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Templeton Global Fund - News
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Fund Merged
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Friday, 7 July 2017
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Official Announcement
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Franklin Global Growth and Value Fund has closed and merged into Templeton Global Fund.
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Templeton Global comment - Mar 11
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Tuesday, 14 June 2011
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Fund Manager Comment
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Decent corporate earnings releases and economic data suggesting growth in developing markets helped global equities to modest gains over the quarter despite headwinds from unrest in the Middle East, which sent energy prices soaring, and a major earthquake, tsunami and subsequent nuclear emergency in Japan.
o For the quarter ended 31 March 2011, the fund rose 7.35% (net in U.S. dollars), compared to the Morgan Stanley Capital International (MSCI) All Country (AC) World Index, which rose 4.53% (also in U.S. dollars).
o During the first quarter, the fund's overweighted European holdings performed well, especially after taking currency effects into account, and the fund's underweighting of Japan and emerging markets proved beneficial as these regional performances were weaker. European financial firms and some individual energy companies also made strong contributions, helping the fund to outperform its benchmark.
o The fund manager took profits in a U.S. technology consultant and a U.S. telecommunications business. Positions that were added to the fund included an investment bank from the U.S., office service and do-it-yourself retail businesses from the UK, and a European food products company.
o Negative factors, including the spike in oil prices and repercussions from Japan's travails, carry risks for the ongoing economic recovery, but at present, we think underlying conditions appear sufficiently resilient to potentially benefit the fund.
Market Review
During the quarter, global equity markets had to contend with rising unrest in the Middle East, which drove oil prices sharply higher, monetary tightening across many emerging markets, and two catastrophic natural disasters, with a subsequent nuclear emergency, in Japan. The fact that equities ended the quarter modestly ahead indicates the resilience of the global economic recovery, demonstrated by upbeat data releases and a strong quarterly corporate results season. After taking currency moves into account, European markets posted the strongest gains as growth firmed and worries about sovereign debt markets eased but did not fully dissipate. North American markets also made good progress. Japan was weak, however, though its shares recovered from the lows reached in the aftermath of the earthquake, tsunami and ensuing nuclear incident. Additionally, emerging markets made little progress as investors remained cognizant of widespread policy tightening. In sector terms, rising oil and gas prices helped energy holdings to strong gains, the industrials sector responded to favorable economic news, and telecommunication services stocks rose on positive results and corporate activity. In contrast, consumer stocks, information technology and utilities made less progress.
Performance Review and Contributors to Performance
Dutch bancassurer ING Groep and French bank Crédit Agricole led a number of strong performances among European financial firms, both having started the quarter with abnormally low valuations. ING benefited from calculations that the sale of its insurance assets might be more lucrative than previously thought. Crédit Agricole was assisted by strong quarterly results and indications that an amendment to its capital structure would obviate the need to raise fresh funds to meet regulatory capital requirements. Other strong holdings included Russian gas producer Gazprom, which advanced on rising energy prices and suggestions that doubts about the safety of nuclear power following Japan's Fukushima incident would lead to increased use of gas in electricity generation. Elsewhere, shares of Chesapeake Energy Corp. climbed as asset sales reinforced the company's balance sheet and established higher valuations for its portfolio of North American unconventional hydrocarbon deposits. In addition, UK food company Premier Foods recovered sharply after a weak performance in 2010 as the disposal of its canned food and meat-free businesses shored up its previously fragile balance sheet and its results beat expectations. As our analysis has identified a disproportionate number of investment opportunities among European stocks, the fund has been significantly overweighted in Continental equities. Regionally, European markets outperformed, whereas Japan and emerging markets, both underrepresented in the portfolio, underperformed.
Less satisfactorily, North American returns were depressed by the below-index portfolio weighting in a relatively strong region. U.S. fashion retailer Liz Claiborne surrendered earlier gains after its fourth-quarter sales missed forecasts due to price competition, some fashion misreads and adverse December weather. Internet communications giant Cisco Systems had an indifferent fourth quarter as costs associated with new product introductions and sluggish demand from consumers hit margins, offsetting solid overall sales growth. We believe margins should recover as new product sales ramp up. Additionally, pharmaceutical business Merck & Co. slipped as clinical trials on a potentially important new drug were suspended due to safety concerns. Elsewhere, International Consolidated Airlines struggled as rising fuel costs threatened margins, and Lloyds Banking Group slipped on unease about banking reform in the UK, losses in Ireland and indications that measures to improve asset quality were impinging on net interest margins. These negative factors appear short term in nature and, in our view, these stocks remain attractive. For the first quarter of 2011, the overall fund return was well in excess of the benchmark.
Strategy and Activity
The fund manager took profits in a U.S. technology consultant and a U.S. telecoms business. Positions that were added to the fund included an investment bank from the U.S., office service and do-it-yourself retail businesses from the UK, and a European food products company. We believe the telecommunication services and health care sectors continue to offer above-average numbers of investment opportunities, while value appears less available in the materials, consumer staples and information technology sectors. Additionally, Europe provides an above-index share of attractive situations, in our view.
