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Templeton Euroland Fund - News
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Fund Merged
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Monday, 14 January 2019
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Official Announcement
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Templeton European Fund has closed and merged into Templeton Euroland Fund.
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Templeton Euroland comment - Jul 06
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Monday, 28 August 2006
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Fund Manager Comment
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Templeton Euroland Fund's returned a net +0.30% (in euros) in July, compared with +1.09% for its benchmark, the MSCI EMU index.
Our strong over-weighting of industrials and consumer discretionaries plus individual stock selection in both sectors, explains much of this underperformance.
The best contributions in July came, in order, from the IT, telecom services and healthcare sectors. In IT, the fund benefited both from its under-weighting of an under-achieving sector and from individual stock selection. The absence from the portfolio of German IT firm SAP, which accounts for 1.8% of the MSCI EMU index, provided the greatest contribution to relative returns over the month. The stock price of Nokia - which is also classified under IT - fell less than that of SAP. However, it accounts for a greater share of the MSCI index (2.28%). Our absence from this stock also, therefore, benefited the fund's relative returns in July.
Our overweight position combined with stock selection to produce outperformance in telecoms services, while stock selection in healthcare also contributed positively.
Among stocks actually in the portfolio, the best relative returns came from our over-weighting of Spanish engineering and construction group Ferrovial and Finnish forestry product company Stora Enso. At the end of July, Ferrovial, which is in the process of buying British airport operator BAA, reported a 20% rise in first-half profits. Despite some difficult weeks (which included the impact of a strike throughout the Finnish forestry industry), Stora Enso swung back into the black during the second quarter and revealed that its ongoing cost-cutting program is proceeding ahead of schedule.
The two worst individual contributions came from French car manufacturer Peugeot and Netherlands-based recruitment firm Vedior. Peugeot announced a fall of 60% in net profits in the first half of 2006 and issued its third profit warning in 12 months, while there was also disappointment in Vedior's second-quarter figures, including a 17% drop in net earnings.
The growing uncertainty on stock markets is providing a greater array of opportunities to invest in fundamentally undervalued companies. Consequently, cash levels in the fund have declined from 11.8% at end-July 2005 to 3.5% one year later.
We actually used weakness in Peugeot's share price to increase our stake in the company in July. We also increased our stake in Infineon Technologies and added to the portfolio a stake in GEA Group (a German engineering company whose pumps help make half the world's beer, among other things).
Outlook
A fall in risk appetite, fears that profit growth may start to slow and that rising interest rates may hurt economic growth have helped 'value' style investments to outperform their 'growth' equivalents, and large-cap value indices to outperform small-cap value. Certainly, as the economic picture clouds, there is greater comfort to be had in 'value' stocks, with less downside than 'growth' stocks because they are backed with some hard assets. By contrast, 'growth' investing emphasizes stocks with accelerating earnings potential.
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Templeton Euroland comment - Aug 05
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Friday, 18 November 2005
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Fund Manager Comment
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Templeton Euroland Fund recorded a net performance of -1.00% (in euros) in August, compared with a return of -0.88% for the fund's benchmark, the MSCI EMU.
Sector wise, the best contributions to relative performance in August came from our superior stock selection in and an under-weighting of the IT sector. Our over-weighting of industrials, together with superior stock selection, accounted for the second-largest sector contribution to relative returns. Industrial stocks accounted for three of the top five individual contributors. These were: Vinci (a French construction company and concessions operator), Grupo Ferrovial (a Spanish civil engineering and construction group) and Arcadis (a Dutch engineering consultancy). The third-largest relative contribution came from our significant under-weighting of financial stocks, which fared poorly in August.
Stocks like Vinci, Grupo Ferrovial and Arcadis have been consistently among the top individual contributors in recent months. They were joined in August by two Dutch media stocks - VNU and Telegraaf Media Groep (classed under consumer discretionary). The media sector is one in which we have persistently found attractive investments in recent times.
