Where to Find Value Today Investing the Templeton Way

Transcription

1 Where to Find Value Today Investing the Templeton Way 6 November, 2013 Alan Chua, CFA Executive Vice President, Portfolio Manager, Templeton Global Equity Group

2 1 Table of Contents Templeton: Worldwide Bargain Hunters Templeton: An Historical Perspective Current Perspectives and Portfolio Positioning Summary: Time for Templeton Europe Japan

3 Templeton: Worldwide Bargain Hunters

4 INVESTING THE TEMPLETON WAY 3 Templeton Global Equity Group PORTFOLIO Differentiated Perspective The most costly errors in selecting stocks are made by people whose thinking is dominated by temporary short-term trend(s) SIR JOHN TEMPLETON PHILOSOPHY Worldwide Bargain Hunters If you search worldwide, you will find more and better bargains than by studying only one nation SIR JOHN TEMPLETON Templeton GEG Global bargain hunters focused on building long-term wealth for investors Strategies: Global, Foreign/Non U.S., Regional, Small Cap, and Balanced PROCESS Willingness to Go Against the Grain In a stock market, the only way to get a bargain is to buy what most investors are selling SIR JOHN TEMPLETON PEOPLE Unparalleled Experience Successful investing is not an easy job. It requires an open mind, continuous study and critical judgment SIR JOHN TEMPLETON

5 4 Time-Tested Templeton Philosophy and Approach SIR JOHN S THREE TENETS: Search the world for the greatest bargains VALUE Absolute value investors Buy companies at discount prices PATIENCE Rolling 5-year investment horizon Perspective and discipline lead to value recognition Historical turnover consistently low BOTTOM UP Stock-by-stock fundamental analysis Normalized approach to earnings not forecasting Focus on what will change

6 5 Templeton Global Equity Group As of June 30, 2013 CHIEF INVESTMENT OFFICER Norman Boersma, CFA 28 Years Industry Experience NASSAU, BAHAMAS DIRECTOR OF RESEARCH Heather Arnold, CFA 30 Years of Industry Experience EDINBURG, SCOTLAND DIRECTOR OF PORTFOLIO MANAGEMENT Cindy Sweeting, CFA 30 Years of Industry Experience FORT LAUDERDALE, UNITED STATES Global Research Offices TORONTO FORT LAUDERDALE NASSAU EDINBURGH SINGAPORE MELBOURNE HONG KONG 6 PM/Analysts 2 Analysts 7 PM/Analysts 5 Analysts 4 PM/Analysts 3 Analysts 2 PM/Analysts 1 Analyst 1 PM/Analyst 1 Analyst 1 PM/Analyst 1 Analyst 2 PM/Analysts 2 Analysts 21 Years Average Industry Experience 20 Years Average Industry Experience 17 Years Average Industry Experience 10 Years Average Industry Experience 15 Years Average Industry Experience 13 Years Average Industry Experience 19 Years Average Industry Experience 38 PM/Analysts and Analysts Average 18 years of industry experience Average 12 years of tenure with the firm Investment team information is as of June 30, CFA and Chartered Financial Analyst are trademarks owned by CFA Institute.

