|
|
Templeton Global Smaller Companies Fund - News
|
|
|
|
|
Sector Changed
|
|
Thursday, 20 June 2019
|
Official Announcement
|
The fund changed sectors from Global--Equity--General to Global--Equity--Small Cap on 20 Jun 2019
|
| |
|
Templeton Global Smaller Co comment - Mar 11
|
|
Tuesday, 14 June 2011
|
Fund Manager Comment
|
Good corporate earnings releases and economic data suggesting strengthening growth in developing markets helped equities to modest gains over the quarter in spite of headwinds including unrest in the Middle East, which drove energy prices sharply higher, and a major earthquake, tsunami and linked nuclear emergency in Japan. For the quarter ended 31 March 2011, the fund rose 2.88% (net in U.S. dollars). The fund's benchmark, the MSCI All Country (AC) World Small Cap Index, gained 5.21% (also in U.S. dollars). During the first quarter, investments in the information technology and financials sector performed well. In contrast, the consumer discretionary and industrials sectors weighed on relative returns. The fund manager swapped a U.S. investment management firm for two more favorably valued alternatives. Additionally, a U.S. clothing retailer was sold and positions in a funeral services company, a U.S. pharmaceutical business, two Japanese companies, a recruitment agency and a manufacturer of glasses and contact lenses were acquired. 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. Among smaller companies, gains were strongest in the energy, telecommunication services and information technology sectors, while consumer stocks and financials were less buoyant. Regionally, North America and Europe stood out as economic progress continued to strengthen and broaden, whereas policy tightening and the effects of the Japanese earthquake restricted gains for Asian and emerging markets. Smaller companies outperformed the market as a whole, but the differential was not large.
Performance Review and Contributors to Performance
The fund saw positive returns from the information technology sector where Belgian optical technology business Barco advanced. However, the strongest technology performance came from Vasco Data Security International, where good results were followed by news that a major customer of the company's online security products planned to issue new electronic security tokens to all its online banking customers. Within the financials sector, asset manager Henderson Group moved to acquire a troubled rival, a step that strengthened the company's market position, should be accretive to earnings per share and appeared to have the blessing of the acquired firm's key staff. Greek stock market operator Hellenic Exchanges benefited from a revival in the Greek market and speculation that it might become involved in a consolidation of individual global stock exchanges. These gains outweighed weakness for Taiwanese Ta Chong Bank, which succumbed to unease that regional economic tightening could depress profitability over the coming months. Individual stock strength was seen in Canadian oilfield transport services business Mullen Group, which doubled its dividend, a move seen as an expression of confidence in the group's ability to benefit from rising oil and gas exploration activity. U.S. restaurant operator Brinker International also supported relative performance after cost-cutting initiatives offset weakening sales to improve margins and consequently confound gloomy earnings forecasts. Aside from Brinker, absolute returns from the consumer discretionary sector were indifferent. Australian underwear business Pacific Brands found its margins affected by high cotton prices, and an asset write-down for its underperforming footwear and sporting goods operation generated an unexpected loss in the first half of its fiscal year. U.S. bedding manufacturer Sealy Corp. slipped as increased costs relating to the rollout of new products and price discounting on older stock hurt fourth-quarter results. Within the industrials sector, car rental company Avis Europe, Australian engineering contractor Downer EDI and U.S. trucking company Arkansas Best Corp. depressed returns. Avis Europe fell despite satisfactory overall results as investors focused on an unexpected profit decline in its corporately owned unit. For Downer, asbestos contamination at one of its manufacturing facilities delayed a key railway rolling-stock contract and led to financial penalties. Arkansas Best posted a larger-than-anticipated fiscal second-quarter loss as gains in freight volumes were insufficient to offset costs elevated by an uncompetitive labor contract. Overall, the fund's quarterly return failed to match the benchmark index.
Strategy and Activity
The fund manager has found attractive investments disproportionately among consumer discretionary and European stocks, with the result that the portfolio contained above-index weightings in those areas, at the expense of the materials and information technology sectors and the North American region. In trading, profit-taking in a U.S. investment manager released funds for two more favorably valued alternatives. Additionally, a U.S. clothing retailer was sold, and a funeral services company, a U.S. drug business, a Japanese recruitment agency and a Japanese manufacturer of glasses and contact lenses were indicated by our research to offer superior investment potential.
