Franklin MENA Fund - A(acc) USD - Franklin Templeton Investments

Transcription

R305841
Franklin Local Asset Management
Data as of 30 June 2016
Franklin Templeton Investment Funds
Franklin MENA Fund - A(acc) USD
For professional investors only. Not for distribution to retail investors.
R305841
Franklin MENA Fund
Why Consider This Fund?
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Why Consider This Fund?
Tomorrow’s Emerging
Markets Growth Story
A Great Complement
to Your Portfolio
Experienced MENA Specialists
on the Ground
• The Middle East & North Africa (MENA)
region offers exposure to rapidly growing
economies with real Gross Domestic
Product (GDP) growth estimated to be
3.1% in 2016.1
• MENA equities are largely underrepresented in global portfolios compared
to their GDP contribution.
• We have one of the most experienced
portfolio management teams in the MENA
region with an average of 14 years of
industry expertise.2
• Growth outlook is supported by strong
fundamentals—strong balance sheets, low
debt levels and continued government
spending.
• A great diversifier—historically, the MENA
region has had low correlations with major
asset classes.
• The MENA region offers attractive
valuations with some of the highest
dividend yields globally.
1. Source: International Monetary Fund, World Economic Outlook Database, October 2015. © 2015 International Monetary Fund. All rights reserved.
2. Source: Franklin Templeton Investments, as of 31 December 2015.
• Our broad research coverage helps to
identify the best equity opportunities across
MENA countries, one of the most underresearched regions in the world.
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Franklin Templeton Overview
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Investment Platform Overview
FRANKLIN TEMPLETON INVESTMENTS
Total Combined Assets Under Management (Total AUM) : US$742.6 Billion
Institutional AUM : US$188.9 Billion
Single Business Development, Relationship Management, and Consultant Relations Platform
Franklin Equity
Group
Established
Focus
1947
U.S. Equity
Global Equity
Templeton
Emerging Markets
Group
Templeton Global
Equity Group
1987
1940
1949
Global Equity
Global Equity
Corporate Credit
Global Sovereign
International Equity
Global Multi-Sector
Emerging Markets
Private Equity
U.S. Equity
Global Sovereign/
Emerging Markets
Distressed Debt &
Merger Arbitrage
Bank Loans
Emerging Markets
Equity
Franklin Mutual
Series
Franklin
Templeton Fixed
Income Group
1970
Mortgages
Municipals
Templeton Global
Macro
1986
Franklin Local
Asset
Management
1993
Global Equity & Fixed
Income
Emerging Market Debt Regional Equity &
Fixed Income
Global Macro Hedge
Single-Country Equity
Fund
& Fixed Income
Franklin Real
Asset Advisors
1984
Global Private Real
Estate
Global Listed Real
Estate Securities
Global Listed
Infrastructure
Single-Country Private
Equity
Franklin
Templeton
Solutions
1994
Multi-Asset Strategy
Global Tactical Asset
Allocation
Custom / Advisory
Solutions - Alternative
& Traditional
Hedge Fund Portfolios
(Multi- & Single
Strategy) &
Replication
Style
Growth, Value,
Core/Hybrid
Core Value
Core Value
Deep Value
Single Sector,
Multi-Sector
Unconstrained
Multi-Sector, Singleor Multi-Region
Multi-Sector,
Multi-Region
Multi-Style,
Multi-Region, Hedged
AUM
US$175.4 Billion
US$26.5 Billion
US$100.9 Billion
US$61.7 Billion
US$153.1 Billion
US$140.5 Billion
US$47.8 Billion
US$4.2 Billion
US$39.4 Billion
Source: Franklin Templeton Investments (FTI), as of 31 March 2016 unless otherwise noted, based on latest available data. Total combined Assets Under Management (Total AUM) combines the U.S. and non-U.S. AUM of the investment
management subsidiaries of the parent company, Franklin Resources, Inc. (FRI) [NYSE: BEN], a global investment organisation operating as FTI. Total and platform AUM includes discretionary and advisory accounts, including pooled investment
vehicles, separate accounts and other vehicles, as well as some accounts that may not be eligible for inclusion in composites as defined by the firm’s policies. Total and platform AUM may also include advisory accounts with or without trading
authority. In addition, assets for which certain FTI advisers provide limited asset allocation advisory services, and assets that are not allocated to FTI products are not included in the AUM figures shown.
Franklin Templeton Solutions (FT Solutions) invests in various investment platforms advised by a number of investment advisory entities within FTI. Platform AUM reported for FT Solutions therefore includes certain AUM separately reported under
each utilised investment platform. Total AUM also includes assets managed by certain FTI advisers that do not form part of the selected investment platforms shown. As a result, the combined platform AUMs may not equal Total AUM and may be
calculated and reported separately for regulatory or other purposes under each investment adviser.
Each local asset manager may be considered as an entity affiliated with or associated to FTI by virtue of being a direct or indirect wholly-owned subsidiary of FRI, an entity or joint venture in which FRI owns a partial interest, which may be a minority
interest, or a third party asset management company to which investment advisory services have been delegated by an FTI adviser.
Please refer to the “Important Disclosures” slide for additional information.
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Local Insights from a Global Leader
Local Asset Management (LAM) Group—What Sets Us Apart
Access to Locally
Sourced Ideas & Insights
• Local investment professionals who
are based in the country or region
where assets are managed
• Specialisation and focus on a single
region to develop deep knowledge
and unique insights
• First-hand knowledge of local market
dynamics as investment teams are
embedded in their region’s local
business practices
• Real-time response to local
market events
• Networks of local business contacts
1. Source: Franklin Templeton Investments as of 31 December 2015.
Broad Research
Capabilities Worldwide
• Extensive on-the-ground asset
management capabilities in 15
countries to identify the best
investment opportunities in each
country or region
• In-depth research across all
markets—developed, emerging and
frontier—and market capitalisation for
unparalleled insights into the markets
we invest in
• Access to investment opportunities
beyond the mainstream and often
before they are recognised by the
broader market
Strength of a Global
Asset Management Leader
• Franklin Templeton was established
in 1947
• Manages US$763.9 billion of assets
in 35 countries1
• Credit ratings among the highest of
any asset management company
• Large research platform that operates
seamlessly across the globe
• Comprehensive 24/7 coverage
and support of key operations such as
trading, risk analysis, legal,
technology, operations, client
service and other key business
services
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Local Investment Management Capabilities—Local Knowledge, Global Reach
Franklin Templeton was one of the first investment managers offering “on-the-ground” services
+ 15
20
Years
Countries
Full Range of Investment Strategies
$48 bn+
Equity
1
in local assets under management
Global, Regional and Single Country
Fixed
Income
Balanced/
Hybrid
ShariahCompliant
Equity
Sukuk
+
120
Portfolio Managers and Analysts
Source: Franklin Templeton Investments as of 31 December 2015.
1. The Franklin Local Asset Management platform was established in 1993.
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Our Goal Is to Be “Best in Each Country”
Five Key Reasons for Local Asset Management:
A global
company is “local”
everywhere.
Most investments
are local due to
domestic biases.
Access to
domestic growth
is often not
found in global
portfolios.
Locally managed
domestic products
typically possess
strong competitive
advantages.
Finding the
right balance of
global practice
and local
knowledge is key.
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Franklin Local Asset Management Locations—Local Managers, Local Products
POLAND (2014)
WARSAW
CANADA1 (1982)
UNITED KINGDOM (1985)
CALGARY
Equity, Fixed Income
LEEDS
CHINA, JV2 (2003)
Equity
HONG KONG, SHANGHAI
EUROPE (2008)
UNITED STATES (1947)
Fixed Income
SOUTH KOREA (1997)
SEOUL
FRANKFURT, LONDON
INDIA (1993)
Equity
CHENNAI, MUMBAI
JAPAN4 (1996)
Equity, Fixed Income, Private Equity
MEXICO (2013)
MENA3 (2006)
MEXICO CITY
DUBAI
Equity, Sukuk, Fixed Income
Fixed Income
TOKYO
Equity
MALAYSIA (2009)
KUALA LUMPUR
Sukuk, Fixed Income
VIETNAM, JV2 (2008)
HO CHI MINH CITY,
HANOI
Equity, Fixed Income, Private Equity
BRAZIL (1997)
SÃU PAULO
AUSTRALIA (1988)
MELBOURNE
Please note that all cities shown on the map above refer to the locations of the relevant country-specific and regional asset management teams.
The date refers either to the year the acquired company was established or the year Franklin Templeton Investments opened an office in that country, whichever came first.
Source: Franklin Templeton Investments as of 31 December 2015.