Although the consumer discretionary sector provided two of the top contributors in August, that sector as a whole was by far the largest detractor from relative performance during the month. We were let down both by our over-weighting of this sector (our largest allocation is in consumer discretionary), and by the poor short-term contribution of individual stocks such as Sol Melia, Amer Sports and Agfa-Gevaert. The most disappointing contribution came from Austrian construction materials company Wienerberger. Relatively disappointing half-year results from Wienerberger led a number of analysts to downgrade their assessment of the company's prospects for sales and earnings growth in central and Eastern Europe.
The Fund engaged in a number of new investments in August, thus reducing the high cash level (11.4% of assets) that had built up at the end of July. One new holding was added to the fund - the Italian bank Unicredito Italiano. In the only sales transaction of the month, we disposed of our entire stake in Finnish pharmaceutical company Orion, registering a substantial capital gain in the process.
Outlook
Although European stock indices mostly stalled in August (in euro terms), they continue to outperform their US equivalents and there are some tentative signs that investors have begun to swing toward higher-growth stocks as confidence has grown that the European economy may have turned the corner. Since June, shares of companies offering a lower return on equity - typically riskier recovery plays - have outperformed. Yet economic prospects around Europe do not appear particularly bright, and the long-term potential growth rate of European economies is still lower than that for the US or Asian economies.
However, European stocks in general have continued to fare well compared with their U.S. equivalents. This is because average price-earnings ratios remain low in the Old World. There has also been an upsurge in deal-making in the European corporate world, with persistently low base rates in Euroland boosting liquidity.
The focus remains very much on Germany, where a change in government after the September election may speed structural reform of Europe's largest economy. Unlike other countries, German house prices - long stagnant - have room to rise, and may well do as corporations and local governments sell off their housing stocks. If consumer spending (thanks to the efforts of a new government) and house prices recover, they are likely to reinforce each other.
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Templeton Euroland comment - Jul 05
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Wednesday, 14 September 2005
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Fund Manager Comment
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Templeton Euroland Fund produced a net return of +3.52% (in euros) in July, compared with a return of +4.44% for the benchmark MSCI EMU index.
There have been some tentative signs of late of a comeback for 'growth'-style investments. Companies with 'growth'-style characteristics tend be those whose profits or dividends are expected to rise substantially in the coming years, whereas 'value'-style investors tend to look for undervalued, out-offavour stocks. The distinction has become increasingly blurred since the bursting of the internet bubble in 2001, which resulted in dramatic decreases in the valuations of previously high-flying stocks. This has allowed Templeton Euroland Fund to acquire assets in a number of sectors that would previously be considered out of bounds because they were too expensive. But the long period of relative outperformance by 'value'-style stocks means that the valuation of different sectors has narrowed sharply, making 'growth' stocks appear more attractive, especially as economic growth continues apace (outside Europe at least). However, the real breakthrough for 'growth' investments will occur when and if technology stocks start to outperform.
As it is, our persistent underweighting of IT stocks helped Templeton Euroland Fund's relative performance in July. It was the only sector to do so (even though this sector also supplied the third-worst contributor in July, Jenoptik). Stock selection in the consumer discretionary sector (our largest sector allocation) and an under-weighting of financial stocks proved particularly detrimental. Within consumer discretionary stocks, the poor performance of holdings like French car-component company Valeo outweighed the contribution of our two top-performing stocks in July - Spanish hotel group Sol Melia and Volkswagen. The Industrial sector produced both one of the top contributors in July (the Spanish engineering and construction group Grupo Ferrovial) and the bottom contributor, French consumer products firm BIC.
A large rise in subscriptions in July led to a temporary rise in cash levels by the end of the month. However, we did manage to add three new holdings to the fund. The largest addition was France Telecom, which is undervalued on a variety of measures. The company has strong cash flow and has recently raised its dividend to provide an attractive yield to its shareholders. We believe that France Telecom is well placed to meet the challenges the telecommunications industry faces, and which are already discounted in its share price. We also added a position in German reinsurer Muenchener Rueck and Dutch media group VNU. We also reinforced our stakes in a number of existing holdings. The only sale of note was that of part of our stake in Finnish pharmaceutical company Orion.
Outlook
There have been some tentative signs of economic improvement in Europe in recent weeks. Business confidence has improved in Germany, there has been a surge in housing starts in France, and the employment picture has brightened in both countries. There was even a sharp improvement in business confidence in Italy, a country that was mired in recession earlier this year. But the underlying fundamentals in most of the euro-zone remain fragile, and any significant recovery in the euro, slowdown in reforms in Germany and France and/or deceleration in global demand would destroy this tentative upswing.