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.
|
| |
|
Templeton Global Smaller Co comment - Jun 10
|
|
Thursday, 26 August 2010
|
Fund Manager Comment
|
Overview
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. Smaller companies fared better than their larger peers.
For the quarter ended 30 June 2010, the fund fell by 8.80% (net in U.S. dollars). The fund's benchmark, the S&P/Citigroup Global < $2bn Index, fell by 9.49% (also in dollars). The fund achieved an overall return ahead of its benchmark as performance was driven more by stock-specific effects than by sector or geographic influences.
The fund manager added two Greek stocks and shares of a U.S. car dealership and sold a Japanese industrial stock and a UK fine chemicals position. The fund ended the quarter heavily overweighted in the consumer discretionary sector and underweighted in information technology, industrials, materials and financials sectors.
Although June in particular saw some 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. The somber market mood benefited defensive stocks as consumer staples, health care and utilities outperformed. In common currency terms, Asia performed strongly while Europe lost ground. Smaller companies outperformed the market as a whole, reflecting the problems experienced by large energy, mining and financial firms.
Performance Review and Contributors to Performance
Stock selection in the health care sector was the largest contributor to relative performance for the quarter. North American pharmaceutical company Biovail Corp. enjoyed a solid gain courtesy of a merger with rival firm Valeant Pharmaceutical that included considerably favorable terms for shareholders. Several strong performances arose within the consumer discretionary sector. U.S. sports footwear business K-Swiss overcame a setback stemming from the bankruptcy of a supplier as rising order backlogs indicated that an improved product range and increased marketing spend were starting to exert a positive influence on the company's results. Hong Kong-based casual wear business Giordano International benefited from positive momentum following strong first-quarter results as rising sales combined with effective cost controls that boosted margins. U.S. toymaker JAKKS Pacific enjoyed the benefits of an improved product range and more benign industry background, while cost containment improved margins and the settlement of litigation removed an element of uncertainty from the stock. Taiwanese bicycle maker Giant Manufacturing Co. moved ahead as a more difficult economic background failed to dent demand for its products in key western markets. A trade deal between China and Taiwan that removed tariff barriers on bicycle sales into a major potential market also encouraged investors. Other performances among the fund's consumer discretionary holdings were less satisfactory. Two Australian stocks came under pressure. A difficult retail environment and negative currency effects acted against underwear business Pacific Brands and board sports company Billabong International. However, cost savings at Pacific Brands and moves to improve Billabong's North American retail presence provide reason for longer-term optimism in our view. U.S. fashion retailer Chico's FAS disappointed supporters with an outlook statement suggesting that the margin gains that had produced a doubling in first-quarter earnings might be difficult to sustain going forward. UK computer games retailer GAME Group also encountered weaker demand, the sales hiatus in its case arising as customers anticipated the arrival of new gaming platforms from larger manufacturers. The unexpected resignation of its chief executive undermined sentiment further. Elsewhere, U.S. brokerage house MF Global, whose shares spiked in the first quarter on news that financial guru John Corzine was to become chief executive, fell back as the less supportive market environment, a capital raising and indifferent quarterly results took the edge off investor enthusiasm. Overall, the fund produced a return ahead of its benchmark.
Strategy and Activity
The fund manager acquired two Greek stocks identified as oversold as a result of the country's financial crisis as well as shares of a U.S. car dealer. Positions in a Japanese industrial company and a UK fine chemicals business that lost value were sold. The fund manager's main emphasis remains on consumer discretionary stocks, with the information technology, industrials and materials sectors notably underweighted.
Investment Outlook
The early summer set-backs 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 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.
|
| |
|
Templeton Global Smaller Co comment - Jul 06
|
|
Monday, 28 August 2006
|
Fund Manager Comment
|
Templeton Global Smaller Companies Fund returned a net -0.66% (in US dollars) in July, faring much better than its benchmark, the S&P/CitiGroup Global < US$2 Billion Index, which returned -2.01%. Over the first seven months of 2006, Templeton Global Smaller Companies Fund returned a net +8.45%, compared with +4.79% for the benchmark.