1. Managed under the Franklin Bissett Investment Management brand.
2. Minority interest in separate joint ventures with Sealand Securities Company, Ltd. (China), China Life (Hong Kong) and Vietcombank (Vietnam).
3. Franklin Templeton Investments (ME) is an indirect wholly owned subsidiary of Franklin Resources, Inc.
4. Offered through sub-delegation to a designated third-party asset management company.
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One of the Most Experienced Investment Teams in the MENA Region
Broad Research Coverage in One of the Most Under-Researched Regions in the World
• Average industry experience of MENA Equity portfolio management team members is 14 years.1
• On-the-ground investment experts are dedicated to the MENA region with access to all markets, including Saudi Arabia.
Franklin MENA Equity Team
Investment Team
Responsibility
Countries
Bassel Khatoun
Chief Investment Officer
Saudi Arabia, Oman, Tunisia, Morocco, Lebanon
Salah Shamma
Portfolio Manager
Egypt, UAE, Qatar, Bahrain
Karim Abbas, CFA
Sr. Analyst
Kuwait, Jordan
Nikhil Arora, CFA
Analyst
Egypt, Qatar, Bahrain
Jagadishwar Pasunoori, CFA
Analyst
Kuwait, Jordan
Keyur Vora, CFA
Analyst
Saudi Arabia, Oman, Tunisia
Global Integrated Platform
Global Risk Management
Compliance
Trading
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute. Investment professionals include portfolio managers, analysts and traders.
1. Franklin Templeton Investments, as of 31 December 2015.
Product Management
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Investment Philosophy and Process
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MENA Coverage Requires More Depth
More Than Half of the Stocks in S&P Pan Arab Composite Index Have Little or No Research Coverage
• Fund investments are based solely on proprietary in-depth research, which includes a financial model and an investment recommendation.
1,359
Companies
listed in MENA region
417
279
Companies included
in S&P Pan Arab
Composite Index
Companies covered by at least
1
sell-side analyst
143
94
4
sell-side analysts
Source: Bloomberg LP, S&P Dow Jones Indices as of 31 December 2015. See “Important Disclosures” slide for additional information regarding third-party content.
7
Creates
significant
bottom-up
opportunities
sell-side analysts
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Investment Philosophy and Approach
Investment Philosophy
• We believe that a disciplined investment approach founded on in-depth, proprietary research will deliver alpha over a full market cycle.
Investment Universe
• We focus on equity securities of companies in the Middle East and North African countries (“MENA”), including, but not limited to Bahrain, Egypt,
Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates (UAE).
Investment Approach
• Long-term investment horizon
– Target high-quality businesses with a sustainable competitive advantage
• Focus on undervalued stocks with attractive growth prospects
– Identify companies that are trading at a significant discount to intrinsic value with a particular focus on cash flow generation
• Bottom-up investment approach based on proprietary, fundamental research
– In-depth coverage of over 200 stocks in the region, across the market capitalisation spectrum
• Focus on building high-conviction, concentrated portfolios
– 30–40 stock holdings, constituting “best ideas” only
• Disciplined risk management
– Regular portfolio monitoring aligns risk with conviction and ensures that risks are recognised, rational and rewarded
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Active Search for Alpha-Generating Investment Opportunities across MENA
A Bottom-Up-Driven Investment Process
1.
2.
3.
4.
Idea
Generation
Due
Diligence
Review
Panel
Portfolio
Construction
• Comprehensive research
coverage on country level
• In-depth fundamental
stock research to analyse
business models,
competitive landscape,
financials and valuations
• 360-degree review of stock
recommendations leverages
experience of whole team
• Ranking model identifies
highest conviction “Buy List”
ideas based on quantitative
and qualitative factors
• Local presence in the
market positions us
advantageously to identify
potential opportunities
• Quantitative and qualitative
screens filter ideas that
warrant further analysis
Over 1,300
Companies Listed in MENA
• Consistent valuation
framework across team
• Over 300 company
interactions per year breeds
conviction in outlook
200+
FTIME1 Stock Coverage
1. Franklin Templeton Investments (ME) Limited.
• A disciplined approach
ensures consistency in
terms of how we look at
investments across different
countries
• Security sizing is
determined by stock
conviction as well as risk
alignment
Franklin
MENA Portfolio
Integrated and ongoing
risk management
• Approved ideas are
included in team’s
“Buy List”
40–60
Stocks on Research Buy List
30–40
Stocks in Portfolio
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Stock Selection Is Driven by Proprietary Fundamental Research
Focus on Best-Quality Measures and Highest Upside Potential
Business and Strategy Analysis
• Understand business operations
• Research industry value chain and competitive
landscape
• Debate strategy and market positioning
• Identify competitive edge
Financial Analysis
• Project main revenue drivers
• Analyse Return on Invested Capital (ROIC)
• Project cash flow
360-Degree Review
• Leverage the experience of the
whole team
• Use a disciplined approach to ensure
• Valuation—Discounted Cash Flow (DCF), sum
consistency in terms of how we look at
of parts, Net Asset Value (NAV) and relative
investments across different countries
Research
Buy List
valuation
Management Due Diligence
• Asset management quality
– Vision
– Past decisions
– Disclosure and transparency
• Understand corporate governance
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Portfolio Construction
Driven by Stock Conviction and Risk Alignment
Ranking Model
40–60 Stocks
Research
Buy List
Quantitative Factors
• Fair value upside
• Relative valuation matrix
• Valuation safety margins
Qualitative Factors
• Management quality
• Corporate governance
• Level of conviction in
assumptions
Risk Management
Security Sizing
• Top-down risk alignment
• Active weight against
benchmark
• Liquidity factors
30–40 Stocks
Franklin
MENA
Portfolio
Ongoing Risk Analysis
Engage with independent
risk specialists to ensure
that risks are recognised,
rational and rewarded
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Risk Management Is Integral to the Process
Aligning Risk with Conviction
Performance Analysis and
Investment Risk Group (PAIR)
Quantitative Analysis Team
Independent, Integrated Risk Management
We buy when risks are recognised,
rational and rewarded (the 3 Rs):
We sell:
• Recognised or clearly understood
• When risk becomes inconsistent with
the 3 Rs
• Rational or consistent with our intent
and convictions
• To capture superior relative value
opportunities
• Rewarded with the potential for
commensurate returns
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What Is MENA?
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MENA’s Role in the Global Economy Is Rising
• MENA’s1 GDP Has More Than Doubled Over the Last Decade to US$1.9 Trillion2
Morocco
Jordan
 GDP 2015e US$103 bn
 Mkt Cap US$45 bn
 Listed Companies: 71
Lebanon
 GDP 2015e US$38 bn
 Mkt Cap US$9 bn
Kuwait
 GDP 2015e US$123 bn
MENA
Region
Bahrain
MENA’s economy
is 8th largest economy
of the world.
United Arab Emirates
Gulf Cooperation Council (GCC)
North Africa
Levant (countries bordering
the eastern Mediterranean Sea)
 Mkt Cap US$9 bn
197 Million
 GDP 2015e US$300 bn
Oman
Qatar
Saudi Arabia
 GDP 2015e US$192 bn
 GDP 2015e US$632 bn
MENA Economic Indicators
Total Population2
 GDP 2015e US$210 bn
Egypt
Tunisia
Nominal GDP (2015e)2
Market Capitalisation3
Listed Companies4
Total Reserves5
US$1.9 Trillion
US$1.0 Trillion
1,359
US$2.8 Trillion
1. FT Middle East and North Africa (MENA) region comprises 11 countries: Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates.
2. Nominal GDP/Total Population: International Monetary Fund, World Economic Outlook Database, October 2015. © 2015 International Monetary Fund. All rights reserved.
3. Market Capitalisation: Bloomberg LP, as of 2 March 2016.
4. Bloomberg LP, S&P Dow Jones Indices as of 31 December 2015. See "Important Disclosures" slide for additional information regarding third-party content.
5. Total Reserves: International Monetary Fund, World Economic Outlook Database, October 2015. © 2015 International Monetary Fund. All rights reserved. Sovereign Wealth Fund Institute.
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Largely Under-Represented in Global Portfolios
MENA Equity Representation Remains Very Low Compared with GDP Contribution
• Long-term growth potential of the region and development of its capital markets will increase representation over time.
MENA1 GDP as a
% of WORLD GDP2:
MENA1 GDP as a
% of Emerging Market GDP2:
6.7% or US$1.9 tn
2.6% or US$1.9 tn
 MENA: 2.6% (US$1.9 tn)
 Emerging Markets: (ex-MENA): 36.6% (US$26.9 tn)
 Developed Markets: 60.8% (US$44.7 tn)
MENA represents
only 0.2%3 of the
MSCI All Country World Index
1. FT Middle East and North Africa (MENA) region comprises 11 countries: Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates.