7 6 Bottom-Up Stock Pickers Sector Teams Seeking the Best Opportunities Across Sectors and Geographies Director of Research: Heather Arnold, CFA GLOBAL SECTOR TEAMS CONSUMER FINANCIALS INDUSTRIALS FINANCIALS INDUSTRIALS TELECOM SERVICES Herbert Arnett Norman Boersma, CFA Tony Docal, CFA Lorraine Fraser Harlan Hodes, CPA Katie Kirkpatrick Peter Moeschter, CFA Lisa Myers, CFA Katherine Owen, CFA Siang Khee Tan 17 Years Average Industry Experience HEALTH CARE Martin Cobb, ASIP Daniel Hickey, CFA Mohan Kandiah Peter Nori, CFA Katherine Owen, CFA 16 Years Average Industry Experience Research Technology Group Global Research Library Martin Cobb, ASIP Paul de Josselin, CFA James Harper, CFA Daniel Hickey, CFA Matthew Nagle, CFA, CPA Warren Pustam, CFA Simon Rudolph, ACA Tucker Scott, CFA David Tuttle, CFA Peter Wilmshurst, CFA Joanne Wong, CFA 16 Years Average Industry Experience UTILITIES Dylan Ball, ACA Martin Cobb, ASIP Peter Moeschter, CFA Mathias Strohfeldt, CFA 19 Years Average Industry Experience Junior Research Analysts ADDITIONAL RESOURCES Performance Analysis & Investment Risk Group Dylan Ball, ACA Alan Chua, CFA Lorraine Fraser Chris Peel, CFA Tina Sadler, CFA Tian Qiu, CFA, CPA Heather Waddell, CFA 15 Years Average Industry Experience MATERIALS/ENERGY Dylan Ball, ACA Maarten Bloemen Martin Cobb, ASIP Tony Docal, CFA Eric Howe, CFA Lillian Li, CFA Chris Peel, CFA Tina Sadler, CFA David Tuttle, CFA 16 Years Average Industry Experience Global Trading Platform Emerging Markets Group Peter Moeschter, CFA Tina Sadler, CFA David Tuttle, CFA Peter Wilmshurst, CFA 17 Years Average Industry Experience INFORMATION TECHNOLOGY James Harper, CFA Matthew Nagle, CFA, CPA Peter Nori, CFA Mathias Strohfeldt, CFA Siang Khee Tan Heather Waddell, CFA 18 Years Average Industry Experience Product Manager Group As of June 30, CFA and Chartered Financial Analyst are trademarks owned by CFA Institute.

8 7 Disciplined Process: Buy Pessimism, Sell Euphoria Closing Price Closing Price S&P 500 Index MSCI World Index Hitler Invades Poland, Stocks Plummet John Templeton Buys Every NYSE Stock Trading Under a Dollar TMT Bubble Bursts NASDAQ Composite Tech Allocation Relative Weightings (%) As of February 29, 2000 Templeton Global Equity Representative Account* Closing Price Closing Price 40,000 35,000 30,000 25,000 20,000 Japan Nikkei , ,100 1, Japan Bubble Bursts MSCI World Index Buying Pessimism MSCI World Index Europe Euronext 100 Japan Allocation Absolute Weightings (%) 39.6 MSCI World Index Templeton Growth Fund 3.6 As of December 31, 1989 Templeton Global Equity Representative Account* Absolute Weightings in Europe (%) Global As of July 31, 2013 Templeton Global Equity Representative Account* Source: FactSet. *For Illustration purposes only.

9 Templeton: An Historical Perspective

10 9 We ve Been Here Before November 1982 December 1993 Annualized Excess Returns (%) Japan Bubble 12% 9% 6% 3% 0% -3% -6% Templeton Global Equity Representative Account* (without sales charges) Rolling 5-Year Annualized Excess Returns versus MSCI World Index Performance Following Trough Templeton Global Equity Retail Representative Account* (without sales charge) Cumulative Excess Returns versus MSCI World Index 13.0% 28.0% 58.4% -9% -12% November 1988: -10.4% '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 Rolling 60 Month Windows 3.9% 1 Year Later 2 Years Later 3 Years Later 5 Years Later Source: MSCI, FactSet. Returns in USD. All MSCI data is provided as is. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data describe herein. Copying or redistributing the MSCI data is strictly prohibited. Past performance does not guarantee future results. *For illustration purposes only.

11 10 It Is Not Easy to Act Contrary to Popular Opinion John Templeton Has John Templeton lost his touch? Lately, Templeton Growth Representative Account* has been only mediocre: 11.5% annually over the past five years, slightly behind the average for global stock funds Has John Templeton, that demigod among global fund managers, lost his touch? While his name continues to attract assets, his results aren t what they used to be. Forbes April 15, 1991 Source: Factiva. *For illustration purposes only

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13 12 It Is Not Easy to Act Contrary to Popular Opinion John Templeton November 17, 2000 "Some other issues also cloud the (Templeton Growth) Representative Account*'s appeal. Its managers have virtually ignored technology and telecom issues--even the more reasonably-priced companies that are popular with other value managers, such as IBM. Thus, investors will have to supplement this inadequately diversified portfolio with other funds." The (Templeton Growth) Representative Account* s tendency to make very large sector bets partly explains why some of its rivals are ahead. For example, the fund s cyclical weighting, which is twice the category norm, has hurt quite a bit lately Source: Morningstar, November 17, *For illustration purposes only.