Negative market reaction to the London terror attacks in early July petered out very quickly, and stock prices rose again across the continent. Restructuring and dollar recovery have helped European stocks, but after several quarters of strong earnings growth, future earnings estimates may well come under increasing stress from the lack of economic momentum and margin pressure, especially if oil prices continue to rise.
We have been surprised by European markets' ability to brush aside the effects of oil price rises, which have been aggravated by the euro's slide against the dollar in recent months. In essence, we believe that the European markets are being driven as much by speculation and high liquidity as by any improvement in underlying fundamentals.
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Templeton Euroland comment - Jun 05
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Tuesday, 16 August 2005
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Fund Manager Comment
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Performance Review for the quarter under review
The second quarter of 2005 saw the Fund return a net 5.31% (A (acc) class shares, in euros) versus +6.50% for the MSCI EMU index. Much of this underperformance was due to our under-weighting of sectors like IT and energy and stock selection within those sectors. The fund continues to outperform its benchmark over the first six months of 2005 as a whole.
Key investment decisions that had a +/- impact on performance
On a sector basis, the best contribution to relative returns came from the Financial sector. Our under-weighting of this sector, which performed relatively poorly in the second quarter, contributed positively, but most of our out-performance came from stock selection. In particular, we benefited from an overweight position in Banco Popular Espanol, which announced a five-for-one stock split in June. Stock selection also ensured relative out-performance in Industrials and Healthcare, both sectors where the fund holds an over-weighting. The industrials sector provided three of the top four contributors to relative performance - namely Metso (a Finnish paper, mining and specialist ma-chinery company), Grupo Ferrovial (a Spanish civil engineering and construction group) and Vinci (a French construction company and concessions operator).
The most disappointing contributions came from IT and Energy, both sectors in which we have been underweight for some time. These under-weightings cost us some basis points of performance, especially in Energy, while in IT some individual holdings proved disappointing. This was particularly the case with Thiel Logistik, in which we have an over-weighting. Its stock declined 31% in the second quarter after it drastically reduced its profits forecast for this year. Top management also announced their departure from the firm during the quarter.
Reasons for key stock purchases/sales and/or significant increases/decreases in holdings
An influx of new subscriptions was used to top up a wide variety of existing holdings, the most significant of these investments being in the energy sector. The downturn in energy share prices early in the quarter enabled us to beef up our investments in Royal Dutch, as well as in Italy's ENI, Spain's Repsol and France's Total, for example. We also invested in three new stocks during the quarter: Spain's Banco Santander, and two German's stocks: Siemens and BMW. By contrast, selling activity was relatively limited. We disposed of our entire stake in German chemical stock Bayer, and we decided to book profits by cashing in part of our stake in Finnish pharmaceutical concern Orion, which was also the second-largest individual contributor to relative performance during the quarter. A share buy-back resulted in a reduction in our stake in Valeo, a French supplier of car components.
Changes in sector and/or geographical weightings during quarter
Sector weight changes are simply a reflection of the valuations of individual stocks; we don't make top-down sector allocation decisions. Our four largest sector weightings at the end of the quarter were, in order, in Consumer Discretionary, Industrials, Financials and Materials. Collectively, these four sectors accounted for 54% of assets under management at June 30, little changed from 66% at end-March. We remain significantly underweight the financial sector, and overweight the other three. Our largest over-weighting continues to be in Consumer Discretionary stocks.
Over the past four years, Templeton's new "bargain list" ideas have included several software, health care, and telecommunications services companies. All of which have traditionally been associated with growth-type companies. Over time, our portfolio weightings in these areas have shifted significantly relative to the benchmark.
Reasoning behind largest five individual holdings in fund and most significant over- and under-weightings in the fund
The three largest holdings in the fund at end June were the Finnish mining and paper conglomerate Metso, Royal Dutch Petroleum and Dutch media group Wolters Kluwer. We actually have an underweighting in Royal Dutch (which hurt our relative performance) and are overweight the other two. We are also overweight the sectors to which Wolters Kluwer (Consumer Discretionary) and Metso (Industrials) belong.