2. GDP data is from International Monetary Fund, World Economic Outlook Database, October 2015. © 2015 International Monetary Fund. All rights reserved.
3. Index data source: HSBC, MSCI as of October 2015. See “Important Disclosures” slide for additional information regarding third-party content.
 MENA: 6.7% (US$1.9 tn)
 Emerging Markets: (ex-MENA): 93.3% (US$26.9 tn)
MENA represents
only 2.0%3 of the
MSCI EM Index
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Investment Diversity and Flexibility within MENA
The MENA Region Offers
• Eleven countries at different stages of economic development and with varying economic dynamics
– The “oil story myth”—only six out of 11 countries are oil exporters
• Wide span of credit ratings creates opportunities for different risk appetites
• Low correlation between MENA countries
Oil and Non-Oil GDP Breakdown of MENA Countries1
CDS Spreads and Credit Ratings as of 31 December 20152
(Oil and Non-Oil GDP As a Percentage of Nominal GDP as of 2014)
100%
80%
54
51
44
35
28
21
12
CDS Spreads
5%
4.71%
7
4.40%
AA
4.20%
4%
BBB-
40%
0%
BBB-
3%
60%
20%
A+
3.94%
46
49
Kuwait
Qatar
56
65
71
79
89
93
100
100
BB-
100
2%
B-
B-
Egypt
Lebanon
2.28%
2.01%
1.30%
1%
Oman
Non-Oil GDP as % Total GDP
UAE
Saudi Bahrain^ Egypt# Tunisia@ Morocco Lebanon Jordan
Arabia*
Oil GDP as % Total GDP
0%
5-Year CDS
Tunisia
Bahrain
Morocco
Saudi Arabia
Qatar
Credit Rating
AAA
20
AA
AA+
AA
AAA+
A15
BBB+
BBB
BBBBB+
BB
10
BBB+
B
1.30%
B5
CCC+
CCC
CCCCC
C
D0
Abu Dhabi
Sovereign Bond Credit Rating
1. Oil and Non-Oil GDP breakdown is latest available official data published by respective Central Banks and Central Statistical Authorities. GDP at Current Price-National Currency via International Monetary Fund, World Economic Outlook Database,
October 2015. © 2015 International Monetary Fund. All rights reserved. *data as of 2015. #data as of fiscal year ending June 2015.^data as of 2013. @data as of 2011.
2. Bloomberg LP, as of 31 December 2015.
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Why Invest in MENA?
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1. MENA Well Positioned to Withstand Lower Oil Prices
Substantial Sovereign Assets and Very Low Debt Levels
• GCC region can continue to stimulate growth while running fiscal deficits
– Fiscal breakeven oil prices range from US$47pb (Kuwait) to US$110pb (Bahrain), resulting in 2016 expected budget deficits of
0% (Kuwait) and 20% (Oman) in the GCC region1.
– However, sovereign wealth funds (SWF) assets combined with forex reserves stand at over 200%1 of the GCC region’s GDP.
– Low indebtedness in the GCC and MENA region v/s Emerging and Developed economies creates further headroom to expand
balance sheets and support healthy government spending
Average Gross Government Debt (in % of GDP) 1
Reserves and SWF Assets (2015-end) v/s Fiscal Balance (2016 forecast) 1
2015 estimate
As a % of GDP
600%
GCC
14.70
500%
480%
400%
MENA
358%
34.90
300%
200%
Emerging Markets
133%
44.40
107%
100%
Developed Markets
0%
104.50
-100%
0%
30%
60%
90%
120%
36%
0%
-4%
-2%
Kuwait
UAE
Qatar
Fiscal Balance, 2016 forecast (% GDP)
1. International Monetary Fund, World Economic Outlook Database, October 2015. © 2015 International Monetary Fund. All rights reserved.; and SWF Institute
-19%
-14%
32%
-20%
KSA
Bahrain
Oman
Reserves & SWF Assets, 2015-end (% GDP)
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2. Governments have Initiated Reform Measures
Policy Response Will Drive Earnings Outlook
• Persistently low oil prices have and will continue to spur policy adjustments.
• Governments have responded by tightening fiscal belts, unlike in previous oil downturns
– Subsidies and grant cuts (9% of GCC’s 2015 GDP pre-reforms as per IMF), notably on local fuel and utility consumptions
– Tax reforms:
o White land tax in Saudi Arabia
o GCC-wide VAT framework likely to be finalized by June 2016; with implementation likely from January 2018
– Strategic capital spending has been earmarked over longer periods to smooth outflows
• Stimulating local funding avenues with local debt issuances
Post-tax Energy Subsidies, 2015 Estimate
US$ per capita (LHS)
% of GDP (RHS)
7,000
14%
6,000
12%
5,000
10%
4,000
8%
3,000
6%
2,000
4%
1,000
2%
0
Qatar
Source: International Monetary Fund
Kuwait
Saudi Arabia
Bahrain
UAE
Oman
0%
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3. Strong Commitment to Support Non-Oil Economy
Non-Oil Economy a Key Driver of Growth
• GCC countries have undergone significant economic transformation over the past few decades on the back of windfall oil proceeds.
• GCC governments have outlined 2030 development plans to diversify away economies from the energy sector.
• After years of significant investment in increasing energy capacity, GCC governments have embarked on ambitious spending
programs to develop infrastructure and support private sector growth.
• Whilst non-oil growth targets have been revised down over the last year, they still remain attractive.
Economic Indicator
Real GDP Growth Rate
Real Oil GDP Growth Rate
Real Non-Oil GDP Growth Rate
2011–2015e
2015e
2016e
2015e
2016e
Bahrain
3.78%
-1.00%
0.00%
4.50%
4.00%
Kuwait
4.08%
0.00%
2.20%
3.00%
3.00%
Oman
4.37%
4.22%
1.14%
4.50%
4.50%
Qatar
6.30%
0.23%
1.42%
9.52%
8.44%
Saudi Arabia
4.98%
4.21%
1.16%
2.87%
3.02%
United Arab Emirates (UAE)
4.80%
2.03%
2.06%
3.44%
3.62%
GCC Total
4.94%
2.87%
1.44%
3.80%
3.80%
Qatar
State of Qatar has committed to spend US$200 billion in infrastructure projects over the next 10 years,
partly in preparation for the 2022 World Cup.1
Saudi Arabia
Continued focus on investment infrastructure, education, health care, and social and development projects.
More than 500,000 housing units to be developed during the next 5 years.2
Continued expansion of the all-important Dubai real-estate sector and the rise in the number of travelers.
Dubai Expo 2020 is expected to generate US$25 billion in projects and 200,000 extra jobs.3
Source: Oil and Non-Oil GDP growth via Regional Economic Outlook, Middle East and Central Asia, International Monetary Fund, January 2016; Real GDP via International Monetary Fund, World Economic Outlook Database, October 2015.
1. Reuters.com, “Qatar to spend up to $205 bn on infrastructure over five years – QNB,” 4 February 2014.
2. Reuters.com, “Saudi Arabia launches new housing scheme to ease shortage,” as of 13 March 2014.
3. Oxford Economics.
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4. Minimal Representation of Energy Sector in MENA Equity Market
Non-Oil Economic Growth to translate into Resilient Corporate Earnings
• Energy sector stocks account for only 2% of overall market capitalization of MENA region.1
• MENA earnings expected to expand 10.7%2 in 2016 reflecting healthy growth in non-oil sectors.
2%
0%
4%
Financials
3%
21.5%
Telecom
6%
17.0%
Materials
15.8%
Industrials
15%
53%
MENA = 10.7%
11.0%
Consumer
9.3%
8.9%
Utilities
17%
8.6%
6.9%
EM = 0.5%
Energy
2.6%
Health Care
Egypt
Kuwait
Oman
Saudi
Source: Bloomberg, as of 25 February 2016
1. Sector weights based on constituents of S&P Pan Arab Large Mid Cap KSA capped 30% Index
2. Based on consensus data derived from Bloomberg. MENA average calculated as market capitalization based weighted average of the underlying countries shown in the chart.