14 13 We Are Here Again January 2004 July 31, % 10% Global Financial Crisis Templeton Global Equity Representative Account* (without sales charges) Rolling 5-Year Annualized Excess Returns versus MSCI World Index Performance Following Trough Templeton Global Equity Representative Account* (without sales charge) Cumulative Excess Returns versus MSCI World Index 8% 6% 4% 2% 0% 12.0% -2% -4% May 2012: -3.6% -6% Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Rolling 60 Month Windows 1 Year Later 2 Years Later 3 Years Later 5 Years Later Source: MSCI, FactSet. Returns in USD. All MSCI data is provided as is. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data describe herein. Copying or redistributing the MSCI data is strictly prohibited. Past performance does not guarantee future results. *For illustration purposes

15 14 Templeton And Value is a Winning Combination Over Time Excess Returns (US$) January 1, 1975 July 31, Templeton 7,500 Annual Excess Return (%) Value 5,000 2, ,500 Cumulative Excess Return Annual Excess Return of MSCI World Value Index vs. MSCI World Index (LHS) Cumulative Excess Return of MSCI World Value Index vs. MSCI World Index (RHS)¹ Cumulative Excess Return of Templeton Global Equity Representative Account* (Without Sales Charge) vs. MSCI World Index (RHS)¹ 1 January 1, 1975 = 100 Source: MSCI, FactSet. All MSCI data is provided as is. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data described herein. Copying or redistributing the MSCI data is strictly prohibited. Annual Data YTD - YTD ending 7/31/13. *For illustration purposes only YTD -5,000

16 Current Perspectives and Portfolio Positioning

17 16 Finding Value Today: Current Sector And Geographic Allocation Templeton Institutional Global Composite vs. MSCI All Country World Index As of July 31, 2013 Portfolio % Difference vs. Benchmark % Portfolio % Difference vs. Benchmark % Health Care 18.6% Financials Europe 12.7% Financials 23.4% Telecoms 5.7% Energy 10.5% Materials 6.3% Consumer Disc. 11.4% Industrials 9.8% -0.2% -0.8% 1.7% 1.5% 0.5% 0.3% 8.3% 7.2% Core Europe 20.0% Europe Excluding Monetary Union Members 19.5% Peripheral Europe 6.4% Asia ex-japan 8.2% Mid-East/Africa 0.0% Japan 6.7% L.Am/Caribbean 0.7% Core Europe: Austria, Belgium, Finland, France, Germany, Netherland, Luxembourg -0.4% -1.0% -1.2% -1.5% 5.1% 4.4% Periphery Europe: Greece, Ireland, Italy, Spain, Portugal 11.3% Technology 10.2% -1.7% Canada/Aus/NZ 2.3% -4.3% Utilities 0.0% -3.3% EM Exposure 5.9% -5.0% Consumer Staples 4.2% -6.2% United States 36.3% -12.2% Source: FactSet, MSCI. Weightings as percent of equity. Percentage may not equal 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. All MSCI data is provided as is. The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index.

18 17 Pharmaceuticals are a Good Proxy for the Templeton Value Process December 1996 July % 33 8% 28 4% 23 % 18-4% 13-8% MSCI AC world Pharma FY1 PE¹ Templeton Institutional Global Composite relative weightings to MSCI AC World Pharmaceuticals (RHS)² YTD % 1. Source: Credit Suisse, data through 7/31/ Source: FactSet, MSCI. YTD as of 7/31/13. Weightings as percent of equity. Fund holdings are subject to change. All MSCI data is provided as is. The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index.