The most significant under-weighting for some time has been in financial stocks. Valuations are expensive in this sector, although BNP Paribas features among our top 10 holdings and Banco Popular Espanol was the top performer during the second quarter.
Cash holding (more than 5%) if applicable
Cash holdings increased slightly from 5.9% of assets under management at March 31 to 6.1% three months later. We have invested heavily in new and existing stocks throughout this period against the backdrop of a sharp increase in assets (to EUR1.11 billion, a rise of EUR182.4 million in three months), brought about partially by strong subscription inflows.
With European markets at a two-and-a-half year high, bargains are just not available in meaningful quantities. This being said, we are still finding a number of stocks that are attractively valued.
Macro outlook and comment on how fund is positioned to benefit from it
European markets forged ahead again in June. Indices like the French CAC40 up by 10.7% (in euros) in the first half of 2005 as a whole, and the German DAX up 7.76%. By contrast, the S&P500 lost -1.7% (in US dollars) and the Dow Jones -4.71% over the same period. In aggregate, by June 30, European indices had completed their third successive quarter of positive returns.
In many sectors, the price-eamings ratios of European stocks have been more attractive than those of their US equivalents. Lower interest rates and bond yields may also have been helping. A weaker euro has also been boosting companies that earn dollar revenue. Investors are also betting that European companies will increase profits and margins faster than companies in the US. This may be unrealistic given that companies on the DAX have already boosted their profits by 47% over the past three years. In addition, consumer spending remains in the doldrums and the euro's slippage against the dollar is aggravating the effect of rising oil prices. It may thus be hard for Europe's stock markets to perform as well as they have in the second half.
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Templeton Euroland comment - Mar 05
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Friday, 29 April 2005
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Fund Manager Comment
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Templeton Euroland Fund achieved a net return of +6.84% (A (acc class) in euros) over the first quarter, compared with a return of +4.69% for its benchmark, the MSCI EMU Index over the same period. In March alone, the fund produced a negative net return of -0.22%, but this was better than the -0.30% registered by the benchmark.
European shares held up comparatively well in March as throughout the first quarter. Despite perennial economic sluggishness, this is because corporate Europe continues to do well and equity investing has prospered in an environment of low base rates. Profits for quoted companies have risen substantially (including an impressive 55% in France in 2004), yet European stocks remain reasonably priced on a historical basis. Also, many European companies have successfully restructured and now offer solid dividend yields. They have also reinvested savings from restructuring and higher profits back into their businesses.
Among members of the euro-zone, the Netherlands had the best-performing MSCI single-country index. The fund is significantly overweight Dutch-registered stocks. On a sector basis, the best contributions over the quarter came from our over-weighting of industrials (our second-largest over-weighting relative to the benchmark) and consumer discretionary stocks (our largest over-weighting). The next best contributions came from significant under-weighting of telecom services, followed by an under-weighting and superior stock selection in financial stocks. In particular, two Italian holdings - insurer RAS and Banca Intesa - did significantly better than the sector as a whole.
The top five contributing stocks over the quarter are classed either under 'Industrials' (French stationery company Bic and Finnish paper, mining and specialist machinery company Metso Corp.) or under 'Consumer Discretionary (Sol Melia, Accor and Reed Elsevier). The hotel sector in general did very well in the first quarter, with Spanish hotel group Sol Melia receiving a boost from its announcement of a 43% increase in net profits in 2004 and a 11% drop in net debts. Meanwhile, French hotel group Accor benefited from its unveiling of a new investment deal and real estate strategy to help fund future expansion. Metso's paper division continues to be a drag on overall margins but the group's share price benefited from the improved profitability of its minerals and automation divisions.
With the steady rise in energy prices throughout the quarter, our under-weighting of energy stocks caused the biggest dent in our performance. Over-weightings of two Dutch stocks - media group Wolters Kluwer and technical service provider Imtech also produced disappointing returns in the first quarter. Wolters Kluwer has suffered from reductions in analysts' earnings per share estimates, while Imtech's share price corrected a little after a 26% rise through 2004.