Jordan
Morocco
Qatar
UAE
Lebanon
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5. Attractive Valuations with Some of the Highest Yields in the World
2016 Estimated Price Earnings (P/E)1
As of 31 December 2015
20
16.30
15
10.05
10
6.98
8.09
8.67
8.87
Oman
Lebanon
Tunisia
10.78
11.13
11.16
11.61
11.87
16.48
P/E of
MENA Region:
12.72
11.00
5
0
Bahrain
Dividend Yields in %2
United Arab
Emirates
Jordan
Egypt
Qatar
Emerging
Markets
Saudi Arabia
Kuwait
Morocco
Developed
Markets
5.89%
6.34%
10%
8%
6%
3.57%
4%
2%
0%
1.48%
Jordan
2.07%
2.58%
2.92%
3.99%
4.04%
4.12%
4.47%
4.67%
4.85%
Dividend Yield
of MENA Region:
4.18%
Egypt
Developed
Emerging
Tunisia
U.A.E
Saudi Arabia
Lebanon
Kuwait
Qatar
Morocco
Oman
Bahrain
Markets
Markets
1. MSCI via FactSet. Shown is the weighted average price to earnings ratio for companies listed in the S&P Pan Arab Composite, Large Mid Cap, KSA Capped at 30%, MSCI World, MSCI Emerging Markets grouped by country. See “Important
Disclosures” slide for additional information regarding third-party content.
2. MSCI via Bloomberg. Countries are represented by their respective MSCI country index. See “Important Disclosures” slide for additional information regarding third-party content.
27
R305841
Franklin MENA Fund
6. MENA Equities Are a Great Diversifier
Low Correlations with Major Asset Classes
• MENA equities have a lower correlation to developed-markets equities than emerging-markets equities.
Five-Year Correlation of Daily Returns in USD
MENA
Equities
MENA Equities
Global
Government Bonds
Global
Government Bonds
U.S. Equity
Developed-Markets
Equities
Emerging-Markets
Equities
Frontier-Markets
Equities
Emerging-Markets
Bonds
High
Correlation
1.00
-0.13
1.00
0.19
-0.11
1.00
Developed-Markets
Equities
0.25
0.00
0.92
1.00
Emerging-Markets
Equities
0.34
0.00
0.48
0.68
1.00
Frontier-Markets
Equities
0.56
0.00
0.28
0.39
0.44
1.00
Emerging-Markets
Bonds
0.29
0.16
0.31
0.43
0.56
0.29
1.00
0.10
0.12
0.36
0.45
0.41
0.21
0.29
U.S. Equity
Commodities
Commodities
1.00
Low
Correlation
Source: FactSet as of 31 December 2015. MENA Equities are represented by the S&P Pan Arab Composite Large Mid Cap Index. Emerging-Markets Equities are represented by the MSCI Emerging Markets Index. Frontier-Markets Equities are
represented by the MSCI Frontier Markets Index. Developed-Markets Equities are represented by the MSCI World Index. Global Government Bonds are represented by the JP Morgan GBI Global (Traded) Index. Emerging-Markets Bonds are
represented by the JP Morgan EMBI Global Index. Commodities are represented by the Bloomberg Commodity Index. See “Important Disclosures” slide for additional information regarding third-party content.
28
R305841
Franklin MENA Fund
7. Improving Liquidity Environment to be Boosted by Saudi Market
Saudi Market Opening a Key Development for MENA Markets
• Saudi Arabia leads regional EM peers (South Africa, Russia and Turkey) and outsizes other MENA equity markets.
• Daily trading turnover of US$1.7 billion in 2015 vs. US$1.4 billion for Turkey, US$1.5 billion for South Africa and US$0.5 billion for Russia.1
• Foreigners currently own only c1.0% (US$4.3 billion)2 of market.
MENA Weight in EM Indices to Potentially Increase Further
• UAE and Qatar were upgraded to EM status in 2014 and currently represent 0.7% and 1.1% respectively of MSCI EM Index3.
• Based on the provisional MSCI Saudi Arabia Index, the country’s weight in the MSCI EM Index is estimated to be 1.7%3.
• Continued market liberalization is leading to inclusion of new stocks and increasing weights of existing stocks in MSCI EM Index.
• Transition from frontier market to emerging market will increase the region’s dedicated investor base from cUS$15 billion to US$550 billion+.
Market Capitalisation of Saudi Arabia vs. EM and Regional Peers (USD Billions)
Regional/EM Equity Market Turnovers
As of 6 January 2016
(in USD Billions)
3.0
1,500
1,000
500
0
2.3
1,023
2.0
409
346
380
206
174
145
1.5
1.7
1.5 1.4 1.4
1.6 1.4 1.5
0.8
1.0
78
58
45
22
25
17
9
1. Source: Bloomberg, turnovers for respective local benchmark equity indices;
2. Source: JP Morgan, as of December 2015
3. Source: MSCI, as of 27 October 2015..
4. HSBC Global Research report "Saudi Arabia Revisited–Implications for Global Index Benchmarks", as of 6 February 2015.
5. Source: EFG Hermes report “Between Rising Rates And Cheaper Oil”, as of 24 January 2016
9
0.0
Saudi Arabia
Turkey
2013
South Africa
2014
1.0
0.5
Russia
0.2
0.5
0.3
UAE
0.1 0.2 0.1
Qatar
2015
29
R305841
Franklin MENA Fund
2016 Country Themes
EGYPT
OVERWEIGHT
UAE
OVERWEIGHT
• Continued economic reforms are
boosting demand. GDP growth
estimate for FY2015/161 expected to be
4.00-4.25%.2
• Lowest share of oil GDP (31%)6 in
GCC (ex-Bahrain); likely to drop further
as non-oil GDP is expected to keep
growing robustly (3.1% in 2016)12a.
• Expansionary budget for FY2015/16
with planned expenditure growth of
17.2% and projected fiscal deficit of
11.0-11.5%.2
• Growth as a tourist destination, a trade
hub and a financial centre creates
opportunities. Expo 2020 serves as a
concrete deadline for major
infrastructural spending.
• US$163 billion worth of agreements
(US$60 billion) and MoUs (US$103
billion) were signed at the investment
summit in March 2015.3
• Tangible subsidy restructuring being
executed in the face of lower oil prices.
• Strong support from GCC (Saudi
Arabia, UAE and Kuwait) with over
US$20 billion in disbursed and pledged
aid.4
• Potential beneficiary of international
sanctions on Iran being lifted; 36%
(€23.4 billion)8 of Iran's imports are
from UAE.
• Attractive valuation, 2016 estimated PE
ratio 11.1x.5
• Well-capitalised banks with an average
Capital Adequacy Ratio of 18.3%9 and
high dividend yields, despite
surmountable liquidity challenges.
• Increasing capital market openness to
drive representation in major equity
indices.
1. Egyptian FY ends on 30 June
3. The Cairo Post, http://www.thecairopost.com/news/141976/business/egypt-signs-40-investment-agreements-mous-worth-163bat-eedc
5. MSCI via FactSet. See www.franklintempletondatasources.com for additional data provider information.
7. Ministry of Finance, Saudi Arabia
9. UAE Central Bank, as of end of Dec 2015
11. Qatar Economic Outlook 2015-2017, Ministry of Development Planning and Statistics of Qatar
13. Reuters.com, “Qatar to spend up to $205bn on infrastructure over five years – QNB,” 4 February 2014
SAUDI ARABIA
UNDERWEIGHT
QATAR
UNDERWEIGHT
• One of the world’s youngest
populations growing at a healthy rate
(2.4% in 2015)10.
• Low budget break-even and high
reserves positions Qatar favorably in a
regional context.
• Non-oil activity, likely to have
decelerated to 3.7%7 in 2015, is likely
to be further challenged in 2016 by
lower government spending.
• GDP growth expected to reach 4.3%11
in 2015 (non-oil growth expected to be
8.4%)12b, reflects significant
government stimulus.
• Fiscal deficit reached 15%7 in 2015,
partly driven by supplementary bonus
spending and cost of military campaign
in Yemen.
• US$200 billion infrastructure spending
in anticipation of FIFA 2022 World Cup
in Qatar,13 likely to continue
irrespective of decision.
• Fiscal reforms have started to be
addressed.
• Headwinds prevail at the stock level,
where deteriorating liquidity and margin
compression is impacting banks.
• Limited QFI participation after the
opening up of market, though potential
inclusion in MSCI EM Index likely to be
a key driver of flows.
• Earnings and valuations beginning to
reflect realities of economic
environment, creating stock specific
opportunities in various sectors.
• Whilst dividend yields are attractive,
valuations are not fully reflective of
softening underlying trends in banking
sector.
• Lack of diversity within Qatari market
limits exposure to high growth areas of
the economy.
2. Ministry of Finance, Egypt
4. “Almasry Alyoum" (http://www.almasryalyoum.com/news/details/456611). English translation provided by Bloomberg.