Investment Outlook
Middle East turmoil and renewed doubts about nuclear power could increase the demand for fossil fuels at a time of tight supply, keeping oil prices at levels that pose a threat to continued global economic growth. Disruption in Japan could also have some global consequences. Elsewhere, recent events in Ireland and Portugal indicate that European sovereign debt markets and banking systems remain fragile. With inflation becoming an issue across markets, economic policymakers have been switching from supporting growth toward restraining prices-the European Central Bank (ECB) was the latest institution to signal an intention to tighten policy. That said, corporate profitability appears buoyant, and leading economic indicators in key economies have remained supportive of equity markets. Our research continues to uncover stocks with attractive long-term valuation characteristics. Therefore, although we need to guard against hubris and keep in mind the headwinds facing share prices, we believe that the fund continues to offer good long-term potential.
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Templeton Global comment - Jun 10
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Thursday, 26 August 2010
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Fund Manager Comment
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First-quarter equity market gains were reversed as concerns mounted among investors about the European sovereign debt crisis and the sustainability of the U.S. economic recovery, and this offset solid corporate results.
For the quarter ended 30 June 2010, the fund fell 14.62% (net in U.S. dollars). The fund's benchmark, the MSCI All Country World Index, fell 11.96% (also in dollars).
The fund's investments in telecommunications and materials performed well during the quarter, but less satisfactory outcomes in energy, utilities and consumer staples eroded performance.
Pharmaceutical, insurance, recruitment and security stocks reached the fund manager's price targets and were sold down to make way for oil services and financial stocks whose prices we viewed as having become unduly depressed in relation to their long-term prospects.
Although June in particular saw some apparent deterioration in the economic background, we believe the market appears to offer good long-term value for investors, with the fund well-placed to potentially benefit as confidence recovers.
Market Review
Equity markets saw first-quarter gains swept away as concerns about the security of European debt and the sustainability of the global economic recovery offset solid corporate earnings. Moves by the European Union and the International Monetary Fund (IMF) to support troubled southern European economies failed to fully sway investors who remained wary of the region's debt and of financial institutions exposed to it. Economic releases and corporate earnings forecasts were supportive for most of the second quarter, but they showed signs of strain during the latter part of June when investors became uneasy about progress in the U.S. and China. Commodity prices drifted, while concerns about financial stability pushed up short-term interest rates, though bond markets outside southern Europe strengthened. In currency markets, the euro was weak and the yen strong.
The somber market mood benefited defensive stocks as telecommunications and consumer staples outperformed while energy, materials and financials came under pressure. In common currency terms, Asia ex-Japan performed strongly while Europe lost ground.
Performance Review and Contributors to Performance
An above-index sector weighting and strong returns from a number of holdings generated strong performance from the telecommunications sector. U.S. mobile and long distance service provider Sprint Nextel enjoyed a strong quarter as surveys suggesting improved levels of customer satisfaction boosted hopes for improved customer retention, while a new fourth generation smart phone was well received on its launch. China Telecom had a steady quarter with investors encouraged by the progress of its CDMA mobile telephone business, along with the potential for rising broadband demand within China to reinvigorate its fixed line operation. Strong local economic growth data and investor enthusiasm for stocks with attractive and secure cash flows and yields supported Singapore Telecommunications' share price.
Elsewhere, German car maker BMW advanced as strong car sales and good news from China, in terms of official currency policy and its local affiliate operation's trading performance, reinforced its attractions as a major beneficiary of euro weakness. Soft drinks and snacks business Dr Pepper Snapple Group advanced on strong first-quarter results, the release of social responsibility objectives and indications that a stock buy-back program would be accelerated.
The performance from the energy sector was disappointing with the BP share price under severe pressure as the company's problems containing the oil spill in the Gulf of Mexico generated hostility from the U.S. government and threatened to inundate the firm with compensation demands. The fund's European utilities holdings were affected by diverse regulatory concerns, with Iberdrola hit particularly hard by a Spanish government initiative to freeze utility tax increases while reviewing the structure of utility reimbursement programs. An underweighting in the consumer staples sector hurt relative fund performance. Shares of bakery business Premier Foods suffered as increased promotional activities by rivals in an already competitive bakery market put pressure on margins. Elsewhere, fashion retailer Liz Claiborne fell sharply on missed first-quarter sales forecasts and reduced second-quarter guidance. Its partnered brands division struggled, masking the longer-term potential of the licensing deal secured for the core brand. Dutch financial business ING Groep lost ground as fears about its potential exposure to problems in southern European debt markets held down share prices in spite of its favorable valuation, solid quarterly results and growth potential after restructuring. The fund experienced a significant adverse currency effect due to its above-index weighting in euro-denominated assets.
Strategy and Activity
Pharmaceutical, insurance, recruitment and security stocks reached the fund manager's price targets and were sold down to make way for oil services and financial stocks whose prices we viewed as having become unduly depressed in relation to their long-term prospects. The aim to optimize the portfolio in terms of our investment metrics produced a fund over-weighted in telecommunications, health care and consumer discretionary at the expense of materials, consumer staples, financials and energy; it also had above-index exposure to European stocks at quarter-end.
Investment Outlook
The early summer setbacks in a number of indicators important to equity markets have certainly affected investor sentiment. Warnings about the danger that simultaneous tightening of fiscal policy in many countries could precipitate a global slowdown have further resonated with investors. However, the picture painted by leading indicators is still one of economic recovery, albeit at a slightly lower pace than previously assumed, with continued buoyancy in developing markets offsetting a somewhat less rosy picture in the developed world. After three weak months, global equity prices appear to discount pessimistic economic scenarios rather than the more probable outcomes, while potential competitive advantages for European stocks from a weak euro do not seem to be reflected fully in share prices. Although the immediate outlook for markets is not clear-with stock price weakness and rising volatility demonstrating the level of uncertainty felt by market participants-our analysis suggests that the fund is well-placed to potentially reward investors over the long term.