Just one new position - in Agfa, a Belgium-based photo technology specialist - was added to the portfolio in the first quarter, but existing positions in 29 other stocks operating in a variety of industries were reinforced. The largest increased investments were in a number of Dutch-registered stocks - Imtech, recruitment firm Vedior and Unilever - as well as in French pharmaceutical group Sanofi-Aventis and Finnish paper product company Stora Enso. Two positions were sold completely during the first quarter. We made a substantial gain on our sale of the Austrian specialist-engineering firm VA Technologie, while we also offloaded a residual stake in Laxness, a spin-off from German chemical group Bayer.
Assets under management rose from 770 million euro at year-end 2004 to 929 million three months later. Despite an inflow of new subscriptions, the share of assets held in the form of cash dropped from 7.1% to 5.9% over the same period. The four largest sectoral allocations remain, in order, consumer discretionary, industrials, financials and materials. We raised the relative weight of consumer discretionary stocks in the portfolio, but reduced the share of the other three sectors.
Outlook
Despite perennial economic sluggishness, corporate Europe continues to do well and equity investing has prospered in an environment of low base rates. Profits for quoted companies have risen substantially (including an impressive 55% in France in 2004), yet European stocks remain reasonably priced on a historical basis. Also, many European companies have successfully restructured and now offer solid dividend yields. They have also reinvested savings from restructuring and higher profits back into their businesses.
As in the U.S., the seemingly robust health of European corporations contrasts with the fragility that consumers throughout the continent presently feel. In the euro-zone's three main economies - France, German and Italy - pension systems are under pressure and unemployment is high and rising. And yet historically low interest rates have encouraged large increases in real estate prices. Although no rate rise is expected for several months, the European Central Bank has recently become alarmed about excess liquidity and the surge in housing-related credit in several countries.
Besides the convergence in sector valuations, perhaps the most dramatic change over the past five years has been the improvement in many companies' balance sheets. We are now finding companies that a few years ago would have been impossible to consider due to their high valuations. While some people might still find relevance in a 'value' versus 'growth' paradigm, we continue to find stocks to populate our Bargain List through research on individual companies across all sectors. We concentrate on companies that put shareholders' interests before their own (eg pay dividends, increase payouts, buy back their own shares), and that possess strong balance sheets as well as a solid business model, with significant potential to generate cash flow over our holding-period target of three-to-five years.
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Templeton Euroland comment - Feb 05
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Wednesday, 23 March 2005
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Fund Manager Comment
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Templeton Euroland Fund outperformed the MSCI EMU Index in February, with a return of +4.00% (in euros), compared with +3.07% for the benchmark.
The three best individual contributions to total return in February came, in order, from over-weightings of Finnish mining and paper technology Metso, French car components supplier Valeo and Dutch chemical and life sciences group DSM. DSM and Valeo are also the fund's two largest holdings.
The two most disappointing contributions came from our under-weighting of energy companies Total and Royal Dutch. Overall, our under-weighting of the strong-performing energy sector detracted from our performance in February. Our under-weighting of IT and telecommunications stocks worked in our favour. By contrast, relative performance was hurt by our slight under-weighting of consumer staples and, to a larger extent, by our significant under-weighting of financial stocks. The fund's largest over-weightings are in consumer discretionary stocks and industrials. These over-weightings - plus stock selection within both sectors - contributed positively to relative performance in February.
Further investments were made in no less than 28 existing holdings during February. The largest of these investments was in French Pharmaceuticals Company Sanofi-Aventis, Belgium-based photo technology specialist Agfa, consumer non-durables company Unilever, and Finnish pharmaceutical company, Orion. The complete disposal of our stake in Lanxess (a chemical company that was recently spun off from Germany's Bayer Group) was the only sale during the month..
Outlook
Most of the large continental European economies face relatively poor economic prospects, with the latest European Commission survey showing economic confidence falling to its lowest level since March 2003. Unemployment has been increasing in Germany and France. Also, the European Central Bank has voiced its concern about soaring property prices in some countries, such as Italy, France and Spain. And yet healthcare and pension reforms continue apace, and the market's focus on value and dividend yield over growth continue to help European stocks. In addition, European companies have benefited from recent labor market reforms and a closing productivity gap with the U.S.