The strongest contribution to the fund's outperformance in July came, in order, from stock selection in the materials, industrials and IT sectors. The materials sector produced two of the best individual contributors during the month in the form of paper groups Hokuetsu Paper Mills of Japan and Paperlinx of Australia. Hokuetsu's share price was boosted by news of a takeover bid from a rival paper group, while Paperlinx is finally convincing analysts that its management is turning the corner by reducing capacity as a means of cutting costs. A similar trend toward capacity cuts is to be seen throughout the paper industry in Europe.
In Industrials, the best contribution came from DX Services, a UK delivery company. It received a significant offer from a London-based buyout firm early in the month. In IT, no single stock stood out for its contribution, with contributions widely spread among a number of stocks. By contrast, in the healthcare sector, which otherwise contributed poorly to overall returns in July, Dutch pharma distribution firm OPG Groep provided a large positive return on the back of a 27% climb in operating results and a 40% rise in net results in the first half of 2006.
The healthcare sector also produced one of the month's poorest performers in the form of iSoft (a UK healthcare software supplier), which continues to grapple with accounting issues. Healthcare's contribution to fund returns was weak in July, but the contribution of the utilities and consumer discretionary sectors was even less satisfactory. In utilities, the fund was penalized by its absence from a sector that performed strongly in July, while consumer discretionary produced the weakest individual contributor over the month - Blockbuster - whose share price slid in late July because of a dip in second-quarter revenues and concern that it was trailing its on-line rival Netflix in attracting new subscribers. Bodycote International, a UK metal-coatings company (classed under industrials) was also weak in July.
The one important acquisition during July was that of a stake in RHM, a UK food company. Sales outweighed purchases over the month. We used the takeover bid for Hokuetsu Paper Mills to sell our stake in that company at a substantial profit. We sold off our entire holdings in a number of other companies as well, including Sigmatel.
Outlook
Markets see-sawed in July, but large-cap stocks continued to perform better than their small-cap equivalents, while smallcap value funds continued to fare better than their small-cap growth equivalents. In the current climate of uncertainty, stock-picking in the small-cap arena is taking on a new prominence, although the lack of clear direction in the market is increasing the number of opportunities for us to invest in fundamentally undervalued companies across the world.
|
| Click here for original article |
| |
|
Templeton Global Smaller Co comment - Sep 05
|
|
Friday, 18 November 2005
|
Fund Manager Comment
|
Templeton Global Smaller Companies Fund produced a net return of +5.59% (in US dollars), compared with a return for its benchmark, the Citigroup Cap Range- Global < USD 2 billion Index, of +9.34%.
The financial sector was by far the largest positive contributor to relative returns over the third quarter. The fund also benefited from relative out-performance in health care. Most other sectors proved disappointing in terms of relative performance. The least satisfactory contributions came, in order, from materials, followed by the consumer staples and energy sectors.
In financials, we benefited in part from our under-weighting of a sector that under-performed the Citigroup index over the three months to 30 September, but mostly from stock selection. In particular, we were helped by our overweight holdings in Korea's Daegu Bank and the Swiss private bank, Vontobel. The share prices of both these stocks rose strongly on the back of satisfactory earnings reports. Vontobel and Daegu Bank featured among the top five individual contributors to returns in the third quarter.
The largest single contribution came from an over-weighting of Vestas Wind Systems, a Danish alternative energy group. It saw its share price rise over 45% over the quarter thanks to reports of a large order in the US for delivery of 127 wind turbines, as well as half-yearly results that showed that net sales were higher than expected and net losses lower than expected. The second-largest single contribution to relative returns came from the French health care group, Generale de Sante. That company's share price has appreciated by 140% over the past year, driven by the expectations of a real estate sale-and-leaseback and improving fundamentals. The fine performance of Generale de Sante was the main reason for our out-performance in the heatlh care sector, where we remain underweight relative to the benchmark.
As stated, one of the worst relative contributions came from consumer staples. This sector performed relatively poorly in the third quarter, so our under-weighting should have helped us. Unfortunately, we had exposure to American Pasta Company, the single worst contributor in the quarter after lodgment of a class action lawsuit against it by disgruntled shareholders. Our only other consumer staple holding - Want Want Holdings - also produced an unsatisfactory third-quarter contribution. This Singapore-listed Taiwanese Group's principal activities are manufacturing and trading of rice crackers, snack foods and beverages. Despite upbeat second-quarter results, the company appears to have suffered from fears over the impact of the outbreak of Severe Acute Respiratory Syndrome (SARS) in the areas in which it operates.
