Templeton Asian Bond Fund

Transcription

1 Franklin Templeton Investment Funds Templeton Asian Bond Fund Asian Fixed Income Fund Profile Fund Details Inception Date 25 October 2005 Investment Style Benchmark(s) Asian Fixed Income HSBC Asian Local Bond Index FUND OBJECTIVE Templeton Asian Bond Fund (the Fund ) aims to maximise, consistent with prudent investment management, total investment return consisting of a combination of interest income, capital appreciation and currency gains by investing principally in a portfolio of fixed and floating rate debt securities and debt obligations of government and government-related issuers and/or corporate entities located throughout Asia. Michael Hasenstab, Ph.D. Executive Vice President, Portfolio Manager We believe that individual countries will continue to differentiate themselves from other emerging markets through robust fundamentals and policymakers who are able to stay ahead of the curve regarding fiscal, monetary and financial policy. WHY CONSIDER THIS FUND Multiple asset classes offer a world of investment opportunities. The Fund invests in multiple Asian asset classes from government to corporate bonds to maximise the total return from interest income, capital appreciation and currency gains. The Fund's flexible total return, benchmark-unconstrained approach provides multiple sources of return and potential for attractive riskadjusted returns. A flexible mandate allows managers to actively manage both interest rate and currency movements. The flexibility of the Fund allows portfolio managers to take advantage the best opportunities that we believe offer the highest expected risk-adjusted returns. The team evaluates and seeks to capitalise on three alpha sources: yield curve, sovereign/corporate credit and currency. The managers isolate the precise risk exposures held by the Fund so that only those with the most attractive valuations remain. Asian markets are expected to outpace developed markets in GDP growth. Asian markets have better fundamentals than they had in the past, including significant accumulation of international reserves, stronger current accounts and better fiscal management. As a result, Asian market economies appear better equipped to deal with crises than they were even five years ago. Emerging market bonds have expanded in breadth, depth and quality. Many emerging market countries are issuing debt in both local and international bond markets and have been expanding the range of maturities and products offered. They are also relaxing regulatory requirements, thus increasing liquidity and potentially reducing risk. Asian market debt credit quality has improved, and central bankers are showing increasing flexibility regarding currency policy. Our macro viewpoint is built from on-the-ground research. The experienced, multinational research team performs fundamentals-based macroeconomic research that underlies our investment theses. This perspective is informed by frequent country visits and enhanced by insights from our Local Asset Management teams across the U.S., the U.K., Singapore, Australia, Brazil, Canada, China, India, Korea, Malaysia, Mexico and the U.A.E. For Professional Investor Use Only. Not for Distribution to Retail Investors.