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Templeton Global comment - Jul 06
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Monday, 28 August 2006
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Fund Manager Comment
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In July, Templeton Global Fund returned +1.12% (in U.S. dollars), compared with a return for the MSCI AC World index of +0.71%.
Markets finished slightly ahead in July after a strong boost in the final week of the month. The month was dominated by events in the Middle East. Fears that the situations in Iraq and the Lebanon were spiralling out of control resulted in a rise in the oil price to an all time high of $77.74 per barrel and a sharp rally in gold. For companies, the secondquarter results season suggested that valuations will continue to be supported by strong earnings for the time being, with positive surprises well in excess of disappointments, but the number of earnings forecast upgrades relative to downgrades fell back, to below 50% in the case of the U.S. Meanwhile, concerns about inflation meant that short interest rates continued to move up. In this environment, defensive stocks outperformed, with Health Care, Utilities, Energy and Consumer Staples among the strongest performing sectors, whereas Information Technology (hit by some particularly disappointing results), Industrials and Consumer Discretionaries did not do so well.
The fund's weighting, dictated as always by the availability of stocks meeting our investment criteria, did not change greatly during the month, with above index positions in the UK, Germany and the Netherlands balancing underweight positions in the U.S. and Japan. The fund maintained overweight positions in the consumer discretionary and telecommunications services sectors, and under-weighted consumer staples, energy and industrials. The month saw some switching within the information technology and telecoms sectors, and a small addition to the materials sector matched by a sale within industrials.
Superior stock selection was the main driver behind the fund's outperformance. Its currency positioning had a small positive effect, while its sector allocation position slightly hurt the fund.
During the month, the fund's best-performing stock was Japanese electronic games maker Nintendo, which benefited from strong sales of its existing range of handheld gaming consoles and excitement over a new generation of motion sensitive consoles that are due for launch shortly. An allocation to U.S. pharmaceuticals company Merck, which was boosted by better-than-expected second-quarter earnings and positive news on ongoing litigation battles over its controversial drug Vioxx, helped the fund. A position in UK drug company Shire, which launched new drugs to combat adult ADHD and Hunter Syndrome, reducing dependence on its mature ADHD drug, Adderall, benefited the fund.
In July, the fund benefited in sector terms from its position in information technology (mainly driven by the performance of Nintendo) overall and its underweighting of poor-performing U.S. IT companies. A good month for forest product stocks, on the back of broker upgrades, helped relative returns from the materials sector. The fund's underweight industrials position also benefited the fund. On a country basis, Japan, the U.S. and the UK were the best-performing markets for the fund during the period.
By comparison, the poor performances of U.S. corporate communications network specialist Avaya, which fell by over 18% after announcing poor second-quarter results and lost its CEO, acted as drag on the fund. Peugeot contributed negatively after the French carmaker declined over 15% on news that rising raw material costs were damaging its margins (offsetting the benefits expected from internal cost cutting).
A position in South Korean financial group Hana Financial, which recorded indifferent second-quarter results and saw its shares fall 4%, acted as a drag. Hana, and UK insurer Aviva, which lost ground after it made a badly received approach to a U.S.-based life insurer, served to depress the fund's allocation to the financials sector, while its underweight position in the energy and consumer staples sector hurt as both these sectors outperformed. France, Germany and South Korea all acted as a drag on the fund.
Outlook
Although steady rises in interest rates are putting pressure on asset values, the overall outlook for economic growth and corporate profitability still appears reasonable. The major risks to this outlook come from the alarming political situation in the Middle East, and doubts about economic prospects in the U.S. as the housing market there slows. We believe that the names in our portfolio represent good value and should permit satisfactory performance even if conditions deteriorate somewhat.
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Templeton Global comment - Aug 05
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Friday, 18 November 2005
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Fund Manager Comment
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Templeton Global Fund slightly under-performed the benchmark MSCI AC World index in August, with a net return of +0.53% (in US dollars), compared with +0.81% for the benchmark.
The best-contributing sectors in August were industrials and healthcare, in each of which the fund is overweight. Relative performance benefited from superior stock selection in each of these sectors, particularly healthcare. As in previous months, the fund was hurt by its under-weighting of energy stocks. To a lesser extent, relative performance suffered from stock selection in the materials, financial, IT and consumer staples sectors.
The three top individual contributions came from overweight positions in Japan's Nomura Holdings, US insurance company CIGNA, and UK broadcaster BSkyB. Nomura Holdings, the month's largest contributor, benefited from the generally upbeat tone in the Japanese stock markets in the run up to the general election, called for 11 September. Outgoing prime minister Junichiro Koizumi, was widely expected to win that election with the promise to privatise the country's giant post office. This institution controls one-third of household savings in Japan, so its privatisation could benefit the rest of the Japanese financial industry. Cigna, the second-largest contributor, announced better-than-expected results for the second quarter, on the strength of which one broker raised earnings forecasts for the company for the period 2005 to 2008. BSkyB's stock price was driven higher at the beginning of the month by its announcement of a 32% profit rise in the year ending 30 June, driven by an increase in subscribers as well as higher revenue per user.