Industrial stock ACBel Polytech (a Taiwanese electronic component maker) and consumer discretionary stock Ngai Lik Industrial Holdings (based in Singapore) are also noteworthy for their negative contributions.
Although no single materials stock made contributions as disappointing as these, collectively, our stock selection in this sector weighed on performance and ensured that materials were the worst-contributing sector in the third quarter.
Sales and purchases were evenly matched throughout the quarter. Among notable new additions to the fund were stocks like: Cambridge Antibody Technology Group; Open Text Corp.; and Seitel Holdings disposed of entirely included those in Satyam Computer Services and Gamestop Corp. We realized capital gains on all our sales transactions in the third quarter.
Outlook
Data provided by Lipper show that global small/mid-cap funds under-performed their large-cap equivalents in the third quarter, and that global small/mid-cap 'value' funds slightly under-performed global small/mid-cap 'growth' funds.
More generally, we have seen continued compression of valuations between 'growth' and 'value' stocks in recent times. Some of the former may be as cheap as they have been relative to value in 30 years, with many stocks in the technology, medical devices, telecom, and biotech sectors offering the same or lower price-earnings ratios as more defensive value stocks.
Style considerations aside, we have seen compression in valuations between the lowest-valued stocks appearing on our in-house Bargain List and the highest-valued ones. This situation may prove challenging for managers focused on a 'topdown' strategy. By contrast, as stock pickers, we are delighted by the increase in the variety of stocks from which we can choose.
|
| Click here for original article |
| |
|
Templeton Global Smaller Co comment - Jul 05
|
|
Wednesday, 14 September 2005
|
Fund Manager Comment
|
Templeton Global Smaller Companies Fund achieved a net return of +3.17% (A (acc) class shares, in US dollars) in July, compared with a return of +5.16% for the fund's benchmark, the Citigroup Global
On a sectoral basis, the best relative contributions to fund performance in July came from stock selection in the health care sector. Templeton Global Smaller Companies Fund is underweight this sector, but over-weightings of individual stocks like Gerale de Santa French private hospital group) and, to a lesser extent, OPG Groep (a Dutch pharmaceutical distribution group) boosted fund performance over the month.
Also worthy of note are the positive relative contributions provided by KYE Systems (a Taiwanese company that specialises in PC peripherals), John Wood Group (a U.K. company that manufactures electric submersible pumps) and by the Dutch firm Aalberts Industries (which supplies components for industrial end-products).
Despite the fine contribution that came from over-weightings of individual Industrial stocks like Aalberts Industries (as well as from over-weightings of Danish wind turbine company Vestas Wind Systems and German lighting and traffic concern Vossloh), the industrial sector - which is the fund's largest sector allocation - proved the greatest disappointment in July. Individual industrial holdings that contributed negatively include Coinstar (a US coin machine manufacturer) and two Canadian companies - Royal Group Technologies (construction products) and ATS Automation Tooling Systems. Stock selection in the Consumer Discretionary and IT sectors also dented relative performance in July. The Consumer Discretionary sector includes U.K. house builder Bovis Homes, which was the worst contributor to relative performance in July.
Just one new stock was added to the fund during the course of the month - Open Text Corp (a Canadian software company that provides enterprise content management solutions for intra- and internet sites). We also topped up out stakes in a number of existing holdings, with the largest investment involving Glow Energy (a Thai energy-generating company). The volume of sales exceeded purchases during July. We sold our entire stake in Gamestop Corp (a US company that sells new and used games, hardware, entertainment software, and accessories) and Metso Oyj (a Finnish paper, mining and specialist machinery company). We realised gains on all sales undertaken in July.
Outlook
According to the S&P/Citigroup EMI World indices, small-cap 'value' continued to outperformed small-cap 'growth' in July. But 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.
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.
|
| |
|
Templeton Global Smaller Co comment - Jun 05
|
|
Tuesday, 16 August 2005
|
Fund Manager Comment
|
The fund under-performed its benchmark in the quarter, with a net performance of -0.46% (Class A (acc) shares, in U.S. dollars) versus a return of +1.9% for the Citigroup Global <$2 Billion index. Small caps outperformed their large-cap peers in the quarter, with the MSCI AC World Free returning just + 0.8% (in U.S. dollars).