6. Based on UAE National Statistics as of 25 June 2015,
(http://www.uaestatistics.gov.ae/EnglishHome/ReportDetailsEnglish/tabid/121/Default.aspx?ItemId=2258&PTID=104&MenuId=1)
8. European Union Trade Report for Iran, 10 April 2015. Data as of FY2013
10. Saudi Arabia Central Department of Statistics and Information
12. a) International Monetary Fund, World Economic Outlook Database, October 2015 b) International Monetary Fund, Regional
Economic Outlook – Middle East and Central Asia (published October 2015), page 106
30
R305841
Franklin MENA Fund
2016 Sector Themes
CONSUMER SPENDING
OVERWEIGHT
FINANCIALS
SELECTIVE
CONSTRUCTION/MATERIALS
UNDERWEIGHT
• Region home to a young and growing population of
nearly 200 million1 people whose living standards
and consumption needs are evolving.
• Sustained government and private spending to drive
decent credit growth in select countries (Saudi
Arabia).
• We believe that government spending on
infrastructure will be resilient in the medium term,
however may be curtailed in the short-term.
• We favour consumer/retail plays wherein supportive
demographics and improving spending trends
underlie an exciting demand story.
• Infrastructure spending to be channeled through
banking system resulting in increasing loan/GDP
penetration.
• Infrastructure projects tendered aggregate to US$1.1
trillion2.
• High margins are typical (compared with other EM
consumers) due to low product penetration.
• Development of new banking products to drive retail
penetration levels.
• Within the retail sector, we prefer products that have
a degree of price inelasticity to combat potential
wage inflation pressures (from Saudization).
• Margin compression has subsided in certain
countries, with significant upside potential from a
rising interest rate environment as a result of a large
share of non-interest bearing deposits.
• Attracted to products that demonstrate demand
resilience in a low oil price environment.
• Current market valuations aggressively discount
long-term growth potential.
• We expect strategic projects to continue over longer
time-frames whilst non-core projects will likely be
shelved.
• Sectors that are directly or indirectly exposed to
project spending such as materials and construction
are likely to face working capital challenges.
• Banks in the region remain well provisioned against
non-performing loans.
• Export driven materials are driven by a subdued
global growth outlook as well as low commodity
reference prices.
• Bank capitalisation levels above regulators’ stringent
requirements, with potential for increased lending or
capital return.
• Materials manufacturers may come under pressure
as a result of government policies to review energy
subsidies (Saudi/Oman).
• Liquidity challenges persist in some countries,
resulting in a selective approach to the sector.
1. International Monetary Fund, World Economic Outlook Database, October 2015. © 2016 International Monetary Fund. All rights reserved.
2. Middle East Economic Digest (MEED), as of 25 Feb 2016. (only projects with NPVs greater than US$3bn considered).
31
R305841
Franklin MENA Fund
Overview and Outlook for the Next Decade
• Currently, MENA GDP represents about 2.6% (6.7%) of the world’s (emerging markets) GDP.
However, average exposure to MENA in global indexes is much lower with 0.2% (2.0%).1 We
expect this material disconnect to change as the region’s capital markets develop.
• The MENA region offers one of the strongest stories in a challenging global context—exciting
emerging market type growth coupled with credit ratings comparable to the strongest
developed markets.
• Attractive yields and compelling valuations have attracted investor inflows into the region as
investors begin to recognise some of the opportunities available.
• We believe that there is a compelling case for the continued outperformance of MENA
equities as the region establishes itself as a single, identical subset within the global emerging
market universe.
1. GDP data is from International Monetary Fund, World Economic Outlook Database, October 2015. © 2015 International Monetary Fund. All rights reserved. Index data source: HSBC, MSCI.
32
R305841
Franklin MENA Fund
Fund Characteristics
33
Franklin MENA Fund
Executive Summary
Franklin MENA Fund - A (acc) USD
As of 30 June 2016
Portfolio Manager(s)
Morningstar Category™
Africa & Middle East Equity
Stephen Dover, CFA
United States
Investment Manager
Franklin Advisers, Inc.
Bassel Khatoun
U. Arab Emir.
Investment Style
Equity
Purav Jhaveri, CFA
United States
Fund Inception Date
16 June 2008
Salah Shamma
U. Arab Emir.
Share Class Inception Date
16 June 2008
Benchmark
S&P Pan Arab Composite Large Mid Cap
KSA Capped at 30% Index
ISIN Code
LU0352132103
Base Currency for Fund
USD
SEDOL Code
B2QHPX6
Base Currency for Share Class
USD
Bloomberg Code
FTMNAUS LX
Total Net Assets (USD)
95,875,802.45
Asset Allocation
Equity: 91.84%
Fund Ratings (30 June 2016)
Overall Morningstar Rating™

Cash & Cash Equivalents: 8.16%
Number of Issuers
38
Total Expense Ratio
2.54%
Fund Identifiers
Summary of Investment Objective
The Fund aims to achieve long-term capital appreciation by investing primarily in
equity securities of companies across the entire market capitalisation spectrum in the
Middle East and North Africa (MENA) region, including, but not limited to Bahrain,
Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and
the United Arab Emirates.
Holdings of the same issuer have been combined.
© Morningstar, Inc. 2016. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) 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.
Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change. Percentage may not equal 100% due to rounding.
The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details.
Past performance is not an indicator or a guarantee of future performance.
For professional investor use only. Not for distribution to retail investors.
34
Franklin MENA Fund
Historical Performance
As of 30 June 2016
Cumulative Performance (%)
Franklin MENA Fund - A (acc) USD—Net of Fees
Inception
Date
1 Mth
3 Mths
6 Mths
YTD
1 Yr
3 Yrs
5 Yrs
Since
Incept
16.6.2008
-1.48
-1.48
-9.68
-9.68
-24.11
7.04
16.16
-46.80
0.84
1.08
0.06
0.06
-16.41
4.24
11.79
-32.10
Inception
Date
1 Yr
3 Yrs
5 Yrs
Since
Incept
16.6.2008
-24.11
2.29
3.04
-7.55
-16.41
1.39
2.25
-4.70
S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Index
Annualised Performance (%)
The Fund changed its benchmark effective 2010 September 29 to the S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Index. Accordingly, the benchmark performance shown reflects the performance of the Fund's original benchmark,
the MSCI Arabian Markets SA Capped 20% Index, from the Fund's inception to 29 September 2010 and the S&P Pan Arab Composite Large Mid Cap KSA thereafter.
All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations.
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. Current performance
may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit
franklintempleton.lu for current performance.
Performance data may represent blended share class performance, e.g., hybrid created from an A(dis) share class which was converted to A(acc).
35
Franklin MENA Fund
Calendar Year Returns
As of 30 June 2016
34.00
35%
24.87
22%
9.06
9%
8.11
5.58
-9.68
0.06
-11.03
6.97
-14.19
-15.35
-12.66
-4%
-17%
YTD 2016
2015
2014
2013
2012
2011
The Fund changed its benchmark effective 2010 September 29 to the S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Index. Accordingly, the benchmark performance shown reflects the performance of the Fund's original benchmark,
the MSCI Arabian Markets SA Capped 20% Index, from the Fund's inception to 29 September 2010 and the S&P Pan Arab Composite Large Mid Cap KSA thereafter.
All performance data shown is in the Fund currency stated and net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations.
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. Current performance
may differ from figures shown. Currency fluctuations may affect the value of overseas investments. When investing in a fund denominated in a foreign currency, performance may also be affected by currency fluctuations. Please visit
franklintempleton.lu for current performance.
Performance data may represent blended share class performance, e.g., hybrid created from an A(dis) share class which was converted to A(acc).
36
Franklin MENA Fund
Portfolio Characteristics
Franklin MENA Fund
vs. S&P Pan Arab Composite Large Mid Cap KSA Capped at 30% Index
As of 30 June 2016
Price to Earnings
Portfolio
Benchmark
Weighted Average
9.91x
11.21x
11.05x
12.19x
Median
Price to Cash Flow
Portfolio
Benchmark
Weighted Average
7.55x
7.00x
Median
8.45x
7.67x
Market Capitalisation
(Millions USD)
Portfolio
Benchmark
Weighted Average
6,063
12,466
Median
1,251
1,922
Max
32,284
64,914
Min
174
67
Market Capitalisation
Breakdown in USD
Price to Book Value
Portfolio
Benchmark
Weighted Average
1.36x
1.43x
Median
1.53x
1.48x
Dividend Yield
Portfolio
Benchmark
Weighted Average
3.45%
4.33%
Median
3.72%
4.62%
Portfolio
<1.5 Billion
40.46%
1.5-5.0 Billion
22.78%
5.0-25.0 Billion
28.36%
25.0-50.0 Billion
8.30%
N/A
0.08%
The portfolio characteristics listed are based on the Fund’s underlying holdings, and do not necessarily reflect the Fund’s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or
common shares) of each security’s issuing company. This methodology may cause small differences between the portfolio’s reported characteristics and the portfolio’s actual characteristics. In practice, Franklin Templeton’s portfolio managers invest
in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalisation figures for both the portfolio and the benchmark are the security level, not aggregated up to the main issuer. The dividend yield
quoted here is the yield on securities within the Fund’s portfolio and should not be used as an indication of the income received from this portfolio. Information is historical and may not reflect current or future portfolio characteristics. All
portfolio holdings are subject to change.