The worst contribution to monthly performance came from our overweight position in hard-disk manufacturer, Seagate Technologies, whose market price dropped 14% in August. Seagate was downgraded by a number of analysts in September because of rumours that Apple Computers' iPod may shift away from Seagate's one-inch hard drives to more flash memory storage. However, as Templeton Global Fund focuses on finding out-of-favor and undervalued companies trading at low multiples of earnings, sales and book value, Seagate Technologies proves the perfect match for the fund. Other notable disappointments came from overweight positions in two consumer discretionary companies, Agfa-Gevaert (a Belgium-based photo technology specialist) and Makita (a Japanese power tool manufacturer).
A number of new stocks were added to the fund in August, including: Boston Scientific (pharmaceuticals); the UK-based Electrocomponents (a supplier of products to development and maintenance engineers); Torchmark (a US-based diversified financial group) and Unicredito Italiano (an Italian bank). These four additions were counterbalanced by four complete disposals: BASF, Kraft Foods, Orion and Volkswagen.
Outlook
September could offer some respite from high oil price. However, oil prices seem destined to remain far higher than most experts' estimated at the beginning of this year, and other imbalances still need to be unwound. In the circumstances, stock markets held up relatively well throughout August. But so did bond markets. The dichotomy of previous months therefore remains. Either one is convinced by the increasingly upbeat tone that characterised markets prior to August, or one accepts the interpretation that a flattening (and potential inversion) of the US yield curve is signalling trouble for economic growth. Irrespective of concerns about global imbalances, liquidity remains strong and yields low even as the current economic cycle matures, thus - at least in the near term - favouring 'growth' style investments. However, our experience tells us that gains from these sources may, indeed, turn out to be short lived as economic growth slows down.
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Templeton Global comment - Jul 05
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Wednesday, 14 September 2005
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Fund Manager Comment
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Templeton Global Fund achieved a net return of +3.0% (A (acc) class shares in US dollars) in July, compared with a return of +3.72% for its benchmark, the MSCI AC World Free.
The long period of relative out-performance by 'value'-style stocks means that the valuation of different sectors has narrowed sharply, making 'growth' stocks appear relatively more attractive, especially as economic growth continues apace (outside Europe at least). However, the real breakthrough for 'growth' investments will only really occur when and if technology stocks start to outperform.
On a sector basis, by far the largest relative contributions came from the IT and financial sectors. In the first, the fund has persistently held an under-weighting. This might have hurt relative performance in July, as the IT sector achieved superior returns during the month, but we were well served by our stock selection. In particular, we benefited from our over-weighting of Avaya, which was the top contributor to fund returns in July, when its stock rose by over 24%. Avaya, which engages in the design, building, and management of communications networks for businesses worldwide, has been benefiting from the growth in Internet Protocol (IP) telephony. Specifically in July Avaya was able to report strong earnings for the quarter ended June 30, as the network equipment maker benefited from a lower-than-expected tax rate and better-cost controls. Our over-weighting of Seagate Technology - another IT stock - also contributed strongly during July.
In financials, the fund benefited from its under-weighting of a sector that performed relatively poorly in July, and from superior stock selection. Indeed, the second-largest individual contributor to relative returns during the month was Korea's Hana Bank, whose stock rose 19%. Hana Bank, South Korea's third-largest lender, saw its net profit rise almost 9% in the second quarter, helped by solid asset growth and a decrease in bad debt expenses. An expected recovery in private spending and a subsequent revival of loan growth are expected to boost earnings at most South Korean banks in the months ahead.
On the negative side, we were hurt by stock selection in the consumer discretionary, consumer staples and health care sectors, although no individual stock in any of these sectors stands out for its poor performance in July. The consumer discretionary sector is our largest sector allocation and health's care our third.
Despite growth in assets in July, we managed to reduce cash levels throughout the month by adding a number of new stocks and investing further in existing holdings. We added four new stocks in July. These were: France Telecom, Bank of New York, German reinsurer Muenchener Rueck and Dutch media firm VNU. During the month, we disposed of our stake in two American firms AMR Crop (holding company for American Airlines) and Thomas & Betts (electric equipment).
Outlook
Stock markets have forged ahead in the past three months, as investors focus on headline numbers, mostly out of the US. The macro-economic picture in Europe is more subdued, while Japan may, at last, be turning the corner. Yet, despite an upward shift, long bond yields remain low, and curve flattening remains the order of the day. Such a phenomenon may, in part, be a reflection of high liquidity around the world, but it may also indicate persistent uncertainty about the solidity of the present economic upturn. For our part, we see a number of clouds gathering. Even though it has not, as yet, had the impact one might have expected, oil prices remain worryingly high. Further causes for concern are the overheated property sector in the US and the extent of the slowdown in China, whose influence on the fortunes of many countries is by now at least as large as that of the US Skepticism about the solidity of economic growth is also fuelled by surprisingly flaccid sea- and air-freight rates.