The negative performance in the quarter was mostly due to poor stock picking in Information Technology and Consumer Discretionary. In IT, Thiel Logistik still delivered disappointing numbers even after restructuring efforts, Jenoptik suffered from uncertainty due to a lawsuit and Bearingpoint announced a diluting share offer. Consumer Discretionary was another contributor to underperformance, with stocks like Ngai Lik, Sharper Image and Corinthian Colleges showing weakness. Meanwhile, another holding - Moulin - has been suspended from trading on the Hong Kong stock exchange after accounting irregularities were discovered. This company might go into liquidation. Currency was another negative in the quarter due to the weakness of European currencies relative to the U.S. dollar.
On the positive side, we benefited from stock picking in the Materials sector. Especially, Iluka Resources in Australia did well and was up 30% in the quarter. In Consumer Staples, Want Want Holding, a Singapore-based manufacturer of prepacked snacks mostly active in China, was up 40%.
During the second quarter, we initiated a position in the fashion retailer Tommy Hilfinger. This company enjoys a strong brand image in Europe but has lost ground to other competitors in the U.S. Management now has initiated a brand repositioning program in the U.S. to revive the brand and leverage its strong existing distribution infrastructure. We also bought MDS, a Canada based healthcare services company that provides drug discovery and development services to Pharmaceutical companies. In addition, we built a position in Domtar to increase our exposure to the paper sector, which trades at the low end of its historical trading range. Yet the outlook for the industry is better than in previous cycles as paper companies have shown more discipline in their capex spending in recent years and have kept a tight lid on capacity, mitigating the old problem of pricing pressure during downturns. Last but not least, we tendered our ISS shares in the quarter.
There was no structural shift in the sector or geographical weightings in the fund during the second quarter. Decisions are driven purely by our bottom-up stock picking process.
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 actually strengthened in the first half) and a rise in government bond yields (they fell). 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 U.S.
Outlook
Large-caps have increasingly been finding their way into Templeton's in-house bargain list. 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.
|
| |
|
Templeton Global Smaller Co comment - Mar 05
|
|
Friday, 29 April 2005
|
Fund Manager Comment
|
The fund out performed its benchmark in the 1st quarter 2005, with a return of +2.13% (in U.S. dollars) compared with a return for the benchmark Citigroup Global <$2 Billion Index of -0.07%. The small cap segment outperformed its large cap peers slightly in the quarter with the MSCI World Index down -1.00% over the quarter.
The weakest sectoral contribution to relative performance in the last quarter of 2004 came from Technology Hardware, but this same sector was the strongest contributor in first-quarter 2005. We benefited from a general under-weighting of this under-performing sector in the first three months of 2005, but a more important positive impact came from stock selection. Stocks like Ngai Lik and Oce recovered from recent weakness and our new position in D-Link also did well.
The second best contributor to relative performance came from Commercial Services. Here, we benefited from a takeover offer for the Danish cleaning service company ISS, a stock we bought about a year ago when it was trading at depressed levels. We also benefited from our under-weighting of the Pharmaceuticals and Biotechnology sectors and our holdings in Orion and China Pharmaceutical performed better than the sector. The most negative contribution came from our underweight position in the Energy sector, which was a strong performer this quarter thanks to the rise in the price of oil and gas. However, we do not think that the recent strength in oil prices will continue. In Automobiles and Components, our holdings in Linamar and Halla Climate did not perform well in the first quarter.
In the first quarter, the fund initiated new positions in several names. One of these was D-Link, a Taiwanese manufacturer of telecom equipement. D-Link is well positioned to profit from strong growth in home and small office (SOHO) networking. The company sells branded WLAN products (wireless local area network), broadband access equipment, LAN switches and other networking equipment. New opportunities in the evolving digital home could provide upside to current estimates. D-Link is the only Taiwanese data-networking vendor with a consumer brand name, which should help keep competition at bay.
Other new additions to the fund in the first quarter include Acbel Polytech (a Taiwanese computer parts supplier), Huan Hsin Holdings (a Taiwanese telecom parts supplier), Royal Group Technologies (one of North America's largest manufacturers of vinyl building products) and Sharper Image Corp. (a San Francisco-based specialty retailer).