19 18 Pharmaceuticals: Many Value Opportunities Mar 31, 2000 Current P/E (FY1) 36.6x 13.9x FCF Yield 1.0% 3.2% Div. Yield 0.6% 3.4% Dec 31, 1999 Current P/E (FY1) 30.5x 15.2x FCF Yield 0.4% 6.9% Div. Yield 0.5% 3.2% Mar 31, 2000 Current P/E (FY1) 30.5x 14.5x FCF Yield 0.5% 4.8% Div. Yield 0.0% 4.4% Dec 31, 1999 Current P/E (FY1) 27.5x 13.9x FCF Yield 0.7% 6.9% Div. Yield 1.6% 3.5% Dec 31, 1999 Current P/E (FY1) 38.6x 13.5x FCF Yield 0.5% 7.8% Div. Yield 1.1% 3.1% Dec 31, 1999 Current P/E (FY1) 61.7x 14.6x FCF Yield 1.3% 7.2% Div. Yield 0.0% 1.4% Source: 2013 FactSet Research Systems Inc. Current data points as of 7/31/13. Logos are trademarks of their respective owners and are used for illustrative purposes and should not be construed as an endorsement or sponsorship of Franklin Templeton Investments.

20 19 Secular Tailwinds are Driving Pharmaceuticals 350,000 EU Major Pharma - Sales progression out to % Emerging Markets Pharmaceutical Use is Accelerating¹ Health Care Expenditure as % of GDP 2010 Sales $m 300, , % 11.6% 11.4% 9.5% 9.1% 7.5% 7.1% 6.7% 5.1% 200, , Sales $296bn Patent Expiries Base Pharma % of Population Aged 65 or Over 2.3% CAGR Pipeline (prob.adj.) New Launch Emerging Markets Aging Populations Around the World Use More Pharmaceuticals² 4.5% CAGR Non Pharma More developed regions Less developed regions 2016 Sales $331bn 1. Source: Credit Suisse, latest data available as of August Source: Credit Suisse European Pharmaceuticals Equity Research, latest available data as of August For illustrative purposes only; not representative of fund s portfolio composition Percentage of US Total Household Expenditures Spent on Healthcare by Age and over and over

21 20 Financials Valuations Have Become Selectively Compelling December July % 2.5 4% 2.0 2% 1.5 % 1.0-2% 0.5-4% MSCI AC World Index Financials P/BV (LTM) Templeton Institutional Global Composite relative weightings to MSCI All Country World Financials (RHS) YTD % Source: FactSet, MSCI. YTD as of 7/31/13. Weightings as percent of equity. Fund holdings are subject to change. All MSCI data is provided as is. The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index.

22 21 US Banks are at Multi-Decade Lows And European Banks Offer Even Greater Discounts US Banks Price/Book Value Have traded below 1x BV for just 11% of the last 120 years¹ MSCI Europe Banks P/B Relative to MSCI AC World Bank Industry LT Average 1.0x Past performance does not guarantee future results. For illustrative purposes only. An index is unmanaged and one cannot invest directly in an index. 1. Source: Anthony Saunders & Berry Wilson, Impact of consolidation and safety net support on Canadian, US and UK banks, (1999). Datastream, SNL. Autonomous Research. * ignores war years, and one-off years at below 1xBV. Data as of July Source: 2013 FactSet Research Systems Inc., 2013 Morgan Stanley Capital Index (MSCI). Data from 12/1/97 to 7/31/13.

23 22 Investors are Discounting U.S. Bank Stabilization US Large Bank Asset Quality Has Improved² US Banks Have Delevered¹ As of July 31, 2013 As of June 30, , x 9% $ in millions 35,000 25,000 Net Charge-offs Provisions / NCO's (x) 1.5 x 1.0 x 8% 7% 6% 5% Tangible Common Equity / Tangible Assets (%) 15, x 4% 3% 5, x 2% 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3E 2013Q4E 2014Q1E 2014Q2E 2014Q3E 2014Q4E 1990Y 1991Y 1992Y 1993Y 1994Y 1995Y 1996Y 1997Y 1998Y 1999Y 2000Y 2001Y 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2013Q1 2013Q2 3.5 As of July 31, As of July 31, 2013 Price to Book Value (x) Price to Book Value (x) '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Price to Book Value (LTM)² 0.0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Price to Book Value (LTM)² 1. Source: SNL Interactive, Credit Suisse estimates. Note: Large cap bank universe includes BAC, C, JPM, PNC, USB and WFC. 2. Source: FactSet. As of 7/31/13.