The strength of the continent's stock markets of late may also reflect strong corporate investment. There is still plenty of liquidity in the markets and forward price-earnings ratios are still relatively low, but some consolidation in European stock markets is to be expected after a long positive stretch. European companies will also have to show that, although margins look close to cyclical peaks, they can keep increasing profits, especially in the current lackluster economic environment.
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Templeton Euroland comment - Oct 04
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Thursday, 18 November 2004
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Fund Manager Comment
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Templeton Euroland Fund returned a net 1.67% in October (in euros), under-performing the benchmark MSCI EMU index, which returned 2.24%. However, year-to-date, the fund continues to outperform its benchmark.
The top three contributors to performance in October were Volkswagen, Spain's Telefonica and the Italian insurer, RAS. Despite worries about its mid- and long-term prospects, Volkswagen's share price advanced in October because of progress toward signing an agreement with its unionised workforce that freezes wages until 2007 and allows for more flexible labour practices. Investors also seemed convinced that Volkswagen would succeed in its plans to cut labour costs by EUR3bn by 2011 and were buoyed by news that former Daimler Chrysler executive Wolfgang Bernhard was about to join the board. Telefonica of Spain benefited from the issuance of a number of 'buy' recommendations from analysts. In particular, these analysts noted that the group was nearing completion of its acquisition of BellSouth's Latin American wireless assets, which should benefit the Spanish group's long-term strategy on that continent. RAS continues to benefit from strong first-half results, and in particular a doubling of its life insurance business. This is in line with the group's decision to focus growth on its own tied distribution channels and on increasing the contribution of life business and more upscale financial services to overall profitability. While cash levels at end-October were relatively high, we are currently seeking to reinforce our weighting of the financial sector. European financial stocks in general have been faring quite well of late, with financial stocks included on the MSCI EMU index advancing +4.06% (in euros) during October.
The most disappointing performances came from the Dutch office equipment maker Oce and from the Spanish building and engineering group Ferrovial. OCE reported lower-than-expected sales for the third quarter while Ferrovial was punished for its significant exposure to some incipient sluggishness in the Spanish construction industry - in particular the expected reduction in the Ministry of Public Works' investment programme for 2005. However, we remain comfortable about holding this stock, believing that and downturn in Ferrovial's construction business will be more than made up for by the group's growing revenues from traffic tolls and other activities.
We increased an existing stake in the Dutch media group De Telegraaf in October. Otherwise, buying activity was limited in October, pushing cash levels to 6.8% of assets at month's end. The appearance of new investment opportunities should ensure this level falls substantially over November. There were no full or partial sales of holdings during October.
Outlook
Eurozone economies continued to give decidedly mixed signals of their health during October, with household spending hampered by low confidence and sluggish employment. With the rise in oil prices and a fall in services sector activity in September, Europe's economic recovery has seemed to lose momentum. On a brighter note, it appears that rigid European labour markets might be loosening up - mostly through more flexible working hours, although high-profile job cuts have also been announced in recent weeks - and wage pressures are low.
Consensus estimates for earnings per share growth in Europe have declined in recent months. We also see some notable over-valuations in the more cyclical sectors.
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Templeton Euroland comment - Aug 04
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Tuesday, 21 September 2004
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Fund Manager Comment
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Templeton Euroland Fund returned -1.32% (in euros) in August, compared with a return of -1.16% for its benchmark, the MSCI Euroland.
Relative to the benchmark, the subfund suffered from its overweighting of consumer discretionary stocks, one of the weakest performing sectors during the month. To a lesser extent, Templeton Euroland Fund also suffered from an overweighting of material and industrial stocks. It was also punished for its significant underweighting of the financial sector, one of the best-performing sectors on the MSCI EMU Index in August.
