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Franklin Mutual US Value Fund - News
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Fund Name Changed
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Friday, 6 April 2018
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Official Announcement
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The Franklin Mutual Beacon Fund will change it's name to Franklin Mutual US Value Fund, effective from 01 January 2018.
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Franklin Mutual Beacon comment - Jul 06
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Monday, 28 August 2006
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Fund Manager Comment
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In July, Franklin Mutual Beacon Fund gained a net +0.3% (in US dollars). This compares with an advance of +0.6% for the S&P500 Index, giving an under-performance of -30 basis points. Year to date, your Fund is up +5.8% while the Index has gained +3.3% or an out-performance of +243 basis points.
The best-performing sectors on the S&P500 Index were health care (+5.4%), energy (+5.0%) and utilities (+4.85), while the worst-performing sectors were industrials (-5.3%), IT (-3.8%) and materials (-3.5%).
In July, equity markets started to recover from the lows of May and June. Investors seemed to be extremely relaxed about geo-political risk, whether it involved North Korea, Iran, or Lebanon. However, they also seemed extremely confused about the state of the world economy and the future direction of interest rates. Economic growth moderated a bit, perhaps aided by the cocoordinated removal of liquidity by the world's central banks. Nevertheless, it is also possible that the long period during which China has exported disinflation is coming to an end and that the pause in interest rate hikes is only temporary. In this environment, many investors are increasing their cash weighting and reducing exposure to riskier assets, including emerging markets and equities. We would observe that equity valuations are not excessively high at the moment, but profits are likely close to a cyclical peak.
The three best-contributing stocks in July brought a positive contribution of 30 basis points to the fund. They include two US tobacco names, Reynolds American Inc. and Altria, as well as the pharmaceutical company Pfizer. Reynolds American reported an impressive set of quarterly earnings and raised its full-year guidance and dividend. Most analysts significantly raised their price target on the stock after publication of these results. Altria benefited from a decision of the Florida Supreme Court that affirmed that the tobacco industry would not have to pay USD145bn in punitive damages, removing the biggest financial risk the tobacco industry was facing. This should accelerate the split of Altria into three companies.
The three worst contributors detracted -28 basis points from relative returns. They included some forest products names such as Potlatch and Weyerhaeuser.
The fund sold some long-term positions that had made significant gains and were approaching our estimate of fair value while it acquired some US large-cap names. As a result, the percentage of your Fund invested in undervalued equities remained stable at 86%. The percentage of assets invested in distressed debt and merger arbitrage increased by 80 basis points to 5.5% while the cash position decreased to 8.4%.
Outlook
As always, volatile markets provide us with good opportunities to initiate new positions in undervalued equities or add to our favorite names. This time will be no exception. As expected, opportunities within the distressed debt asset class continue to be difficult to find at this point in the cycle.
While merger and acquisition activity has continued to be robust, the number of competitors, relatively low interest rates and the use of leverage have kept deal spreads thin. However, we have found selective opportunities in this area. We will continue to be patient and pick our spots when we find compelling investments within this asset class.
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Franklin Mutual Beacon comment - Oct 05
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Friday, 18 November 2005
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Fund Manager Comment
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In October, the Franklin Mutual Beacon Fund under-performed its benchmark, returning a net - 2.73% (in US dollars), while the S&P 500 Index declined -1.69% for the same time period. Year to date, the fund has returned + 2.18%, compared to +0.76% for its index.
The three best-performing sectors during the month were financials (+3.0%), materials (+0.5%), and consumer staples (-0.4%). The three worst were energy (-9.4%), utilities (-6.4%), and healthcare (- 3.0%). While the fund was overweight the best-performing sectors and underweight the worst, individual stock volatility was the main driver behind the Fund's overall underperformance.
One reason for this underperformance came from a fire sale of public stocks during the month. A number of investors, including hedge funds, sold out of positions as they sought to reduce their exposure to equities.
October was a particularly difficult month for the equity markets, with the S&P 500 Index posting its biggest monthly loss since December 2002. Inflation scares continue to build in the equity market, while investors expected monetary authorities to tighten the supply of money. This was a major risk for the equity markets, considering that recent gains have been largely based on liquidity growth. The nomination of Ben Bernanke to chair the Federal Reserve next year, and expectations that he will tighten interest rates further, added to this concern. The decline in the U.S. market quickly fed through to other regions of the world.
However, at the end of the period, positive U.S. growth data painted a rosier picture for the markets. U.S. GDP growth, recorded at 3.8% in the third quarter, came in higher than anticipated, and core CPI inflation, charted at 2.0%, was lower - causing a rally in the markets. Another positive sign was corporate buying, either via share buy-backs or mergers, which remained very high through the month. On Monday October 31st, alone, merger and acquisition deals worth over US$55 billion were announced in the UK.