24 23 And Ignoring European Bank Improvements Bank Core Tier1 and Wholesale Funding Ratios, 2008: Q4 to 2012:Q3 1 Stronger balanc e sheet European Banks Have Improved Capital Positions O y Wholesale funding ratio (Percentage of total funding) 14% 12% 10% 8% 6% 4% 2% 6.3% ET1 ratio (prevailing reg) ² ET1 ratio (Basel 3) ² 6.9% 6.9% 6.6% 6.5% 6.6% 6.1% 6.5% 8.2% 9.1% 9.9% 8.4% 12.6% 11.9% 12.1% 11.3% 10.7% 11.3% 8.8% 9.9% Core Tier 1 capital ratio (percentage of risk-weighted assets) 0% Dec- 01 Dec- 02 Dec- 03 Dec- 04 Dec- 05 Dec- 06 Dec- 07 Dec- 08 Dec- 09 Dec- 10 Dec- 11 Dec- 12 Dec- 13e Dec- Dec- 14e 15e Price to Book Value (x) As of July 31, 2013 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Price to Book Value (LTM)³ Price to Book Value (x) As of July 31, 2013 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Price to Book Value (LTM)³ 1 Source: IMF Global Financial Stability Report, April SNL Financial; and IMF staff estimates. Note: Euro area periphery = Cyprus, Greece, Ireland, Italy, Portugal and, Spain. Wholesale funding is debt, repo, and interbank deposits. Total funding is wholesale funding plus customer deposits. 2 Source: Exane BNP Paribas Banks Team, Company data, EBNPP estimates. Data as of 6 August, Source: FactSet. As of 7/31/13.

25 24 European Financials Offer Big Discounts MSCI Europe Banks¹ December 31, 1998 to July 31, % Price to Book (LHS) ROE (RHS) 2 21% 18% 15% 12% 9% 6% 2 Long Term 3 Current Long Term 3 Current Long Term 3 Current ROE 16.7% 5.3% P/TBV ROE 9.7% 7.1% P/TBV ROE 13.0% 6.2% P/TBV Source: 2013 FactSet Research Systems Inc., 2013 Morgan Stanley Capital Index (MSCI). 12/31/98 to 7/31/13. 2 Source: 2013 FactSet Research Systems Inc. Current data points as of 7/31/13. 3 Long term average since 12/31/99 to 7/31/13. Logos are trademarks of their respective owners and are used for illustrative purposes and should not be construed as an endorsement or sponsorship of Franklin Templeton Investments.

26 Summary: Time for Templeton

27 26 Historical Performance (%) Average Annual Total Returns for Periods Ended July 31, Yr 3-Yrs 5-Yrs 7-Yrs 10-Yrs Templeton Institutional Global Equity Composite Gross of Fees (USD) Templeton Institutional Global Equity Composite Net of Fees (USD) MSCI All Country World Index (USD) Templeton International Equity Composite Gross of Fees (USD) Templeton International Equity Composite Net of Fees (USD) MSCI All Country World ex U.S. Index (USD) Source: Morgan Stanley Capital International (MSCI), FactSet. All MSCI data is provided as is. The composite described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the composite described herein. Copying or redistributing the MSCI data is strictly prohibited.

28 27 Templeton Institutional Global Composite vs. MSCI All Country World Index Sector and Regional Performance Attribution Excess Returns for the One Year Ending July 31, 2013 Portfolio Financials Health Care Technology Consumer Disc. Materials Industrials Consumer Staples Telecoms Utilities Energy Europe North America Japan Australia/NZ L.Am/Carib Mid-East/Africa Asia ex-japan Total Effect% Total Effect% Source: FactSet, MSCI. All MSCI data is provided as is. The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index.