2 INVESTMENT PHILOSOPHY & PROCESS Multiple Research Lenses Can Lead to High-Conviction Opportunities The above chart is for illustration and discussion purposes only. The Asian Bond strategy applies a fundamental, researchdriven approach to identifying potential sources of total return in developed and emerging markets throughout the Asia region, investing primarily in a portfolio of fixed- and floatingrate debt securities and debt obligations issued by government and government-related issuers, and/or corporate entities located throughout Asia. The strategy seeks investment opportunities by identifying market disequilibria or inefficiencies in the fixed income and currency markets and capitalizing on regional interest rates, currencies, and sovereign and corporate credit trends as it pursues absolute returns over a two- to three-year time horizon. The strategy draws on the expertise of the Franklin Templeton Fixed Income Group, a global fixed income platform with more than 30 years of experience managing single-sector and multi-sector U.S., regional, international, and global strategies. With a long-term, value-based investment style, the strategy pursues diversified sources of alpha across markets, sectors, and securities, utilizing significant Franklin Templeton Fixed Income Group resources ranging from top-down macroeconomic view formulation to bottom-up sector-specific research combined with rigorous quantitative analysis. Macroeconomic View Formulation Long-term macroeconomic investment themes and views are established by the Fixed Income Policy Committee. Composed of senior members of the Franklin Templeton Fixed Income Group, the policy committee meets regularly to evaluate the factors impacting the global fixed income markets including economic output, monetary policy, duration/yield curve, global currency and geo-political trends, as well as fiscal policy. Also considered is the in-depth insight of senior sector team leaders focusing on all major fixed income market sectors, as well as the local market perspectives of asset management colleagues in Australia, Brazil, Canada, China, India, Korea, Malaysia, Mexico and the U.A.E. In addition to establishing macroeconomic investment themes for all fixed income strategies, the policy committee also sets relative sector values which are utilised by strategy leaders within the risk parameters of their strategies. Investment Strategy Formulation The Asian Bond team tailors the recommendations of the policy committee to its active management, benchmarkagnostic investment style, employing fundamental, countryby-country macroeconomic research that entails quantitative analysis, macro-analytic models, and local market insight within a risk management framework. The process incorporates regular communication among portfolio managers, traders, research analysts, and risk analysts and extends to the resources available from the Global Bond Group. Investment Strategy Implementation With a long-term, fundamentally driven investment focus, the investment team conducts global macroeconomic analysis of the following factors to identify economic imbalances that can lead to value in developed and emerging market countries: Country/duration positioning Currency allocation Credit analysis Sector allocation Combining qualitative analysis with sophisticated quantitative tools to build portfolio positions, the team capitalises on short-term market inefficiencies, allowing for shifts in portfolio 1. This unit is comprised of investment professionals located in affiliates of and joint venture partners with Franklin Templeton Investments. The Local Asset Management Group is not a part of, but does share research with, Franklin Templeton Fixed Income Group. 2. Fixed Income Policy Committee. For Professional Investor Use Only. Not for Distribution to Retail Investors. 2

3 holdings to reflect anticipated changes in interest rates and yield curve spreads. This process begins with a very broad, global perspective and then shifts its focus beyond the core markets (mostly developed) that get the most attention to the scores of peripheral markets that not only provide excellent sources of diversification, but also often offer the potential for higher returns. To construct portfolios, the team precisely identifies desired currency, duration, and credit exposures to reflect the most attractive risk exposures relative to current valuations. These exposures are then isolated and compiled to ensure that only the most attractive opportunities are held. To validate positioning, exposures are discussed among members of the Franklin Templeton Fixed Income Group. During the implementation phase, traders and other local market investment professionals advise on market flows, trade structure, and local execution. The Quantitative Research Group plays an important role in this stage, evaluating risks related to sector, yield curve, and issuer positions. The team takes into consideration the level of risk aversion in the Asian markets on a security-by-security basis, the portfolio management team maintains a keen awareness of risk, building a portfolio within a specific risk budget which will shift, based on the relative attractiveness of each security during global economic and credit cycles. The team uses proprietary and state-of-the-art third-party tools to measure risk, including scenario analysis that models potential crises, such as geopolitical risks or oil price shocks, to analyze the impact on currency values and interest rates. PORTFOLIO CONSTRUCTION Portfolio construction is based on fundamental analysis of isolated risk exposures strategically allocated across markets, sectors, and securities within a risk-adjusted framework. At the beginning of the process, the Asian Bond investment team establishes desired risk-return parameters to reflect the most attractive currency, duration, and credit exposures relative to current valuations. To establish these limits, the team utilises significant Franklin Templeton Fixed Income Group resources ranging from the global macroeconomic outlook generated by the Fixed Income Policy Committee to the bottom-up research by sector analysts combined with risk management tools and techniques. The optimal country and duration strategy and the appropriate yield curve strategy within each country are determined through bottom-up fundamental and quantitative analysis. Duration risk is a function of optimizing the overall risk budget relative to the investment team s views on currency, interest rates, and credit allocations. A fundamental technical profile is developed for each country considered to be a potential investment opportunity. This profile includes monetary and fiscal policy, macroeconomic disequilibria, political risks, and policy implementation analysis. Coupled with regular, extensive country visits that include meetings with senior policy makers, the profiles provide the investment team with important information on specific markets and expectations for a country s currency, interest rates and sovereign credit. Fund managers work closely with traders and analysts to determine optimal security selection, consistent with their own interest rate outlook based on relative pricing, rich-cheap analysis, and trading liquidity. On a security-by-security basis, the team builds portfolios within a specific risk budget, which can shift due to relative attractiveness of each security during global economic and credit cycles. Proprietary and third-party tools are used to measure risk, including scenario analysis which models potential crises and their impact on currency values and interest rates. RISK MANAGEMENT The Fund has specific investment guidelines and requirements that are set forth by the board of directors of Franklin Templeton Investment Funds and is reviewed on a quarterly basis to ensure that the risk management process is adhered to: Country/Regional/Emerging Markets Limits The Fund is benchmark-agnostic and maintains no set limits on country weightings within Asia. The Fund may invest up to 33% of its total assets, either directly or through the use of financial derivative instruments, in fixed and floating rate debt securities and debt obligations issued by government and government-related issuers or corporate entities located outside of Asia which are impacted by economic or financial dynamics in Asia. Cash Policy Fund managers intend to remain close to fully invested in fixed income securities at all times. Reported cash numbers may exceed 10% in extraordinary periods. Currency Policy There is no specific limit. Futures and other derivatives may be used for hedging purposes, as well as for expressing positive and negative currency views. Derivatives Financial derivative instruments may be dealt either in regulated markets or over-the-counter, and may include, inter alia, swaps (such as credit default swaps or total return swaps), forwards and cross forwards, futures contracts (including those on government securities), as well as options. Use of financial derivatives may result in negative exposures in a specific yield curve/duration, currency, or credit. For Professional Investor Use Only. Not for Distribution to Retail Investors. 3