The Fund's best three-performing stocks added a positive contribution of 25 basis points for the month. All three are large-cap stocks, which have displayed resilient characteristics recently. The stocks include: Berkshire Hathaway (conglomerates and insurance), which rebounded after concerns in September that its re-insurance business would be severely impacted by hurricanes Katrina and Rita, and two tobacco stocks - British American Tobacco and Reynolds American.
The Fund's three worst-performing stocks detracted -52 basis points in performance from the Fund. The three were all basic material stocks: Potlatch (forest products), Weyerhaeuser (forest products) and Canadian Oil Sands (oil).
Trading on Mutual Series' premise to buy stocks at more attractive valuations, the Fund was a net purchaser of stocks for the month. Overall, the Fund increased by 240 basis points, to 76.4%, the percentage of assets invested in equities, while its cash position declined by 200 basis points, to 19.1%, during the month. The Fund decreased by 20 basis points, to 4.5%, the percentage of assets invested in distressed and arbitrage stocks. The Fund also saw net inflows of over US$30 million for the month.
Outlook
We remain more then ever focused on stock selection, trying to find companies that trade at a substantial discount to our estimate of their intrinsic value. At this point, we are not finding many new investment opportunities in distressed debt, but the news flow coming from the auto and the auto-parts sector makes us confident that some opportunities will arise in the future.
While merger arbitrage-spreads remain unattractive, activity was strong in October, driven by industry consolidation and private equity investments. Although a number of under-valued equity positions are reaching our estimate of fair value, we were able to find some new opportunities that meet our strict investment criteria, both in Europe and the US.
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Franklin Mutual Beacon comment - Jul 05
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Tuesday, 16 August 2005
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Fund Manager Comment
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The equity market rally continued in July, despite terrorist attacks in London, with the S&P500 Index posting a gain of +3.6% in July and a year-to-date of +1.84% (in US dollars). This compares with a net return for Franklin Mutual Beacon Fund of + 2.72% in July and +3.78% year to date.
The best performing sectors on the S&P500 in July were information technology (+5.9%), energy (+5.7%) and consumer discretionary (+5.6%), sectors in which your Fund is under-represented. The worst performing sectors were financials (+1.3%), utilities (+2.1%) and health care (+2.3%). Your Fund is over weight financials.
The recent wave of strong economic data has contributed to the equity market's strength: Japan's Tankan, the U.S. ISM, the U.K. and Eurozone purchasing managers' indices were all positive in June, beating market expectations.
Investors believe that growth is set to be strong while inflation remains contained. U.S. core CPI inflation rose 0.1% in June and core goods prices fell 0.2%. Sentiment is so strong that the market tended to ignore record high oil prices above $60 per barrel. In July, the dollar weakened slightly against the Euro.
The three largest contributors to the Fund's relative performance were Potlatch (forest products), Weyerhauser (forest products) and British American Tobacco (tobacco). A catalyst to unlock value materialized at Potlatch, whose management hinted that it was working on converting the company into a REIT (real estate investment trust) and would pay a special dividend. This dividend could be announced as early as September 2005. After underperforming in June on weak numbers reported by a competitor, Weyerhauser performed well in July. The company reported strong volume and is taking market share. Since April, when Franklin acquired a 7.5% stake in the company, the management has taken actions to improve performance and shareholder returns. Also in July, BAT announced first-half results way above expectations. Analysts re-rated the stock accordingly.
The three worst contributors detracted 8 basis points from relative performance.
In July, the percentage of Fund assets invested in undervalued equities increased, and now accounts for 71.4% of assets versus 69.5% at end June, while the Fund's cash position decreased to 23.6% from 25.4%.
Outlook
Western economies continue to benefit from buoyant housing markets, which have been driving consumption despite the effects of Asian competition and higher oil prices. But the US housing boom does not look sustainable, especially if interest rates rise. Therefore, we maintain our cautious view on the market and remain faithful to our deep-value approach. The merger arbitrage part of the portfolio should continue to grow as CEOs are more optimistic than ever and are showing a growing interest in doing deals, according to a recent survey. We equally expect the rotation within the portfolio to continue as positions that reach our estimate of intrinsic value are sold and we initiate new ones.
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Franklin Mutual Beacon comment - Mar 05
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Friday, 29 April 2005
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Fund Manager Comment
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For the quarter to date, Mutual Beacon Sicav Fund has declined by -0.2%. This is to be compared to a loss of the S&P 500 Index of -2.6% or an out-performance of your Fund of 184 basis points. The DJ Stoxx 50 Europe has lost -1.2% for the quarter.
The best performing sectors this quarter have been energy (+17.1%), utilities (+4.4%) and materials (+1.3%). The worst performers have been information technology (-7.5%), financials (-7.0%) and consumer discretionary (-5.9%). Your fund benefited from being underweight technology and consumer discretionary.