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Templeton Global comment - Jun 05
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Wednesday, 17 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 -1.48% (A (acc) class shares, in US dollars) versus +0.81 % for the MSCI AC World index. The significant rise in the US dollar against other major world currencies was the primary driver of underperformance this quarter. Where Templeton is currently finding value leads the fund to hold a substantially lower weighting of US stocks than the benchmark, and a rather larger weighting of European stocks. However, these currency effects balance out over the longer term, leaving the drivers of performance mostly attribut-able to our stock selection.
Key investment decisions that had a +/- impact on performance
Overall, the stocks we have held this quarter have benefited the fund's performance. Our holdings in the Healthcare, such as AmeriSource Bergen (a drug distributor) and CIGNA (a managed health care provider), both turnaround stories, have done particularly well as their respective transitions and restructurings begin to take hold. A similar scenario is seen in such Consumer stocks as H&R Block (a US provider of tax-related services) and Service Corp (funeral services), which have performed well recently.
Not everything worked as desired this quarter; our Financial holdings, specifically some banks, were hit due to lower consumer spending and thus loan growth. However, those that had exposure to property, particularly in Hong Kong (such as Cheung Kong) did well as the retail and residential rental markets firm up. Stocks within the Telecom sector, such as Portugal Telecom, under-performed on downward revisions of their own expectations, which caught the market somewhat by surprise.
Reasons for key stock purchases/sales and/or significant increases/decreases in holdings
Four new stocks were added to the fund in the second quarter. Theses were UK retail chain Boot's, German car-maker BMW, the US communications technology firm Avaya Inc and Siemens. Siemens has been the subject of a lot of recent criti-cism, primarily due to its loss-making mobile telephone unit and problems in its telecom equipment and consulting divisions. But the group's new CEO, Klaus Kleinfeld, has shown his commitment to address these issues, whilst the rest of the group is in very good shape. During the quarter, we added to existing positions in Belgium-based photo technology specialist Agfa, Bank of America and William Morrison Supermarkets of the UK.
There were four complete sales of positions during the second quarter. We exited entirely from the stock of German chemical group Bayer and in Danish office services specialist 155, realising a substantial gain in both transactions. mens. Goldman Sachs, operating with a number of venture capitalists, finally recognized the hidden value in 155 by launching a takeover offer. We had previously been building up our positions in the commercial services industry, including 155, because the potential of a number of firms working in that industry was going unrecognized. Such a development is symptomatic of our efforts to recognise value before other parties. We also sold residual stakes in the Hong-Kong media group SCMP, while a share buy-back resulted in the elimination of Swedish industrial equipment firm Atlas Copco from the portfolio.
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 Health Care. Collectively, these four sectors accounted for 58% of assets under management at June 30. This is little changed from March 30, when these four sectors accounted for 60% of assets. We remain significantly underweight the financial sector, and overweight the other three, although our over-weighting in industrials and healthcare fell somewhat during the second quarter, while our over-weighting of consumer discretionary increased.
Reasoning behind largest five individual holdings in fund
Three of the five largest holdings in the fund at June 30 are health care related (Cigna, AmeriSource Bergen and GlaxoSmithKline). The healthcare sector has performed very poorly over the past two years, presenting an opportu-nity to buy exposure to leading companies at some very attractive prices. As a result, Fund exposure to the sector has risen steadily in recent months. Our over-weightings of Cigna and AmeriSource Bergen provided the two largest contributions to relative returns in the second quarter. Also featuring among the top five are BMW and William Morri-son Supermarkets. The latter has issued a series of profit warnings over the past year and took away from our relative performance in the second quarter, but its acquisition of Safeway, although expensive, provides Morrison with a tremendous franchise in an upscale retailer outside Morrison's own Northern England stronghold. Recent sales increases have been encouraging. Our overweighting of BMW was a slight positive for the fund during the quarter. BMW's share price has risen steadily from a recent low in late April thanks to extensive cost cutting and signs of a rise in new car registrations in Germany.
We have been substantially underweight financial stocks for some time. This under-weighting, plus the low correla-tion of the fund's financial holdings to the benchmark, hurt relative performance in the second quarter. We have also been consistently underweight energy stocks. We continue to believe that energy stocks are reflecting overly optimistic long-term commodity prices, particularly in light of a slowdown in economic growth in Europe and the possibility of a Fed-induced slowdown in the US economy.
Cash holding (more than 5%)
The cash balance in the fund stood at 7.1% at end June 2005, compared with 4.4% at end March. This is simply a result of a strong inflow of subscriptions in May and June that is being progressively invested. It is also true that with markets in many regions (especially Europe) at a two-and-a-halfyear high, finding opportunities in undervalued se-curities has become more challenging.
Macro outlook and comment on how fund is positioned to benefit from it
Half way through 2005, developments have confounded the predictions of observers at the start of the year who foresaw continued weakening of the dollar (it has actually strengthened) and a rise in government bond yields (they have fallen). Also, stock markets have made reasonable gains over the past two months. Despite this, we remain cautious about prospects for the rest of this year. Economic growth is fragile at best, especially in light of the steep rise in oil prices. Added to this are our mounting concerns about rampant house price growth in a number of countries, including the US.
Large-caps have increasingly been finding their way into Templeton's in-house bargain list and, thus, into Templeton Global Fund. Given the hammering they have taken, valuations in the large-cap growth arena are attractive. As the world came out of near recession in 2002-2003, small caps did particularly well, as one might expect in a cyclical upswing, but with signs that global economic growth is maturing, we could well be in a transitory phase when more stable stocks come into their own.
