.72 million
Distribution Yield 4.94%
11
Source: Franklin Templeton Investments, as at 30 November 2012. Past performance does not guarantee future results. The Distribution Yield reflects the amounts that may be
expected to be distributed over the next 12 months as a percentage of the mid-market unit price of the fund as at the date shown. It does not include any preliminary charge and
investors may be subject to tax on distributions.
MEETING THE INCOME CHALLENGE
For Professional Investor Use Only. Not for Distribution to Retail Investors.
Templeton Strategic Bond Fund – A New Beginning
Source: Franklin Templeton Investments as of 30 November 2012.
Changes made Summer 2012
A new lead portfolio manager
David Zahn was appointed the portfolio manager on 1 August 2012. David has been with the
firm since 2006 and manages a range global funds as well as several separate accounts
Greater focus on yield
The team is now positioning the fund with the aim of generating a higher yield. Consequently
the team has increased exposure to high yield corporate bonds and emerging market
sovereign debt.
More strategic approach to asset allocation
Given the investment team’s global experience and expertise, the fund will now have greater
exposure to markets and sectors which many traditional strategic bond funds have overlooked.
Whilst the team will maintain a core of UK corporate bonds, it will also look to add value by
holding select positions in markets less familiar to many peer group portfolios, e.g. Brazilian
Index Linked Bonds
MEETING THE INCOME CHALLENGE 12
13
Portfolio Characteristics Templeton Strategic Bond Fund vs. BofA Merrill Lynch Sterling Broad Market Index
As of 30 November 2012
Quality Allocation
AA- A+ A A- BBB+ BBB BBB- BB+ BB- B+ B B- CCC NR 0%
15%
30%
4.44 4.62 6.24
12.86 11.33
20.61
12.78
6.25 5.36 7.06 3.83 1.52 1.85 1.24
* The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the mid-market unit price of the fund as at the date shown. It does not
include any preliminary charge and investors may be subject to tax on distributions.
Past performance does not guarantee future results. Where a fund invests in emerging markets, this investment can be more risky than an investment in developed markets.
Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.
Source: Franklin Templeton Investments. 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. Derivative positions and unrated securities are not reflected in the ACQ.
Yield figures quoted should not be used as an indication of the income to be received. 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 and equivalents (defined as bonds with stated maturities, or that can be redeemed at intervals, of seven days or less) as well as derivatives are excluded
from this breakdown. As a result, the chart does not reflect the fund's total net assets.
Weightings as percent of total. Percentage may not equal 100% due to rounding.
For professional investors only. Not for distribution to retail investors.
Portfolio Index
Average Credit Quality BBB A
Average Duration 5.98 Yrs 9.40 Yrs
Average Weighted Maturity 7.60 Yrs 13.65 Yrs
Current Yield 5.81% 3.90%
Distribution Yield* 4.94% N/A
MEETING THE INCOME CHALLENGE
14
Top Ten Holdings Templeton Strategic Bond Fund
As of 30 November 2012
Weightings as percent of total. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included in a top 10 holdings list. The Ten Largest Holdings represent the ten largest holdings of the fund as of the date indicated. These securities do not represent all of the securities purchased, sold or recommended for advisory
clients, and the reader should not assume that investment in the securities listed was or will be profitable. All portfolio holdings are subject to change.
For professional investors only. Not for distribution to retail investors.
MEETING THE INCOME CHALLENGE
Security Name Country Industry % of Total
1. Nota Do Tesouro Nacional, Index Linked, 6.00%, 5/15/15 Brazil Government Securities 5.21
2. HSBC Holdings PLC, senior note, 6.50%, 5/20/24 United Kingdom Banks 2.69
3. Italy Treasury Bond, 5.50%, 9/01/22 Italy Government Securities 2.65
4. GE Capital UK Funding, senior bond, 5.125%, 5/24/23 Ireland Diversified Financials 2.61
5. Government of Mexico, 6.75%, 2/06/24 Mexico Government Securities 1.94
6. RZD Capital Ltd., senior secured note, Reg S, 7.487%, 3/25/31 Russia Transportation 1.85
7. WM Morrison Supermarkets PLC, Reg S, 4.625%, 12/08/23 United Kingdom Food & Staples Retailing 1.74
8. Svenska Handelsbanken AB, senior note, Reg S, 4.00%, 1/18/19 Sweden Banks 1.70
9. Boparan Finance PLC, senior note, Reg S, 9.875%, 4/30/18 United Kingdom Food Beverage & Tobacco 1.66
10. Motability Operations Group PLC, senior note, Reg S, 4.375%,
2/08/27 United Kingdom Diversified Financials 1.66
Total 23.71
15
Management Profile
For professional investors only. Not for distribution to retail investors.
DAVID ZAHN, CFA, FRM
Senior Vice President
Portfolio Manager
Franklin Templeton Fixed Income Group
Franklin Templeton Investment Management Limited
London, England, United Kingdom
David Zahn, senior vice president, is responsible for managing the UK Templeton Strategic Bond Fund and the Global
Aggregate and Euro Aggregate fixed income strategies. He is a member of the Fixed Income Policy Committee and is a
portfolio manager for many of the European Franklin Templeton fixed income funds.
Prior to joining Franklin Templeton in 2006, Mr. Zahn was a senior portfolio manager at Citigroup Asset Management.
Mr. Zahn holds a B.S. in business administration from the University of Maine and an M.B.A in finance from the University of
Connecticut. He is a Chartered Financial Analyst (CFA) Charterholder and is a qualified Financial Risk Manager (FRM).
MEETING THE INCOME CHALLENGE
16
Important Information
For professional investors only. Not for distribution to retail investors.
Source: Franklin Templeton Investments, unless stated otherwise. Fund specific information - performance details provided are in the Fund currency, include reinvested dividends
and are net of management fees. Sales charges and other commissions, taxes and other relevant costs to be paid by an investor are not included in the calculations. Past
performance is not an indicator nor a guarantee of future performance.
References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. 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.
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 the UK-domiciled
OEIC, Franklin Templeton Funds (“the Fund”). Nothing in this document should be construed as investment advice. Opinions expressed within the promotion are subject to change
without prior notice.
Subscriptions to shares of the Fund can only be made on the basis of the current prospectus, the relevant Key Investor Information Document, accompanied by the latest available
audited annual report and the latest semi-annual report if published thereafter, which can be found on our website or requested from the address below.
An investment in the Fund entails risks which are described in the Fund’s prospectus and the relevant Key Investor Information Document. 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. Currency fluctuations may affect the value of overseas investment. 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 and are
more fully described in the Fund’s prospectus.
No shares of the Fund may be directly or indirectly offered or sold to nationals or 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.
For a free copy of latest prospectus, the relevant Key Investor Information Document, the annual report and semi-annual report, if published thereafter or for more information about
any Franklin Templeton Investments’ fund, please contact: Franklin Templeton Investments, Telephone: 0800 305 306, Email: [email protected] or write to us at the
address below.
Issued by Franklin Templeton Investment Management Limited (FTIML). Registered office: The Adelphi, 1-11 John Adam Street, London WC2N 6HT. FTIML is authorised and
regulated by the Financial Services Authority.
© 2012 Franklin Templeton Investments. All rights reserved.
MEETING THE INCOME CHALLENGE