Franklin templeton investmentsPresentation Transcript
Meeting the Income Challenge David Zahn Manager, Templeton Strategic Bond Fund Franklin Templeton FundsFor Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 2 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. For Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 3 3Franklin Templeton Fixed Income Group Overview Franklin Templeton Fixed Income Group OverviewBroad 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 marketsMultiple Sources of Expertise• More than 100 investment professionals globally seek return opportunities across sectors around the world1 Top Down Bottom-Up Quantitative Senior leaders seek to Dedicated sector teams Dedicated team builds capitalise on global strive to add value through proprietary risk models to economic trends security- and sector- specific identify potential alpha insights opportunities Combination of Expertise Aiming to Build: Diverse Portfolios of Low-correlated Positions 1. Investment professionals include portfolio managers, analysts and traders. For professional investors only. Not for distribution to retail investors.
MEETING THE INCOME CHALLENGE 4 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. For Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 5 Interest Rates Are Expected to Remain Low 7% 6% 5% 4% 3% 2% 1% 0% Nov-12 Jul-08 Jan-06 Nov-06 Apr-07 Jan-11 Nov-11 Apr-12 Sep-07 Feb-08 Mar-10 Aug-10 Sep-12 Dec-08 Jun-06 Oct-09 Jun-11 May-09 • 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 Source: Bank of England as of 30 November 2012 For professional investors only. Not for distribution to retail investors.
MEETING THE INCOME CHALLENGE 7 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. Typical Templeton Strategic Bond Fund Asset Typical Templeton Strategic Bond Fund Asset Allocation by Region Allocation by Sector Cash 5% UK 20% Corporate Bonds 30% 40% EM Govt & Govt 15% Global 60% Related Bonds Sovereign Bonds 30% 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.Source: Franklin Templeton Investments as of 30 September 2012.For Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 9 Being More Strategic than its Competitors? Average Regional Breakdown of Top 10 Funds in IMAs £ Strategic Bond Sector Developed Markets Emerging Markets Cash Non Classified Region % Region % UK 61.89 UK 34.75 Developed Europe (ex UK) 21.32 Developed Europe (ex UK) 27.74 North America 8.21 North America 6.61 Many of the top funds in the Cash and Equivalents 3.57 sector are yielding less than Cash and Equivalents 1.39 Non-Classified 2.07 the Templeton Strategic Bond Non-Classified 0.00 South & Central America 0.63 Fund (4.94%) but appear to South & Central America 12.95 Australia & New Zealand 0.37 be taking roughly the same amount of risk. Australia & New Zealand 0.00 Middle East & Africa 0.35 Middle East & Africa 1.65 Emerging Europe 0.00 Emerging Europe 13.48 Developed Asia 1.59 Developed Asia 0.00 Emerging Asia 0.02 Emerging Asia 1.44 Source: Financial Express as of 30 November 2012. Does not include fund of funds. For Professional Investor Use Only. Not for Distribution to Retail Investors.
AppendixFor Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 11 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% 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. For Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 12 Changes made Summer 2012 Templeton Strategic Bond Fund – A New Beginning 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 Source: Franklin Templeton Investments as of 30 November 2012. For Professional Investor Use Only. Not for Distribution to Retail Investors.
MEETING THE INCOME CHALLENGE 13 Portfolio Characteristics Templeton Strategic Bond Fund vs. BofA Merrill Lynch Sterling Broad Market Index As of 30 November 2012 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 Quality Allocation 30% 20.61 12.86 11.33 12.78 15% 6.24 6.25 5.36 7.06 4.44 4.62 3.83 1.52 1.85 1.24 0% AA- A+ A A- BBB+ BBB BBB- BB+ BB- B+ B B- CCC NR * 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 & Poors, Moodys and Fitch. The ratings are an indication of an issuers 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 funds 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.
MEETING THE INCOME CHALLENGE 14 Top Ten Holdings Templeton Strategic Bond Fund As of 30 November 2012 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 Motability Operations Group PLC, senior note, Reg S, 4.375%, 10. United Kingdom Diversified Financials 1.66 2/08/27 Total 23.71 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 15 Management Profile 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). For professional investors only. Not for distribution to retail investors.