4 Portfolio risk management is integrated into every aspect of the Fund s investment process. The Global Bond Group primarily focuses on three types of risk: Security-specific risk is addressed primarily through the quality of Franklin Templeton Fixed Income Group s research. A disciplined sell methodology also helps to minimise security-specific risk. Portfolio risk is addressed by creating fund portfolios that are well-diversified and benefit from Franklin Templeton Fixed Income Group s best thinking. Weekly strategy meetings act as a forum for Fund managers to review their positioning relative to the group s investment outlook. On a quarterly basis, formal portfolio review meetings are conducted where the fund manager, the fixed income CIO and risk managers review positioning and performance relative to peers and internal guidelines. Operational risk is minimised by the due diligence of the Fund managers and by the Portfolio Analysis and Investment Risk (PAIR) team. A comprehensive system of checks and balances involving distinct and independent groups ensures that all investment guidelines and restrictions are strictly adhered to. Asset Classes The Fund will invest in a portfolio of fixed and floating rate debt securities and debt obligations (including convertible bonds) of governments, government-related or corporate issuers throughout the Asian region as well as in certain financial derivative instruments. These financial derivative instruments may include swaps such as total return swaps or credit default swaps, forwards and financial futures contracts, or options on such contracts, including those on government securities throughout the Asian region, dealt in either on regulated markets or over-the-counter. PORTFOLIO MANAGEMENT TEAM The Franklin Templeton Fixed Income Group is an integrated global fixed income platform made up of over 160 investment professionals in multiple offices around the world. The Global Bond Group is comprised of a core team of investment professionals based in San Mateo and Singapore who are actively involved in the management of the Fund. This team benefits from the rest of the Global Sovereign and Emerging Markets debt team based in New York and London as well as Local Asset Management teams in Australia, Brazil, Canada, China, India, Korea, Malaysia, Mexico and the U.A.E. Michael Hasenstab, Ph.D. Executive Vice President, Portfolio Manager Chief Investment Officer, Global Bonds Franklin Templeton Fixed Income Group Michael Hasenstab, Ph.D., is executive vice president and chief investment officer, Global Bonds for Franklin Templeton Fixed Income Group, overseeing the global fixed income portfolio management team. The group offers a variety of investment vehicles ranging from retail mutual funds to unregistered, privately offered hedge funds. Dr. Hasenstab is a member of the Fixed Income Policy Committee and is a portfolio manager for a number of funds, including Templeton Global Bond Fund and Templeton Global Total Return Fund. Dr. Hasenstab has won numerous awards globally, including being named Morningstar's Fixed Income Manager of the Year in Canada in 2013 and in the U.S. in He was recognised as one of the most influential fund managers by Investment News in Bloomberg Markets named him Top Global Bond Fund Manager in 2010 and Top U.S. and Global Bond Fund Manager in Additionally, he was named Global Bond Manager of the Year by Investment Week in 2008, 2010 and 2011, and also Best Global Manager by Standard & Poor's/BusinessWeek in Dr. Hasenstab initially joined Franklin Templeton Investments in July After a leave of absence to obtain his doctor of philosophy (Ph.D.) degree, he rejoined the company in April He specialises in global macroeconomic analysis with a focus on currency, interest rate and sovereign credit analysis of developed and emerging market countries. Dr. Hasenstab has worked and traveled extensively abroad, with a special focus on Asia. Dr. Hasenstab holds a Ph.D. in economics from the Asia Pacific School of Economics and Management at Australian National University, a master's degree in economics of development from the Australian National University and a B.A. in international relations/political economy from Carleton College in the United States. Michael Hasenstab, Ph.D., based in San Mateo, CA, United States, is the lead portfolio manager of the Fund. Dong-Il Kim, CFA, based in Seoul, Korea, is co- portfolio manager of the Fund and Vivek Ahuja, based in Singapore is co-portfolio manager of the Fund. For Professional Investor Use Only. Not for Distribution to Retail Investors. 4