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Templeton Global comment - Mar 05
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Friday, 29 April 2005
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Fund Manager Comment
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Templeton Global Fund achieved a net return of +1.05% (A (acc class) in U.S. dollars) over the first quarter, compared with a return of -0.85% for its benchmark, the MSCI AC World Free Index over the same period. In March alone, the fund produced a negative return of -1.30%, but this was better than the -2.16% registered by the benchmark.
One of the best contributions to fund performance in the first quarter came from our severe under-weighting of U.S. stocks, which performed poorly in the first three months of 2005 compared with stocks in Europe and Japan. On a sector basis, the best contributions over the quarter came from our over-weighting of industrials (our largest overweighting relative to the benchmark) and from our significant under-weighting of financial stocks. Industrial stocks in the U.S. and Europe have prospered in an environment of low base rates. Profits for quoted companies have risen substantially (including an impressive 55% in France in 2004) in Europe, with restructuring and productivity measures leading to an increase in margins. Five of the top 10 contributing stocks to Templeton Global Fund's performance in the first quarter were classified under 'Industrials', including two of the top three - Danish cleaning and security services group ISS A/S (the subject of a leveraged buy-out late in the quarter) and British pallet specialist Brambles Industries.
Apart from the threat posed by rising interest rates in the U.S., the U.K. and elsewhere, some major financial groups in the U.S. like Citigroup, Freddie Mac, Fannie Mae and AIG have all come under close scrutiny regarding internal controls. Although we largely benefited from our overall under-weighting of financials, some individual financial names held by the fund also contributed positively, most notably Korea's Hana Bank, in which we hold significant overweighting.
A good contribution also came from consumer discretionary stocks, a sector in which we were overweight at quarter's end. In particular, we benefited from significant over-weightings of French hotel group Accor, whose share price has been boosted by an improving operating environment and a strategic refocusing of its business, and of Anglo-Dutch media group Reed Elsevier. The second-largest contributor to overall returns in the first quarter was Seagate Technology. Seagate is our largest holding in a sector in which we have a significant under-weighting. IT shares in general have fared poorly, but Seagate saw its shares rise 13.6%. This was driven by rising earnings estimates on the back of better-than-expected demand for disk drives and better inventory management. Two of the most disappointing contributors to our first-quarter returns also belonged to the IT sector: Nintendo and BMC Software. Nintendo was hurt by profit taking and a downward earnings revision, while BMC Software has frequently delivered a patchy execution record in recent months.
With the steady rise in energy prices throughout the quarter, our underweighting of energy stocks caused the biggest dent in our performance.
Over the past few 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. True to form, the new positions added to the fund in the first quarter of 2005 came from a variety of sectors. These new positions were in Agfa (a Belgium-based photo technology specialist); AmerisourceBergen Corp (a U.S. pharmaceutical company); DirecTV (the largest direct-broadcast satellite broadcaster in the U.S.); Olympus (a Japanese manufacturer of optical-electronic products); Pfizer (the world's largest pharmaceutical company) and Service Corp International (the largest provider of funeral, cremation and cemetery services in North America. We also increased existing stakes in Compass Group, KDDI Corp and Normura Holdings.
Three positions were sold in their entirety in the first three months of 2004 - Autoliv (a Swedish automotive safety company), Laird Group (a U.K. group involved in Technologies, Security Systems and Services) and Laxness (a spinoff from German chemical group Bayer). We realised a gain in all cases. We also reduced our stakes in Hong Kongbased media group SCMP Group and slightly cut our stake in Rolls-Royce.
Assets under management grew from US$1.49 billion at year-end 2004 to US$1.67 billion three months later. Cash holdings climbed slightly over the same period (from 4.0% to 4.4%), as did the number of long-term positions (from 112 to 116).
Outlook
We believe the key market variables remain oil prices and the U.S. dollar. The economy is 'right' to be worried about rising oil prices, but no one can predict with any reliability at what level. Recent data on employment and consumer confidence in the euro zone as well as consumer spending in the U.S. and the U.K. suggest that a slowdown in growth may well be underway. At the end of the quarter, the prevailing views in the markets appeared to be that over the next few months inflationary pressure would lead to steeper rate increases in the U.S. and in turn, hurt corporate operating margins and earnings.
M&A activity has intensified over the past few months. The expected trend is a result of the cash build-up that has been reported in the balance sheet of many companies. Thus far, the amount of deals for cash (as opposed to shares) suggests that things are not getting out of control. In our view, the amount of money in private equity funds should provide good valuation support for companies that appear undervalued on normalized free cash flow. These are the type of companies that we tend to focus on. We continue to monitor M&A activity, being mindful of the effect that potential or announced deals may create in terms of earnings growth and returns on investment.
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. As a manager who selects investments based on fundamentals, Templeton is 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 have continued 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 Global comment - Feb 05
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Wednesday, 23 March 2005
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Fund Manager Comment
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Templeton Global Fund recorded a return of +4.41% (in U.S. dollars) in February, outpacing the +3.51% rise in the MSCI AC World Index.