Source: FactSet. For the portfolio, the Price to Earnings, Price to Cash Flow, and Price to Book Value calculations for the weighted average use harmonic means. Value less than 0.01 (i.e., negative values) are excluded and values in excess of 200x
are capped at 200x. Yields above 100% are also excluded. For the benchmark (if applicable), no limits are applied to these ratios in keeping with the benchmark’s calculation methodology. Market capitalisation statistics are indicated in the base
currency for the portfolio presented.
37
Franklin MENA Fund
Top Ten Equity Holdings
Franklin MENA Fund
As of 30 June 2016
Name of Issuer
Commercial International Bank (Egypt) SAE Sponsored GDR
1.
RegS
Country
Industry
% of Total
Egypt
Banks
5.04
2.
Qatar National Bank SAQ
Qatar
Banks
4.63
3.
Fawaz Abdulaziz AlHokair Co.
Saudi Arabia
Retailing
3.68
4.
Al Tayyar Travel Group
Saudi Arabia
Consumer Services
3.49
5.
Samba Financial Group
Saudi Arabia
Banks
3.44
6.
United International Transportation Co. Ltd.
Saudi Arabia
Transportation
3.41
7.
National Bank of Kuwait K.S.C.
Kuwait
Banks
3.10
8.
Emirates NBD Bank (P.J.S.C)
Banks
3.06
9.
NMC Health PLC
Health Care Equipment & Services
3.04
10.
Saudi Telecom Co.
Saudi Arabia
Telecommunication Services
2.99
Total
35.90
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.
Holdings of the same issuer have been combined.
The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included in the top 10 holdings list.
38
Franklin MENA Fund
Geographic Allocation
Franklin MENA Fund
As of 30 June 2016
Mid-East/Africa
Saudi Arabia
Egypt
Kuwait
Qatar
Oman
Morocco
Jordan
Lebanon
Bahrain
Other
Saudi Arabia
Egypt
Kuwait
Qatar
Portfolio %
91.84
24.59
21.91
19.45
11.35
10.08
4.47
0.00
0.00
0.00
0.00
0.00
Index %
100.00
30.06
21.36
5.22
12.04
15.11
3.59
4.26
3.15
2.36
2.19
0.65
Over/Under
-8.16
-5.48
0.54
14.24
-0.69
-5.04
0.88
-4.26
-3.15
-2.36
-2.19
-0.65
Oman
Morocco
Jordan
Lebanon
Bahrain
0%
7%
14%
21%
28%
35%
Franklin MENA Fund
Weightings as percent of total. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.
39
Franklin MENA Fund
Sector Allocation
Franklin MENA Fund
As of 30 June 2016
Financials
Financials
Consumer Discretionary
Industrials
Consumer Staples
Health Care
Energy
Materials
Utilities
Consumer Discretionary
Industrials
Consumer Staples
Portfolio %
Index %
Over/Under
39.91
13.81
12.40
8.76
4.47
4.11
3.41
2.90
2.07
61.45
2.19
5.18
2.54
13.54
0.57
1.02
11.54
1.95
-21.54
11.61
7.22
6.22
-9.07
3.54
2.39
-8.65
0.12
Health Care
Energy
Materials
Utilities
0%
14%
28%
42%
56%
70%
Franklin MENA Fund
Weightings as percent of total. Percentage may not total 100% due to rounding. Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.
40
Franklin MENA Fund
Performance Risk Statistics
As of 30 June 2016
Performance Risk Statistics
1 Yr
3 Yrs*
5 Yrs*
18.46
17.95
15.56
Hybrid: MSCI Arabian Markets SA Capped 20% until 29
September 2010 then S&P Pan Arab Composite Large
Mid Cap KSA Capped at 30%
15.60
16.06
13.83
7.59
7.45
6.12
Information Ratio^^
-1.02
0.12
0.13
Alpha^^
-7.29
1.19
0.93
Beta^^
1.08
1.02
1.04
Sharpe Ratio
-1.31
0.12
0.19
R-Squared^^
83.59
82.81
84.65
Correlation^^
0.91
0.91
0.92
Standard Deviation:
Tracking Error^^
The base currency of a fund determines the risk-free rate index used in calculating certain risk statistics on this page. A fund that is based in USD uses the US T-Bill Index as the risk free rate return, a EUR-based fund uses the France Treasury Bills 3
Month Intraday Index, a GBP-based fund uses the UK Treasury Bills 3 Month Index, a JPY-based fund uses the Japan Financing Bill 3 Month Index, and an AUD-based fund uses the Australia T-Note 3 Month Index.
^^Measured against the Hybrid: MSCI Arabian Markets SA Capped 20% until 29 September 2010 then S&P Pan Arab Composite Large Mid Cap KSA Capped at 30%.
*Annualised.
41
R305841
Franklin MENA Fund
The Active Management Advantage
Capitalising on MENA Stock Opportunities
Top 10 Contributors to Performance (Relative to the Benchmark Index)
12-Month Period Ended 31 December 2015
6.0%
The stock allocation of Franklin MENA
Fund differs greatly from its benchmark.
5.18
4.5%
Security Weight
3.85
3.39
3.0%
2.68
1.95
1.57
1.30
1.29
1.5%
0.66
0.0%
Total
Return
3.69
3.27
0.00
0.00
0.06
Jazeera Airways Al Noor Hospitals Mezzan Holding
Co. (KSC)
Group PLC
Company KSCC
Jazeera Airways Al Noor Hospitals Mezzan Holding
Co. (KSC)
Group PLC
Company KSCC
26.39%
 Average Fund Weight
15.80%
55.96%
0.00
Saudi Basic
Industries Corp.
Saudi Basic
Industries Corp.
Samba Financial
Group
Samba Financial
Group
14.15%
3.89%
0.50
0.42
Integrated
Diagnostics
Holdings
IntegratedPlc
Diagnostics
Holdings Plc
32.81%
0.53
0.58
0.00
Yanbu National
Edita Food
Industries SAE Petrochemical Co.
Sponsored
GDR Yanbu National
Edita Food
RegSSAE Petrochemical Co.
Industries
Sponsored GDR
RegS
46.00%
13.81%
Al Tayyar Travel Air Arabia Company
Group
PJSC
Al Tayyar Travel Air Arabia Company
PJSC
Group
-19.02%
-3.83%
 Average Index Weight
Past performance does not guarantee future results.
Source: FactSet, S&P. See “Important Disclosures” slide for additional information regarding third-party content.
42
R305841
Franklin MENA Fund
Historical Asset Allocation
Franklin MENA Fund
As of 31 March 2016
101%
6%
5%
5%
4%
98%
95%
95%
96%
98%
06/14
09/14
12/14
03/15
06/15
12%
6%
10%
8%
90%
92%
12/15
03/16
75%
50%
99%
94%
97%
09/13
12/13
88%
94%
25%
0%
06/13
Equity
03/14
09/15
Cash & Cash Equivalents
Information is historical and may not reflect current or future portfolio characteristics. All portfolio holdings are subject to change.
43
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Franklin MENA Fund
Appendix
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Access to a Worldwide Network of Research, Trading and Risk Professionals
Europe
Middle East
Africa
The
Americas
20 LOCATIONS
 Calgary
 Dublin
 Los Angeles
 San Mateo
 Mexico City
AsiaPacific
13 LOCATIONS
16 LOCATIONS
 Boston
 Coral Gables
 Fort Lauderdale
 New York
 Rancho Cordova
 Ridgefield Park
 Short Hills
 Stamford
 Toronto
 Washington DC
 Edinburgh
 Frankfurt
 Geneva
 Leeds
London
 Luxembourg
 Milan
 Vienna
 Bratislava
 Bucharest
 Moscow
 Poznań
 Warsaw
 Nassau
 Bogotá
 Buenos Aires
 Rio de Janeiro
 São Paulo
 Research Offices
All data as of 31 December 2015.