29 28 Templeton Institutional Global Composite vs. MSCI All Country World Index Sector and Regional Performance Attribution Excess Returns for Three Years Ending July 31, 2013 Portfolio Health Care Financials Materials Consumer Disc. Utilities Technology Industrials Energy Telecoms Consumer Staples Europe Asia ex-japan North America Mid-East/Africa Japan Australia/NZ L.Am/Carib Total Effect% Total Effect% Source: FactSet, MSCI. All MSCI data is provided as is. The portfolio described herein is not sponsored or endorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited. Indexes are unmanaged and one cannot invest directly in an index.

30 29 Templeton And Value is a Winning Combination Over Time Excess Returns (US$) January 1, 1975 July 31, Templeton 7,500 Annual Excess Return (%) Value 5,000 2, ,500 Cumulative Excess Return Annual Excess Return of MSCI World Value Index vs. MSCI World Index (LHS) Cumulative Excess Return of MSCI World Value Index vs. MSCI World Index (RHS)¹ Cumulative Excess Return of Templeton Global Equity Representative Account* (Without Sales Charge) vs. MSCI World Index (RHS)¹ 1 January 1, 1975 = 100 Source: MSCI, FactSet. All MSCI data is provided as is. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data described herein. Copying or redistributing the MSCI data is strictly prohibited. Annual Data YTD - YTD ending 7/31/13. *For illustration purposes only YTD -5,000

31 30 A Record of Beating the Benchmark on a 5-Year and 10-Year Basis As of July 31, 2013 The composite has outperformed the benchmark 76% of all five-year monthly rolling periods and 97% of all ten-year monthly rolling periods since inception. 5 Year Annualized Rolling Returns Since Inception 10 Year Annualized Rolling Returns Since Inception TEMPLETON INSTITUTIONAL GLOBAL EQUITY COMPOSITE 25% OUTPERFORMED 76% 20% 15% 10% 5% % -5% UNDERPERFORMED -10% -10% -5% % 5% 10% 15% 20% 25% MSCI AC WORLD INDEX GROSS RETURN TEMPLETON INSTITUTIONAL GLOBAL EQUITY COMPOSITE 18% OUTPERFORMED 97% 15% 12% 9% 6% 3% UNDERPERFORMED % -3% % 3% 6% 9% 12% 15% 18% MSCI AC WORLD INDEX GROSS RETURN Source: MSCI, FT Investments. 1. Five-year out of 212, ten-year 148 out of 152. Source: FactSet. Returns are expressed as five and ten year rolling average annual total returns (AATR) for the Templeton Institutional Global Equity Composite, as represented on the Y axis; and the MSCI AC World Index -Gross Return, as represented on the X axis.

32 Europe

33 32 European Central Bank Has Responded and Has Room To Do More Fed Balance Sheet vs. European Central Bank Balance Sheet (BN) January 2008 to August ,500 $4,000 3,000 $3,500 Trillion 2,500 Fed, right $3,000 $2,500 $Trillion 2,000 LTRO Repayments $2,000 1,500 ECB, left Inflection Point $1,500 $1,000 1,000 1/08 10/09 7/11 4/13 $500 Source: Strategas Research Partners, as of August 2013.

34 33 Europe Still At a Significant Valuation Discount MSCI Europe Index: Price to Book MSCI Europe Index: Trend Price-to-Earnings Average = 2.2x Average July 2013 = 1.6x Price to Book Average 9 July 2013 = 11.6x trend Trend P/E Average +1 std dev -1 std dev Source: 2013 FactSet Research Systems Inc., 2013 Morgan Stanley Capital Index (MSCI). MSCI Europe Index: Price to Book calculated from 12/31/92 to 7/31/13. MSCI Europe Index: Price-to-Earnings calculated 1/31/80 to 7/31/13 (Monthly). Methodology: The stock s trend P/E is established by dividing its absolute share price history by its trend EPS line.