The best contributions to total return in February came from over-weightings of the U.K.'s William Morrison Supermarkets, U.S. health insurer Cigna, Anglo-Dutch media group Reed-Elsevier and Scandinavia's Nordea bank. The first three of these names also feature among the fund's top 10 holdings. The most disappointing contributions to total return came from three healthcare groups -Mayne Group, Shire Pharmaceuticals (in both of which we had an over-weighting) and Pfizer (in which we had an underweighting) as well as from U.S. group BMC Software.
On a sector basis, we continue to be significantly overweight industrial and consumer discretionary stocks. Both over-weightings contributed positively to performance in February. We remain significantly underweight the IT and financial sectors. The under-weighting of financials contributed positively to the fund's relative performance in February, as this sector under-performed during the month. By contrast, our under-weighting of IT had a slight negative effect on the fund's relative performance.
The volume of purchases outpaced sales in February. Large investments were made in two new additions to the fund: DirecTV and Pfizer. DirecTV (the largest satellite broadcaster in the U.S.) has lagged the market of late, but the company is cash rich and, even with strong growth, we view this name as a defensive media stock. Similarly, price weakness and strong fundamentals convinced us to invest in pharmaceutical group Pfizer. We also increased our existing stake in Japanese financial group Nomura. We disposed of our entire stake in Laird Group (a U.K. group involved in Technologies, Security Systems and Services) and Lanxess during February, realising capital gains in both cases. Lanxess, a chemical company, was recently spun off from Germany's Bayer Group.
Outlook
February was another good month on equity markets as investors became convinced that a virtuous circle of steady economic growth, low inflation and relatively low interest rates had set in. An increase in M&A activity has also been lifting market sentiment. Expectations are also running high, with an average return on equity of 16% anticipated for the world's listed companies in 2005.
There were, however, some upsets that temporarily halted the market's rise, most notably linked to general nervousness about the dollar, as the U.S. continues to register near-record trade and federal deficits. In the meantime, crude oil prices have strayed over $50 per barrel again. Although long-term bond prices began to fall toward the end of the month, the apparent contradiction between low long-term bond yields and rising stocks persisted for much of February, possibly because of strong Asian purchases of U.S. Treasuries. Further widening of U.S. yield spreads, such as we saw at the end of the month, could prove a catalyst for some medium-term disruptiveness. In a word, we are not convinced that financial market conditions will remain as benign as they have been in recent months.
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Templeton Global comment - Oct04
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Thursday, 18 November 2004
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Fund Manager Comment
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Templeton Global Fund outperformed its benchmark in October, with a net performance of +2.78% (in US dollars), compared with +2.47% for the MSCI AC World Index.
Three of the best contributors were the UK-based William Morrison Supermarkets, BMC Software and the Israeli-registered Check Point Software Technologies. William Morrison Supermarkets stock was added to the fund recently, at a time when, in our view, it was being overly punished by the markets for the purchase of the Safeways chain of supermarkets. William Morrison Supermarkets returned almost 20% (in US dollars) in October once it became clear that the Safeways purchase brought with it substantial unrealised capital gains for the acquirer. The second-best contributor to absolute returns, BMC Software, reported second-quarter profits before one-time items that were up on a year earlier and thus took part in a general upturn in high-tech stocks during the month. BMC's profits were boosted by a 6% jump in revenue that reflected a better environment for technology spending and the company offered mostly positive guidance for the rest of the year. Also benefiting from the general upturn in technology stocks, Check Point Software, which specialises in computer security programs, received increased investor attention in October. It has increased its sales and profits sequentially over the past 18 months and recently announced a share buyback programme.
The two least satisfactory performances came from US health insurer CIGNA and the Japanese computer games specialist Nintendo. CIGNA's stock was hit, briefly, by news that it was being subpoenaed by the New York attorney general, but its stock was buoyed again in early November by the announcement of a 64% rise in third-quarter profits.
Apart from William Morrison Supermarkets, the only new stock added to the fund in October was the media group BSkyB. Existing holdings were reinforced in French hotel group Accor and in the pharmaceutical groups Bristol Myers Squibb and GlaxoSmithKline. There were no full or partial sales of holdings in October.
Outlook
Equities made some slight gains in late October in a month dominated by the closeness of the US presidential race and large increases in oil prices. Third-quarter results were largely in line with projections, providing little by way of negative or positive stimulus for the markets, but a rise in inventories began to deflate crude oil prices toward month's end, helping equities. Looking ahead, George Bush's clear win in the US presidential election may pave the way for a near-term revival in equities along the lines of that seen in the run-up to the war against Iraq, although imbalances in the global economy could ensure that the waters soon become choppier again. Trends to watch include oil price movements and the rate of decline in the value of the US dollar. According to a Merrill Lynch survey, pessimism about the outlook for global economic growth and corporate profits growth is rising among fund managers.
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Templeton Global comment - Aug 04
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Tuesday, 21 September 2004
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Fund Manager Comment
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Templeton Global Fund slightly underperformed the MSCI AC World Index in August, with a return of +0.58% (in U.S. dollars), compared with +0.65% for the benchmark.
This short-term underperformance was due to the subfund's underweighting of financials, the best-performing sector on the MSCI index. To a lesser extent, Templeton Global Fund also suffered from its over-weighting of two underperforming sectors, industrials and consumer discretionary. By contrast, an underweighting of IT stocks was beneficial to the subfund's relative performance.