1. Joint venture partners with Franklin Templeton Investments.
 Dubai
 Istanbul
 Bangkok
 Chennai
 Ho Chi Minh City1
 Hong Kong
 Hyderabad
 Kuala Lumpur
 Mumbai
 Seoul
 Shanghai1
 Singapore
 Tokyo
 Cape Town
 Melbourne
 Sydney
 Trading Platforms  Risk Management Specialists
45
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Franklin MENA Fund
Decision-Making Forums
OUTPUT/RESULT
ANALYST MEETINGS
• Weekly
• Review of company models, assumptions
and analysis
• Review PM/analyst stock recommendations
• Company investment note
• Decision on inclusion/exclusion of
companies in portfolio
WEEKLY
STRATEGY MEETINGS
•
•
•
•
Weekly
Market performance review
Analysis of market trends
Asset allocation review
• Weekly portfolio allocation sheet
(decisions on allocation and rationale)
INVESTMENT COMMITTEE MEETINGS
MONTHLY
•
•
•
•
Monthly
Performance review/attribution
Risk and compliance review
General investment theme discussion
• Monthly strategy note
• Investment Committee meeting documents
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Franklin MENA Fund
Robust Research Infrastructure
MENA Research Portal
•
All proprietary research found on
FT MENA Research Portal
•
Preserves our intellectual capital
•
Streamlines workflow between
analysts and PM in different
locations
•
Quick filter, search and drill down
into all company/macro research
•
Full and easy access to entire
research history and analyst
recommendation of all coverage
securities
•
Access to research via
Email/Portal/App
•
Live up to date alerts notify PM’s
of any research/recommendation
change
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Franklin MENA Fund
Proprietary Market Analytics
MENA Market Analytics
•
All FT Analyst forecasts are incorporated
into technology platforms
•
Allows scalability for future growth and
technology changes
•
View research alongside live market data
•
Compare analyst
forecasts/recommendations against
consensus and other analysts
•
Aggregate proprietary company
forecasts and metrics to get in-house
market/country metrics
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Case Study: RAK Ceramics
World’s Largest Ceramics Manufacturer
Business Model
Financials
Valuation
World’s Largest Ceramics Manufacturer
Strong Balance Sheet
Overlooked by the Market
• Annual production capacity of ceramic tiles:
117 million sqm
• High dividend payout ratio of 50% led to a yield in
excess of 12%1
• Falling into the small- to mid-cap space with zero
sell-side coverage, the company traded at 4.6x price
earnings and 0.58x price to book
• 20 million (4.5 million) pieces of tableware (bath ware)
Significant Shareholder Value Creation
Huge Distribution Network
• Offers the widest range of products to its end-users in over
160 countries
• Focus on research and development has
strengthened brand positioning and recognition as
the company continuously introduces industry firsts
such as luminous, anti-microbial and anti-slip tiles
Upside Potential on Total Return
• Our ROIC-based DCF valuation showed upside in
excess of 130%
Benefits from Economies of Scale
High Return on Invested Capital
• Consistently produces high-quality products at lower unit
costs in 10 manufacturing facilities (5 in UAE and 1 each
in Bangladesh, China, India, Iran and Sudan)
• The enterprise value/replacement cost of the
company’s capacity was at an unjustifiable 0.7x,
exceeding its cost of capital
These case studies represent certain examples of the investment manager’s best-performing investments; other investments made by the investment manager, which were not as successful or that lost money, are not shown. The investments may or
may not be currently held by portfolios managed by the investment manager. The case studies are not representative of the overall performance of the portfolios managed by the investment manager as is demonstrated by those portfolios’ past
performance numbers. Past performance does not guarantee future results, and results may differ over future time periods. These case studies are being shown only as examples of what the investment manager is seeking to achieve in managing the
portfolio, but are not necessarily indicative of what has actually been achieved with all of the investments or will be achieved going forward. This is not a complete analysis of every material fact regarding an industry, security or investment and should
not be viewed as an investment recommendation. The actions taken with respect to these investments, and their performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable,
but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of trading intent for any
portfolio.
1. April 2013.
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Franklin MENA Fund
Sample Portfolio Holding: Emaar Properties
Beneficiary of Positive Secular Trends in Dubai Real Estate, Retail and Hospitality
Business Model
Financials
Valuation
Largest Property Developer in The Region
Robust Development Pipeline
• Quality Dubai landbank with strong development pipeline
and international presence in 17 markets offering high
growth
• 2015 sales across all projects in the UAE amounted
to US$2.8 billion and total UAE backlog amounted to
AED24.0 billion to be recognized over the next 4
years.
Hotels and Development Assets are negatively
valued.
Well-Positioned Retail Assets
• High-quality recurring income from retail assets (eg. Dubai
Mall) in prime Dubai locations add stability to cash flows
Strong Government Support
• Direct beneficiary of Expo 2020 which is likely to boost
hospitality, new development pipeline and tourism/retail
spend
Improved Regulatory Checks and Balances
• Central Bank limits on loan to value discourages property
speculation while Emaar has also taken precautionary
measures to limit resale of properties before completion
Plans to Add to High-Quality Asset Mix
• Fashion avenue leasing area expansion (2016
target) in Dubai Mall well underway; this adds
a further 16% of high-yielding rental space and
is likely to drive double-digit earnings growth
• Valuation of Hotels and development properties is
AED (-706)mn, if the market value of publicly listed
Emaar subsidiaries are excluded. Value of unlisted
entities is AED(-0.1)/share. Current prices imply
Emaar's development business is worth a negative
AED8bn.
Committed to Unlock Value
Healthy Liquidity Position
• Emaar Malls and Emaar Misr's (Egypt) IPO
demonstrates group's commitment to unlock value
for shareholders
• Q3 2015 cash and cash equivalents of nearly
US$4.6 billion and a net cash position of about
US$1.0 billion
• Listing of hospitality group is in the cards and
likelihood of proceeds to partly fund expansion and
buttress distribution potential to Emaar shareholders
• Discounted cash flow, NAV calculation and cap-rate
analysis suggest significant fair value upside
1. Sales represented by first three quarters of 2015.
portfolio. This material is compliant and has been approved for use in its entirety and only for the audience and channel identified.
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Franklin MENA Fund
Sample Portfolio Holding: Samba Financial Group
Well Positioned to Capitalise on Corporate-sector Loan Growth and Rising Rates
Business Model
Financials
Valuation
Exposure to the Corporate Sector
Improving Asset Mix
Attractive Valuation at Current Price
• Samba is the third-largest listed bank in Saudi Arabia by
assets, catering primarily to the corporate loan segment in
the country with a market share of 12%
• The bank has steadily optimised its balance sheet by
improving the share of loans (which are higher
yielding) in its asset mix from 52.6% to 57.8% over
the past two and half years
• At a price/earnings of 7.5x and price/book of 0.89x
the bank trades at a discount to its peers
Supportive Balance Sheet
• The bank’s underutilised deposit/asset base provides
enough headroom to capture the long term loan growth
potential the corporate segment offers as well as enables
participation in sovereign issuances that offer attractive
yields
Attractive Funding Profile
• ~68% of the bank’s deposits are non-interest bearing
which supports margins well in a rising interest-rate
environment
Low-Cost Profile
• The bank is efficiently run with a low cost/income
ratio of 30.8%
• Our dividend-discount suggests that the market
currently undervalues the scope for margin
expansion that the bank offers as well as the longterm loan growth potential
• High operating leverage to rising interest rates
Well Provisioned
• The bank has adequately provided for its nonperforming loans with a provision coverage ratio of
185% of its non-performing loans
Strongly Capitalised
• Participation in sovereign issuances offering
attractive yields
• Spending on infrastructure, which remains the
government’s key focus area, will likely be
channelled through the banking sector
• The bank is well capitalised with a high capital
adequacy ratio of 19.5%
portfolio. This material is compliant and has been approved for use in its entirety and only for the audience and channel identified.
51
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Franklin MENA Fund
Management Profile
STEPHEN H. DOVER, CFA
Managing Director
International Chief Investment Officer, Franklin Local Asset Management
Franklin Templeton Investments
San Mateo, California, United States
Stephen H. Dover, CFA is the managing director, international chief investment officer for Franklin Local Asset Management group. He is responsible for
overseeing the investment functions of the locally managed and distributed products in Australia, Brazil, Canada, China, the Middle East and North Africa,
Europe, India, Japan, Malaysia, Mexico, South Korea, Vietnam and the United Kingdom. He also oversees and manages the Franklin World Perspectives
Fund. Local asset management refers to the strategic investments that Franklin Templeton Investments has made in local asset management companies
around the world in order to leverage the expertise of well-qualified investment and financial services professionals who have first-hand knowledge of their
domestic markets.
Prior to serving in his current role, Mr. Dover was a founder and chief investment officer of Bradesco Templeton Asset Management (BTAM), a joint venture
between Franklin Templeton Investments and Banco Bradesco. Under Mr. Dover's direction, BTAM became the largest joint-venture asset management
company in Brazil. Mr. Dover also served on the Board of Directors of several publicly traded Brazilian companies.