Holdings sold entirely during the quarter included APN News & Media, Cochlear, Geest, Hang Lung Group, Japan Airport Terminal Co., John Fairfax Holdings, Observer AB, Thomas & Betts Corp. and Varco International. We also reduced a number of other holdings, realizing a gain in all cases. With disposals outstripping new additions, the number of holdings in the fund fell from 91 to 87 over the first quarter.
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 (e.g., 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.
|
| |
|
Templeton Global Smaller Co comment - Jan 05
|
|
Wednesday, 23 March 2005
|
Fund Manager Comment
|
Performance
The fund performed in line with its benchmark in January being down 0.83% versus the Citigroup Benchmark index down 0.95%.
Contributors
On the positive side we had very strong performance from Jenoptik. Having been a laggard for quite some time the stock moved up 17% in January after the company announced to sell its facility management operation to focus purely on its semiconductor equipment operations. Thiel Logistik moved up 13% and the UK funeral services company Dignity Caring PLC gained 9%. Large negative contributions came from the US Capital Goods companies Tredegar (-16%) and URS (-12%) after disappointing short-term results.
Outlook
In the reporting period there were no significant transactions in the fund. The fundamental uncertainties around oil prices, the consumer outlook and the interest rate environment have not changed materially in the recent weeks but nevertheless the stock market has shown increasing resilience in recent weeks and was better able to cope with negative news from the corporate sector. 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. Despite their strong outperformance relative to large caps over the past year, we believe that economic growth, plus the opportunities inherent in 'value'-type smaller cap companies, should provide continued support for this asset class over the coming 12 months. But we are also aware that it is difficult to reconcile the broad increase in some stock indices (particularly small-cap indices) since June 2003 with virtually unchanged bond yields.
|
| |
|
Templeton Global Smaller Co comment - Oct 04
|
|
Thursday, 18 November 2004
|
Fund Manager Comment
|
The fund underperformed its benchmark in October returning +2.34% (in US dollars) versus +2.55% for its Citigroup Global <2 Billion index.
The strongest contribution to this underperformance came from our holdings in the Food & Beverage sector, especially from the US company, Italian Pasta. We bought this stock after its price came under pressure because of the popularity of the 'Atkins diet, which has hurt demand for pasta. The company announced some unexpected charges and loss of market share related to logistic inefficiencies. We view this all this as a one-off problem, and we will stick with our existing position. Another downside contributor was the technology hardware sector with OCE, the Dutch manufacturer of special printers, delivering disappointing results due to lower-than-expected service revenue and dollar weakness. Finally, our holdings in the transport sector - Avis Europe and AMR - also contributed to the underperformance.
On the positive side, we benefited from the good performance of our holdings in the materials sector, especially paper holdings like South Korea's Hansol Paper and Finland's M-Real. In the energy sector our holdings in oil service companies like Varco International and IHC Caland was highly beneficial. Our healthcare holdings did comparatively better too. Cochlear, a producer of implants for hearing impaired individuals, was up 7% (in US dollars) in October, and Générale de Santé, the French hospital company, was up 9%.
There were no significant transactions in the fund in October.
Outlook
The fundamental uncertainties around oil prices, the consumer outlook and the interest rate environment have not changed materially in the recent weeks. Nevertheless, the stock market has shown increasing resilience and was better able to cope with negative news from the corporate sector. 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 pave the way for more sustained growth in these markets over the next few quarters. Despite their strong outperformance relative to large caps over the past year, we believe that economic growth, plus the opportunities inherent in 'value'-type smaller cap companies, should provide continued support for this asset class over the coming 12 months.
|
| |
|
Templeton Global Smaller Co comment - Aug 04
|
|
Tuesday, 21 September 2004
|
Fund Manager Comment
|
Performance
Small Cap Stocks performed in line with their large cap peers in August with the Salomon Global Index for Equities below 2 Billion-market caps up 0.58% compared to the MSCI World up 0.48%. The fund under performed its benchmark with a loss of 1.0% in August.
Contributors
The strongest contributor to this week performance was Sons of Gwalia. Sons of Gwalia is a gold and advanced minerals (mainly tantalum) producer based in Australia. The major attraction of the company was its Tantalum business as Tantalum is needed in a broad range of technological applications and demand was about to recover from the sharp drop after the burst of the technology bubble.