The top three contributors to subfund performance in August were, in order, the Austrian civil engineering company VA Technologie, the Finnish pharmaceuticals group Orion and the dominant Belgian telecom company Belgacom. VA Technologie has frequently appeared among the subfund's top contributors this year, amid upbeat forecasts for 2004 earnings and an ongoing restructuring effort. During August, the group received a further lift when German engineering giant Siemens made an offer (subsequently withdrawn) to buy the company. In August, Orion reported a drop in net sales in the first six months of 2004, as a consequence of major restructuring. However, operating profits were up 38% on the same period of 2003, while earnings per share increased from 0.53 euros to 0.74 euros and an additional dividend was paid. Belgacom reported a 10% increase in net income in the first half of 2004 and a 20% increase in earnings per share. Since its IPO in March 2004, Belgacom's share price has consistently outperformed that of its peers, as measured by the DJ Stoxx Telecoms Index.
The bottom contributor was the Finnish paper and pulp company M-Real, followed by sports goods group Amer-Yhtyma (also of Finland) and French tyre company Michelin. M-Real has suffered from negative reaction to a recent rights issue and from probes into pricing practices. Although we continue to favour the paper and forestry industry, we have not been increasing our stake in M-Real as much as in a rival Finnish paper company, UPM. Amer-Yhtyma reported that net sales declined by 2% between January and June linked to its exit from the tobacco business in March. The group continues to expect solid growth in its sports equipment business through to the end of the year.
Fund inflows remained relatively buoyant during August. These were used to top up a number of existing holdings in the telecommunications sector, including Portugal Telecom and Spain's Telefonica. We also increased our stakes in two Italian financial services companies - Banca Intesa and RAS. We continue to favour forestry product-related industries, and therefore also increased existing stakes in Sweden's Stora Enso and Finland's Metso Corporation, a supplier to these industries. Apart from a residual stake in French pharmaceutical company Aventis, no complete sales were undertaken in August.
Outlook
Although there is considerable divergence between the relatively good growth (by its own standards) of France and the anaemic recoveries of Italy or the Netherlands, the eurozone as a whole is on track to record GDP growth of almost 2% in 2004, well above the 0.5% growth seen in 2003. However, some economists believe the second half of 2004 will see a deceleration in growth on the back of a slowing world economy and high oil prices, and they point for evidence to disappointing purchasing manager surveys for August. Mainland Europe is especially vulnerable to a downturn in exports given the continued weakness of its own domestic markets. Mass protests in Germany against labour market reforms underline the difficulties the authorities in Europe face in trying to overhaul a generous welfare system. Nonetheless, the OECD recently stated that growth in Germany in 2004 would exceed the 1.5% it forecast in spring. Looking at the markets, European equities are cheaper than U.S. equivalents on a price-to-book value and PER basis, which arguably means that European stocks could, potentially, outperform in the months ahead.
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Templeton Euroland comment - Jun 04
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Friday, 13 August 2004
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Fund Manager Comment
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The Templeton Euroland Fund made a return of +4.77% (in euros) in the second quarter, outpacing the +3.88% gain registered by its benchmark, the MSCI EMU. The Fund thus continues to extend its outperformance with the Fund returning +11.21% over the first six months of 2004 compared with +6.27% for the benchmark.
A survey of MSCI indices shows that European markets outperformed others during the second quarter, while most emerging market indices produced negative returns. The MSCI survey also showed that the MSCI Europe Value index outperformed the MSCI Growth index in the second quarter - a reversal of the results for the first quarter.
Data for the MSCI EMU index also shows that the three worst-performing sectors in the three months to end-June were industrials, telecom services and, especially, IT. The Fund's underweighting of the latter two sectors was a significant contributor to its overall performance, just as the it's relative performance suffered from its underweighting of energy stocks - one of the best-performing sectors on the MSCI indices. The Fund's returns benefited from its large over-weighting of material stocks, which was the best-performing sector on the MSCI EMU index in the second quarter.
Turning to individual stocks, the largest contributors were Michelin, the Austrian VA Technologie and the German chemical and pharmaceutical conglomerate Bayer. Michelin's share price rose a hefty 26.3% (in euros) in the second quarter as the group revealed measures to cut staff in France and to expand production in low-cost Russia. VA Technologie, which specializes in civil engineering (including hydro-power generation), has been presenting upbeat profit forecasts after some important restructuring. It has also benefited from a number of new contracts in important markets such as China and Russia. Bayer has been benefiting from new product approvals in the U.S. and from its perceived ability to meet bullish earnings forecasts.