The three best-contributing stocks in August were the U.K. electronics firm Laird, the Korean Hana Bank and the Swiss seed and crop protection company Syngenta. Laird, a long-term holding in the subfund, benefited from the release of six-month results that showed that pre-tax profits were up 38% on the previous year, while earnings per share had risen from GBP9.5 to GBP12. Hana Bank benefited from a decision by the Singapore holding company Temasek to increase slightly its stake in the bank, from Hana's ongoing efforts to clear non-performing credit card loans from its books, and from some expectations that conditions in the domestic Korean economy might improve after the central bank unexpectedly cut base rates by 25 basis points during the course of the month. After falling 8.3% in July (in U.S. dollars), the MSCI Korea index jumped 9.5% in August. Syngenta has appeared regularly among the top contributors in recent months. Syngenta was bought for the subfund last year, when there was considerable skepticism about its ability to grow earnings in a depressed agricultural market. But agrochemical demand has recovered since the beginning of this year, and so has Syngenta's earnings projections. Syngenta also was helped in August by the U.S. and European authorities' approval of its acquisition of rival seed company Advanta.
By far the most disappointing contribution came from the U.S. software company, Synopsys, which reduced its earnings per share forecast for financial year 2004 from US$1.37 to US$1. Its profit forecast for 2005 has been trimmed amid a general downshift in expectations for the chip and semiconductor industries.
Buys and sells remained limited in a generally torpid month. We completed our sale of French pharmaceutical company, Aventis, which is in the process of being merged with rival Sanofi. We completed our acquisition of shares in Norwegian telecom company Telenor and in H&R Block, a U.S. financial and tax services group.
Outlook
There has been some pick-up in investment spending in the U.S., although it is not clear whether this is a response to tax advantages for accelerated depreciation plans or whether corporations are genuinely preparing for an upswing in demand. A slew of disappointing macro-economic statistics were released in the U.S. in August, while Intel, the technology bellwether, reported that demand was weaker than expected, leading it to cut its profit forecast.
With interest rates rising, slowing earnings growth and the possibility of further data weakness, investors have become less buoyant than before about global economic prospects. We also note a narrowing of the gap between market valuations and average valuations for our subfund. This may be an indication that investors are less willing to pay for some high-growth and/or over-valued stocks.
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Templeton Global comment - Jun 04
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Friday, 13 August 2004
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Fund Manager Comment
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The Templeton Global Fund returned +2.99% (in US dollars) in the second quarter, including a return of +3.04% in June alone. This compares favourably with a return of +0.52% (in U.S. dollars) for the benchmark MSCI AC World Free index in the second quarter, and it's return of 2.02% in June.
Throughout the second quarter, investor attention centred on interest rates, oil prices, the slowdown in China's economy, and the potential for an inflationary spiral in the U.S. These factors, along with fears over the transition of power in Iraq and possible terrorism, overshadowed positive global trends in corporate profits, job creation and GDP growth. Stock market indices in China, Russia, Taiwan, and Brazil delivered double digit declines in the second quarter. In particular, Asian stock markets were weak due to concerns of a slowdown in economic growth in China. Templeton Global (Euro) Fund benefited from its overweighting of European stocks in the second quarter, as European markets in general fared better than those in other regions. The MSCI Europe Index, for example, returned +2.44% (in U.S. dollars) over the period, compared with -9.57% for the MSCI Emerging Markets Free Index.
The top contributor to the Fund's performance over the second quarter was Thomas & Betts, a U.S. electrical products company. Thomas & Betts has emerged from a difficult period of restructuring following an overly ambitious expansion in the 1990s. But the company now has more focused product lines and a stronger balance sheet, and it is generating substantial cash flow. There have been cost pressures as raw material prices have increased, but the company has been able to pass on some of these added costs, and it is now enjoying strong earnings growth as sales improve and margins expand. The other two top performers were Merck (a German pharmaceutical group) and Syngenta. The latter, a Switzerland-based crop protection and seed producer, was purchased last year when there was still considerable scepticism about its ability to grow earnings in a depressed agricultural market. The company proved a pleasant surprise in the early part of 2004 as its market-leading positions were leveraged over a tightly controlled cost base.
The largest disappointment in the second quarter was Rentokil, a U.K. services provider. Rentokil has issued two profits warning in quick succession, highlighting margin pressure in its core hygiene business. However, with this stock out of favour, it is looking like an attractive turnaround situation that is trading at very cheap level. Japan's Sony and the Swedish security company, Securitas, were the two other main disappointments in the three months to June 30, 2004.
The only new addition to the Fund's holdings during the second quarter was the U.S. defence and aerospace group, Lockheed Martin. In addition, existing stakes in Glaxo SmithKline, Philips, Accor, Spain's Telefonica and Finnish Forest-products Company UPM were all reinforced during the quarter. The Fund's holding in British retailer Mark's & Spencer was sold entirely after this stock reached target price on the back of takeover speculation.
Outlook
Strong second-quarter results from major corporations will be welcomed by equity markets - but much more important will be the forward statements that accompany these results. The rise in interest rates, disappointing job creation figures and the end of various fiscal stimuli mean that U.S. consumer spending will have to be closely watched, as will inflation. The U.S. presidential elections will also begin to loom larger as we move through the summer.
However, if the global economy remains on track and inflation and corporate earnings hold their own, the modest performance delivered by equity markets in the first half of this year could be the silver lining for more sustained growth in these markets over the next few quarters.
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