5 Dong-Il Kim, CFA Senior Vice President Chief Investment Officer Franklin Templeton ITMC Seoul Dong-Il Kim is the chief investment officer of Franklin Templeton Investment Trust Management Co., Ltd, Seoul, where he manages local fixed income investments. Prior to joining the company, Mr. Kim gained professional experience as a head of fixed income at Regent Asset Management and KTB Asset Management. Also, he worked as a fixed income investment manager at Samsung Life Insurance for 10 years before joining Franklin Templeton in He holds an M.B.A. from Washington University in St. Louis (MBA of 1995) and a B.B.A. from Yonsei University in Korea (1986). He is a Chartered Financial Analyst (CFA) Charterholder. Vivek Ahuja Portfolio Manager, Research Analyst Franklin Templeton Fixed Income Group Templeton Asset Management Ltd Singapore Vivek Ahuja is a portfolio manager and research analyst supporting the Global Bond Group is responsible for analysis of macroeconomic trends and developments in Asian emerging market economies and financial systems. He joined Franklin Templeton Investments in 2006 and has over 13 years of investment and research experience in the fixed income markets. Prior to joining Franklin Templeton, Mr. Ahuja has worked in various Financial Institutions in India in area of Fixed Income Investments and macro research. Mr. Ahuja earned his bachelor of commerce and master's degree in finance from Mumbai University. For Professional Investor Use Only. Not for Distribution to Retail Investors. 5

6 CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. 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 Luxembourgdomiciled SICAV Franklin Templeton Investment Funds (the Fund ). Nothing in this document should be construed as investment advice. Opinions expressed are the author s at publication date and they are subject to change without prior notice. Subscriptions to shares of the Fund can only be made on the basis of the current prospectus of the Fund, and, where available, the relevant Key Investor Information Document, accompanied by the latest available audited annual report and the latest semi-annual report if published thereafter. 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. Past performance is not an indicator or a guarantee of future performance. 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. An investment in the Fund entails risks which are described in the Fund s prospectus and, where available, in the relevant Key Investor Information Document. In emerging markets, the risks can be greater than in developed markets Investments in derivative instruments entail specific risks more fully described in the Fund s prospectus and, where available, in the relevant Key Investor Information Document 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. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund s holding at any one time. Please consult your financial advisor before deciding to invest. A copy of the latest prospectus, and if available for this product the Key Investor Information Document, the annual report and semi-annual report, if published thereafter can be found, on our website or can be obtained, free of charge, from Franklin Templeton International Services S.à r.l. - Supervised by the Commission de Surveillance du Secteur Financier - 8A, rue Albert Borschette, L-1246 Luxembourg - Tel: Fax: Issued by Franklin Templeton International Services S.à r.l. For Professional Investor Use Only. Not for Distribution to Retail Investors. DE Franklin Templeton Investments. All rights reserved.