This was a quarter of two halves: the gain posted until the first week of March was erased in the last three weeks of March on fears of higher interest rates and comments from Alan Greenspan that inflation was becoming an increasing concern. The GM profit warning was a reminder for investors to reassess the quality of debt. Many investors unwounded their "carry trade". Utilities and real estate were the worst hit.
The dollar rallied finishing the quarter at 1.29 against the euro vs. 1.34 at the beginning of the year as well as oil on concerns that OPEC won't meet gasoline demand.
The three best performers brought a positive contribution of 17 basis points. They include Orkla, a Norwegian conglomerate which has been a long time favorite of the fund, KT&G and Canadian Oil Sands. KT&G, the Korean tobacco producer, benefited from the effect of a restructuring program and share buy back. Canadian Oil Sands, a producer of bitumen out of oil sands, rose on higher oil prices.
The three worst performers detracted the performance by -15 basis points. They include some of the Fund's favorites: Berkshire Hathaway, Liberty Media, and White Mountains. Berkshire Hathaway and White Mountains were hit by on-going investigations into the finite reinsurance. Our analyst has done extensive due diligence on White Mountains and is very confident that there wasn't any transfer of risk incorporated into the policies. Liberty posted Q4 numbers in-line with estimates and announced the spin-off of Discovery and Ascent Media. However, the stock price retreated on uncertainties on how Liberty Media and News Corp will unwind their cross-shareholdings and when value for shareholders will be unlock.
Your Fund was a net purchaser of stock for the quarter with the five largest purchases representing over $70 million, although for obvious confidential reasons I won't disclose the names as we are still buying them. As a result of these purchases and despite $74m of inflow during the quarter, the percentage of assets invested increased by +6.7% to 75.2%. Reorg and merger arb decreased slightly by -0.5% to 4.1% of assets while cash decreased by -2.2% to 24.8%.
Outlook
With the Fed well into the tightening mood and earnings growth momentum peaking, we remain more than ever cautious, sticking to our strict financial criteria. We expect activity in distressed debt to be subdued while it should be high in the merger arb arena. The large gap between equity free cash flow yield and real corporate yield should continue to spur a flourish of deal announcements from both corporate and private equity. In terms of undervalued equities, we continue to see more value outside the US.
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Franklin Mutual Beacon comment - Jan 05
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Wednesday, 23 March 2005
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Fund Manager Comment
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For the first month of the year, Mutual Beacon Sicav Fund retreated by -1.6%. This is to be compared with a loss of -2.4% for the S&P 500 Index and -2.2% for the Lipper Multi Cap Value Index. Your fund outperformed these two benchmarks by 86 and 60 basis points respectively. The Dow Jones Stoxx 50 in Europe gained +1.1%.
The worst performing sectors were telecommunication (-7.6%), information technology (-5.2%) and consumer discretionary (-4.2%). The best performing sectors were energy (+2.7%), utilities (+1.9%) and consumer staples (+1.1%). Your fund is under-weighted the worst performing sectors and overweight consumer staples and Europe, helping to explain the over-performance.
After a gain of +9.2% in the last quarter of 2004, the equity markets were ready for a correction in the absence of any significant news. Corporate activity was a key feature in January as announced deals dominated the headlines starting with the proposed acquisition of Gillette by Procter & Gamble. It is worth noting the out-performance of European equities vs. their US counterparts, reinforcing us in our view to allocate a significant percentage of the portfolio to international equities.
The dollar surprised the market with a sudden spike, gaining over 3% against the Euro.
The three best performers brought a positive contribution of +17 basis points. They include names that are among the Fund's largest holdings such as Berkshire Hathaway and Orkla. The three worst performers detracted the performance by -38 basis points. They also include some of the Fund's largest positions such as White Mountains, Liberty Media and Newmont Mining.
Mutual Beacon Sicav Fund was a net purchaser of stock in January although we would keep the names silent as we are still buying them. The sale decisions were motivated by a number of stocks reaching our estimate of fair value.
As a result of the purchases mentioned above, the weighting of under-valued equities increased by +1.1% to 69.6% and the cash position decreased by -1.5% to 26.3%. The merger arb and distressed side of the portfolio remained almost unchanged at 4.4%.
Outlook
With high liquidity and leverage in the system and signs that Asian slowdown are mounting, the global financial markets may be due for a correction. Not surprisingly we keep our cautious view on the equity markets.
Rising equity markets have left very few stock undervalued and bargains are difficult to find, although some still exist. We don't want to compromise on our strict financial criteria and prefer to wait as we are confident some opportunities will arise. Bankruptcies are quite scarce at this stage of the cycle but we are confident that the $140 Bn of junk bonds issued in 2004 will provide future opportunities. We expect to find more opportunities in merger arb as the number of deals is increasing.
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