35 34 Europe is Slowly Improving Eurozone real M1 yoy growth, 3 quarters forward (%) Real M1 Money Supply Tends To Herald Turning Points² Eurozone real M1,3q fwd, lhs GDP, rhs -6 Jan 92 Jan 95 Jan 98 Jan 01 Jan 04 Jan 07 Jan 10 Jan GDP YoY Growth % Current account balance, % of GDP 0% -4% -8% -12% Current Account Deficits Are Shrinking In Portugal And Greece¹ Current account balance, % of GDP, 12m rolling sum Greece Portugal -16% Current account balance, % of GDP 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% The Euro-area s Current Account Balance Is At A 15-year High¹ Euro area current account balance -2.0% Source: Thomson Reuters, Credit Suisse research June Source: Berenberg, Eurostat, ECB, Berenberg calculations. Latest data as of August, Real effective exchange rate calculated based on unit labor costs (versus the rest of the euro area). 2000= Unit-labor Costs In The Periphery Are Increasingly Competitive¹ Germany Ireland Greece Spain Italy Portugal

36 35 Patience is Required, But so is Perspective Eurozone compares positively on debt metrics and is further along on fiscal repairs 250% 200% General government debt and deficits (% of GDP)¹ Required fiscal repair until 2020² Tightening need, adjusted for age-related spending Remaining tightening need (% of nom. GDP) Tightening 2013 (% of nom. GDP) % % % % -2 Debt 2012 Deficit 2012 Eurozone US UK Japan Rise in debt ratio Germany Italy France Greece Spain Ireland UK Portugal US Japan 1 Source: Berenberg Bank; Source: EU Commission 2012 autumn forecast, December Berenberg Bank; IMF Fiscal Monitor April Required cumulative change in underlying primary fiscal balance by 2020 to reach 60% debt-to-gdp ratio by 2030, adjusted for impact of aging populations, August 2013.

37 36 Even Excluding Banks, European Companies Are Much Cheaper Than U.S. Companies Eurozone vs. U.S. Price-to-Book (ex-financials) MSCI EMU (Ex-Fin) P/Book rel to US average +1stdev -1stdev Source: Datastream, 2013 Morgan Stanley Capital Index (MSCI), J.P. Morgan, 8/26/13.

38 37 European Earnings Have Significant Catch-up Potential Valuations Still Appear Attractive Despite Rebound in EARNINGS PER SHARE: EURO AREA U.S EARNINGS PER SHARE: EURO AREA U.S. U.S. EPS at all-time high BCA Research Euro area EPS at major low BCA Research Source: BCA Research, July Expressed in common currency terms. There is no assurance that any projection, estimate or forecast will be realized.

39 38 Emerging Markets Have Had a Decade of Outperformance: Time for Thoughtful Buying of Value in Europe MSCI Europe price relative to the Emerging Markets (USD) Apr Aug Source: MSCI, FactSet. April 1994 = 100.

40 Japan

41 40 Japanese Equities Are Cheap but Not Necessarily Value Japanese Low Price-to-Book Ratio Reflects Low Return on Equity As of July 31, 2013 (unless otherwise indicated) Indonesia Price/Book Ratio Australia Taiwan Canada Netherlands Germany Hong Kong Japan France EM Japan JUL 2013 Brazil SEP 2012 Spain Euro Area Korea Italy Russia South Africa U.S. Switzerland India Sweden China Mexico UK Turkey month Forward Return on Equity (%) Source: 2013 FactSet Research Systems Inc., 2013 Morgan Stanley Capital Index (MSCI).

42 41 Exporters are benefiting from the weak yen Capital & consumer good exporters are experiencing higher profit margins Net Profit margins of Japanese exporters (%) (2) (4) (6) (8) (10) (12) Net Margin (%) Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Source: CLSA, Datastream

43 42 Exporters are benefiting from the weak yen because they have not lowered prices despite weak volumes.

44 43 Japanese equities are fairly valued Japanese equities are fairly valued on P/B when evaluated against ROEs

45 44 Japanese equities are fairly valued The low return on equity is due to low margins rather than leverage or asset turnover.

46 45 Japanese equities are fairly valued Low margins are partly due to inefficient capital and labor.

47 46 Labor force issues The workforce is also inefficient compared to other countries.