Prior to joining Franklin Templeton Investments in 1997, Mr. Dover was a portfolio manager and principal at Newell Associates in Palo Alto, CA where he comanaged retail and institutional equity assets including the Vanguard Equity Income Fund. Previously, Mr. Dover worked for Towers Perrin Consulting in New
York, London and San Francisco. Mr. Dover is a member of the Board of Directors of the Bootstrap Fund, a nonprofit development bank focusing on
microcredit. Mr. Dover is also on the Board of Trustees of Lewis and Clark College and Law School.
Mr. Dover holds a B.A., with honors, in communications and business administration from Lewis and Clark College and an M.B.A. in finance from The
Wharton School of the University of Pennsylvania. He is a Chartered Financial Analyst (CFA) charterholder. Mr. Dover has lived in China, Costa Rica,
England, Brazil and the United States.
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Franklin MENA Fund
Management Profile
BASSEL KHATOUN
Chief Investment Officer
MENA Equities
Franklin Templeton Investments (ME) Limited
Dubai, United Arab Emirates
Bassel Khatoun is the chief investment officer of MENA Equities at Franklin Templeton Investments (ME) Limited.
Mr. Khatoun is responsible for the investment process, research and performance of the MENA Equity team. He is the co-fund manager of the Franklin MENA
Fund and Franklin Middle East and North Africa Fund. He is also a member of FTIME's Equity Investment Committee and Board of Directors. He joined
Algebra Capital in April 2007 as an equity portfolio manager and was an integral member of the team, now known as Franklin Templeton Investments (ME)
Limited. During his employment at Algebra Capital, Mr. Khatoun was involved in the establishment of the firm's flagship equity funds and was a member of the
Equity Investment Committee.
Prior to this, Mr. Khatoun worked in the investment banking division of Citigroup in London, where he was involved in a range of mergers and acquisitions and
corporate finance transactions across the European and emerging markets financial institutions sector.
Mr. Khatoun holds a B.A. degree with 1st class honors in philosophy, politics and economics (PPE) from Oxford University. He is FSA registered in the U.K.
53
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Franklin MENA Fund
Management Profile
PURAV A. JHAVERI, CFA, FRM
Managing Director
Investment Strategy/Portfolio Manager
Franklin Templeton Investments
San Mateo, California, United States
Purav A. Jhaveri is a managing director - investment strategy/portfolio manager in Franklin Local Asset Management group. He is responsible for supporting
the investment functions of the locally managed and distributed products in Australia, Brazil, Canada, China, the Middle East and North Africa, Europe, India,
Japan, Malaysia, Mexico, South Korea, Vietnam and the United Kingdom. Local asset management refers to the strategic investments that Franklin
Templeton has made in local asset management companies around the world in order to leverage the expertise of well-qualified investment and financial
services professionals who have first-hand knowledge of their domestic markets.
Mr. Jhaveri has been in the investment industry since 1994. Prior to serving in his current role, Mr. Jhaveri was a portfolio manager with Franklin Templeton's
local asset management group in Mumbai, India and a research analyst with the Templeton Emerging Markets Group in Mumbai, India. Prior to joining
Franklin Templeton, he was an investment advisor and research analyst at ANZ Grindlays Bank. He was previously with Unit Trust of India as a research
analyst.
Mr. Jhaveri has an M.B.A. from Wharton School of the University of Pennsylvania. He earned his master's in management from Narsee Monjee Institute of
Management Studies, University of Bombay and his bachelor of commerce degree from Jaihind College, University of Bombay. Mr. Jhaveri has a Financial
Risk Manager (FRM) certification from Global Association of Risk Professionals. He is a Chartered Financial Analyst (CFA) charterholder.
54
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Franklin MENA Fund
Management Profile
SALAH SHAMMA
Head of Investment-MENA Equity
Salah Shamma is the head of Investment and portfolio manager at Franklin Templeton Investments (ME) Limited.
Mr. Shamma has been in the investment industry since 2002 and joined Algebra Capital in January 2007 as an equity portfolio manager. The firm is now
known as Franklin Templeton Investments (ME) Limited, in the Middle East-North Africa (MENA) region. During his employment at Algebra Capital, Mr.
Shamma was involved in the establishment of the firm's flagship equity funds and was a member of the Equity Investment Committee. Currrently, Mr.
Shamma is responsible for the investment process, research and performance of FTIME MENA equity team. He is the co-fund manager of the Franklin MENA
Fund and Franklin Middle East and North Africa Fund. He is also a member of FTIME's Equity Investment Committee.
Prior to that, Mr. Shamma was with SHUAA Capital's Debt Asset Management departmenet as co-fund manager of the first Arab bond fund (TAIF).
Mr. Shamma holds a B.A. in business with an emphasis on finance from the American University of Beirut.
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Franklin MENA Fund
Management Profile
KARIM ABBAS, CFA
Senior Research Analyst
MENA Equities
Karim Abbas is a senior research analyst at Franklin Templeton Investments (ME) Limited and has over seven years of relevant investment experience in the
region. Mr. Abbas is a member of FTIME﾿s Equity Investment Committee and is currently focused on analyzing investment opportunities in Kuwait and
Jordan.
Mr. Abbas joined Algebra Capital as an analyst in May 2008 and was a member of the Equity Investment Committee. The firm is now known as Franklin
Templeton Investments (ME) Limited, in the Middle East-North Africa (MENA) region. His work has involved preparing strategy presentations, macroeconomic models and performance attribution reports.
Mr. Abbas holds a B.A., with honors, in business administration with an emphasis in finance from the American University of Beirut. He is also a CFA
charterholder.
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Franklin MENA Fund
Glossary
Alpha: Alpha measures the difference between a fund's actual returns and its expected returns given its risk level as measured by its beta. A positive alpha figure indicates the fund has
performed better than its beta would predict. In contrast, a negative alpha indicates a fund has underperformed, given the expectations established by the fund's beta. Some investors see
alpha as a measurement of the value added or subtracted by a fund's manager.
Beta: A measure of the magnitude of a portfolio's past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is
assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%.
Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager's performance against a benchmark. This
measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark.
R-Squared: A measure of how much of a portfolio's performance can be explained by the returns from the overall market (or a benchmark index). If a portfolio's total return precisely matched
that of the overall market or benchmark, its R-squared would be 100. If a portfolio's return bore no relationship to the market's returns, its R-squared would be 0.
Sharpe Ratio: To calculate a Sharpe ratio, an asset's excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset's standard
deviation.
Standard Deviation: A measure of the degree to which a fund's return varies from its previous returns from the average of all similar funds. The larger the standard deviation, the greater the
likelihood (and risk) that a fund's performance will fluctuate from the average return.
Tracking Error: Measure of the deviation of the return of a fund compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the
investment fund is managed, the smaller the tracking error.
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Important Disclosures
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. 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 Luxembourg-domiciled
SICAV Franklin Templeton Investment Funds (the “Fund”). Nothing in this document should be construed as investment advice. Given the rapidly changing market environment, Franklin
Templeton Investments disclaim 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.
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.
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. If the fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund.
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.
Opinions expressed are the author’s at publication date and they are subject to change without prior notice. 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.
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.
© 2016 Franklin Templeton Investments. All rights reserved.
Indexes are unmanaged and one cannot invest directly in an index.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
STANDARD & POOR’S®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC. Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product.
58
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Important Disclosures (continued)
Additional Information for Investment Platform Overview Slide:
Franklin Equity Group, a unit of Franklin, combines the expertise of the Franklin Advisers, Inc., and Fiduciary Global Advisors equity teams (with origin dating back to 1947 and 1931, respectively). Franklin
Templeton Fixed Income Group, a unit of Franklin, combines the expertise of the Franklin Advisers, Inc., and Fiduciary Trust Company International fixed income teams (originating in 1970 and 1973,
respectively). Franklin Real Asset Advisors originated in 1984 as the global real estate team of Fiduciary Trust Company International. Franklin Templeton Solutions (formerly Franklin Templeton Multi-Asset
Strategies prior to 31 December 2013) is a global investment management group dedicated to multi-strategy solutions and is comprised of individuals representing various registered investment advisory entity
subsidiaries of Franklin Resources, Inc., a global investment organisation operating as Franklin Templeton Investments (FTI). Certain individuals advise Franklin Templeton Solutions (FT Solutions) mandates
through K2 Advisors L.L.C. (“K2”), an FTI adviser that forms part of an investment group founded in 1994 through existing advisory entities or their predecessors. FT Solutions originated in 2007 to combine the
research and oversight of the multi-strategy investment solutions offered by FTI. Franklin Templeton Investments acquired a majority interest in K2 Advisors Holdings, LLC on 1 November 2012.
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 and where available, in the relevant Key Investor
Information Document.
59

Franklin MENA Fund - A(acc) USD - Franklin Templeton Investments

Transcription

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