A significant level of net new subscriptions in recent months has been mostly put to work reinforcing existing positions, especially in oil companies whose share prices have not, in our view, fully reflected the recent rise in energy prices. Another focus of buying activity has been the chemical and pharmaceutical industries (classed under 'materials' in the MSCI indices). The one new position added to the portfolio in the second quarter was the Dutch life sciences group DSM. DSM had suffered a severe drop in its share price when we acquired it. DSM entered the Templeton bargain list in April after its share price had dropped to 35 euros (from a September 2003 high of 44 euros). Our holding in the Finnish zinc-mining firm Outokumpu was the only one sold in its entirety in the second quarter. Outukumpu's market price actually rose 17.7% in the second quarter, making it one of the subfund's top contributors. But this gain meant that Outukumpu had reached our target price and so, in keeping with our strict buy/sell discipline, we sold.
Outlook
Eurozone data continues to disappoint, especially on the domestic side. German retail sales fell an annualised 5.2% in May and by 1.8% in the euro zone as a whole, for example. Nor has there been much improvement in the German or French jobs markets. On a brighter note, the eurozone purchasing managers' index rose in May, pointing to a revival in manufacturing and prompting analysts to raise their forecasts for growth in 2004. Yet Europe's recovery remains weak and may actually weaken further in the months ahead. Despite this, the eurozone is also feeling the effects of rising global inflation, with consumer inflation reaching an annualised 2.5% in May and 2.4% in June. European markets have been stuck in a trading range for some time as investors come to terms with a number of macro issues that are largely outside the control of European policy makers. These include oil prices, a slowdown in Chinese growth, monetary decisions in the U.S. and the constant threat of terrorism.
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Templeton EuroMarket comment - Sep 03
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Thursday, 20 November 2003
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Fund Manager Comment
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Investors decided to consolidate their positions in September after several months of strong gains in European equities, with the result that none of the top performers managed to register a double-digit gain over the course of the month. The only notable portfolio initiative during the month was a continued bolstering of the funds participation in Finnish paper company UPM. No new stocks were acquired, nor did any existing tocks exit the subfund. Though at a lower level, subscription flows in September. This has provoked a temporary rise in cash as a proportion of total assets as the fund manager's seek further opportunities.
Although the prospects for economic growth in Europe remain sluggish, valuations are still attractive and earnings quality, in some cases, is higher than in the US. Some of the funds individual stock holdings have grown quite large, so the fund manager's may be induced to increase the number of names in the portfolio.
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Templeton EuroMarket comment - Apr 03
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Thursday, 22 May 2003
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Fund Manager Comment
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In April, the fund's rise (in euro) was comparable to that of its benchmark, the MSCI EMU. The financial sector, in which the funds are strongly represented, had a strong rally in the month, with insurance stocks performing particularly well. In a similar fashion, the funds 11.4% weighting of materials (more than double that of the benchmark) benefited the funds returns, with chemical firms doing particularly well. The funds severe under-weighting of the energy sector also had a beneficial effect on the funds April performance. Two of the best individual performances came from the funds stakes in Vedior (the world's third-largest temporary staffing company) and ING, both Dutch companies. Vedior's stock rose by over 40% on the back of cost-reduction measures and despite poor first-quarter results. ING, a financial services company, also rose by over 40% as the stock market recovery had a positive impact on the revaluation reserve of the company.
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Templeton EuroMarket comment - Dec 2002
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Thursday, 13 February 2003
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Fund Manager Comment
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The fund outperformed its benchmark in December, as it did for 2002 as a whole. Templeton EuroMarket Fund has also outperformed its benchmark on a three-year basis and since launch. The outlook for 2003 looks, in some ways, similar to the prior year. On the macro side, the main issues remain the still uncertain direction of the global economy and the ramifications of a potential war with Iraq, especially its effects on the oil price. On the micro side, the direction of corporate spending and the sustainability of earnings growth remains a major concern. Combined, these issues may prolong volatility in global and European equity markets. 2003 could be a year of stability, underpinned by modest economic growth and improving corporate profits. The fund manager's will continue to adhere to a consistent value-based investment philosophy, applying the three basic tenets of value, patience and bottom-up.
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