The company has always been involved in active hedging of its gold, tantalum and currency exposure. Sons of Gwalia was in the midst of a strategic review of its gold assets, which was intended to be released by August 31st. During the lead up to the release it became evident that the company appeared unable to convert a significant part of its gold reserves to resources. Although we were aware all along that the gold business was having difficulty and in fact had modeled a closure of two out of the three main mines, we were surprised about the apparent rapid deterioration in operations of the third mine, Marvel Loch and the lack of exploration potential which ultimately led to the creditors' view that there would not be enough gold produced over time to meet the hedging obligations.
The company had to ask their creditors for a six months moratorium on payments. Most of the lenders agreed but some of the largest ones did not, which ultimately crystallized a large negative hedged position and the company was forced to seek an administrator. It was quite frustrating that a few creditors were able to bring "the house down" and force crystallization of the negative mark to market on the hedge book, although apparently many other creditors were willing to allow Sons of Gwalia to reorganize. At this stage the stock has been halted pending a full review by the administrator. It appears unlikely that there will be anything left for the equity holders after the creditors have been paid. Another negative contributor was M-Real. The company raised its equity to reduce its debt and strengthen its balance sheet highlighting the challenges for the paper industry in the current environment.
On the positive side Orion Oyj was up 11% in the run-up to a special dividend. Our Korean names benefited from a recovery in this market, stocks like DaeDuck Electronics, Pusan Bank and Hansol Paper went up by 12 to 18%.
Outlook
In the reporting period we sold out of a number of positions that have reached our valuation target. Companies like Alberto Culver, Barco, Gartner Group, Cookson, Jakks Pacific, Promina Group, SIG Holdings, Southern Staffordshire and Wing Lung Bank were sold. We build a new position in Invensys, a company in the Industrial automation industry that has had a troublesome history in recent years and went though a long period of disposals and restructuring. A recent refinancing has given them the financial stability necessary to tackle their operational issues and improve their margins. Even a partial recovery from the current depressed level would give the stock considerable upside.
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. Despite their strong out performance relative to large caps over the past year, we believe that economic growth, plus the opportunities inherent in 'value'-type smaller cap companies, should provide continued support for this asset class over the coming 12 months.
|
| |
|
Templeton Global Smaller Co comment - Jun 04
|
|
Friday, 13 August 2004
|
Fund Manager Comment
|
Small Cap performance was ahead in June with the Salomon Global Index for Equities below 2 Billion-market cap up 3.83% compared to the MSCI World which was up 2.02% The fund did slightly underperform the benchmark and was up 3.4%%
Contributors
The biggest positive contribution to return came from Coinstar, a company specialized in coin recycling. They install machines in supermarkets where people exchange their coins for sales vouchers paying a fee of about 10% for this service. The stock rallied 26% after fears of new market entrants dissipated. Important customers seem to have signed long-term non-cancelable contracts and one supermarket chain has stopped testing the coin recycling machines of a Coinstar competitor.
Another strong performer was Japan Airport Terminal. The company manages the two airports of Tokyo. Rising passenger numbers as a result of a rebound in tourism and the improving economy drove up stock prices by 17.5%. GSI Lumonics was up 23% after broker upgrades and Jakks Pacific increased 17%.
John Wood came under pressure due to concerns on the short-term outlook for their US gas turbine maintenance business and worries about the order flow in the oil-service business. D Carnegie lost 11% on the uncertain outlook for capital markets. Pusan Bank and Daegu Bank in Korea lost 7% and 6.2% in the overall weakness of the Korean market. Jenoptik issued a convertible bond to refinance some of its debt and improve its capital base to build its business and dropped 11.3%.
In the reporting period we had net inflows and added to a broad range of names in our portfolio. In addition we also build a new position in Bearingpoint, a US based IT consulting business. The company had expanded its European operations through acquisitions in Germany at the peak of the cycle and has struggled since then to integrate these businesses. We now see some sighs for a stabilization of the business. It seems that demand picks up again and utilization improves, and margins could improve through better management of subcontractors.
We sold our position in Koram Bank after a takeover offer from Citigroup and sold out of Mayne Group, the Australian pharmaceutical and health Service Company, after the stock had reached our price target.
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. Despite their strong out performance relative to large caps over the past year, we believe that economic growth, plus the opportunities inherent in 'value'-type smaller cap companies, should provide continued support for this asset class over the coming 12 months.
|
| |
|
|