48 47 Domestic M&A activity remains low Japanese laws have become more conducive towards domestic M&A, but deal flows have declined rather than increased.

49 48 Imported energy is becoming a burden The cost of imported energy increases as the yen depreciates.

50 49 Savings Have Declined in a Zero Interest-Rate Policy (ZIRP) Environment Japan s Household Savings Rate Already Among the Lowest in the World Savings Rates in Japan Japan s savings rate has declined from 12% in 1995 down to 2% today Now only % France (*) Switzerland Sweden Germany Portugal (*) Norway Australia Belgium Austria Spain (*) Czech Rep Netherlands Italy UK (*) Estonia Hungary Slovak Rep Canada New Zealand Poland Korea U.S. Japan Ireland Finland Denmark Household Savings Rate % Of Disposible Income Source: Cornerstone Macro LP. August The (*) indicates a gross savings yield while no * indicates a net savings yield.

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52 51 Who Will Finance the Debt? Japan s Boomers Looking at Negative Savings Rates Savings Rate By Household Age Bracket 40% 40% 30% 20% 10% 11% 13% 18% 21% 25% 27% 23% 22% 20% Savings 0% -10% -20% Japanese consumers tend to save less once they reach the 60+ age. -10% 0% -20% -30% -40% -50% -60% -41% -48% Age -40% -60% Source: Cornerstone Macro LP. Takeo Hoshi, Defying Gravity: How Long Will Japanese Government Bond Prices Remain High? August 2013.

53 52 Sovereign Financing Costs What if Japan Has to Turn to Foreigners to Sell Debt? AAA Rated² 10-Year Yield² JBG Yield² Interest Costs (Yen)² Interest Cost % Of Gov't Expenditures² 2.2 Japan 10-year JGB yield¹ From 31-DEC-99 to 16-AUG-13 Australia 4.01 Norway 1.86 Canada 2.67 Finland 1.88 Denmark $99, % 1.75 $124, % 2.00 $141, % 2.50 $177, % AAA U.K. (2.15%) Luxembourg 1.76 Sweden 1.59 Netherlands 2.06 Germany $212, % 3.50 $248, % 4.00 $283, % South Korea (3.01%) Japan Benchmark Bond - 10 Year - Yield Hong Kong $318, % Italy (4.56%) Switzerland 0.76 Average AAA Yield $354, % 5.50 $389, % Portugal (5.85%) 1 Source: 2013 FactSet Research Systems Inc., as of 8/16/13. 2 Source: Cornerstone Macro LP. August 2013.

54 53 Despite The Momentum We Remain Stock Pickers As the Yen Has Weakened, the Japanese Market Has Risen USD/JPY, Right Japan Nikkei 225 Index, Left Investors are Beginning to Discriminate, Stock Picking Can Add Value Average Correlation of MSCI Japan Stocks to the Index (Monthly Returns, 12-Month Trailing Correl)¹ 0.20 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Strategas Research Partners, 8/23/13.

55 54 Important Disclosures The returns, weightings and reference represented on Slides 7, 9, 10, 11, 12,13, 14 and 29 represent those of the Templeton Global Equity Representative Account featuring a similar investment objective as that of Templeton Institutional Global Composite, managed by the same investment team utilizing the same research. These are shown as supplemental to those of Templeton Institutional Global Composite which has a limited operating history and are shown to demonstrate the performance of a similar investment portfolio managed by the same investment team over a longer time horizon. The Templeton Global Equity Representative Account is shown because it has the longest operating history of Templeton funds (since November 1954). Returns of Templeton Institutional Global Composite may differ from the Templeton Global Equity Representative Account s strategy due to a variety of reasons including portfolio size, regulatory requirements applicable to each fund, composite and differences in fees, expenses and composition. This document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Any research and analysis contained in this presentation has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change without notice. Franklin Templeton Investments accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Past performance or any prediction or forecast is not necessarily indicative of future performance. Copyright 2013 Franklin Templeton Investments. All rights reserved. Issued by Templeton Asset Management Ltd. Registration No. (UEN) E

56 2013 Franklin Templeton Investments. All rights reserved.