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Templeton Growth (Euro) Fund - News
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Templeton Growth (Euro) comment - Jul 06
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Monday, 28 August 2006
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Fund Manager Comment
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PERFORMANCE
Templeton Growth (Euro) Fund appreciated a net 1.42% in July (in euros), compared with a 0.81% increase in the MSCI World Index (also in euros). In US dollars, the Fund appreciated 1.25%, compared to a 0.65% increase in the index. In the first seven months of this year, the Fund has declined 0.52% in euros compared to a 0.77% decline in the index. In US dollars, year to date, the Fund has appreciated 7.32%, compared to a 7.05% return for the index.
MARKET CONDITIONS
US and European equity markets delivered positive returns in July. By contrast, stocks fell in both Japan and Asia ex-Japan. Globally, large-cap stocks out-performed their mid- and small-cap peers. For example, in the U.S., the S&P500 appreciated 0.51% over the month (in US dollars), while the S&P Small-Cap index declined 3.5%. Oil, food and beverage, healthcare and utility companies performed well, while technology and industrial sectors had a poor month, both falling approximately 3.5%. Short-term market movements continue to be dominated by the outlook for interest rates and oil prices
TOP TEN CONTRIBUTORS OVER THE PAST MONTH
Four of the top 10 contributors were in the US healthcare sector. Merck, Pfizer and Abbott Laboratories all delivered much better than expected earnings, leading to strong price gains for all three stocks. HCA, the US hospital operator, was the target of the largest management buyout in history, totaling USD 31bn. The paper sector improved after several difficult months as signs emerged of improving fundamentals for paper prices. Both International Paper in the US and Sappi in South Africa performed well. Royal Dutch Shell delivered strong operating results, with net income up 40% on the back of the strength of the oil price Microsoft, one of the largest holdings in the fund, outperformed a declining technology sector on the back of the announcement of a stock buy-back totaling as much as USD 40bn. Seven of the top 10 contributors in July were US listed stocks. The only emerging market stock on the list was Telefonos de Mexico, which rallied on the back of presidential election results in Mexico.
BOTTOM TEN CONTRIBUTORS OVER THE PAST MONTH
Both Peugeot, the French auto manufacturer, and Eastman Kodak, the digital imaging and photographic film producer, delivered disappointing results in July. Peugeot failed to hit its stated operating margin targets for first-half 2006, while Eastman Kodak announced additional job cuts and lower-than-expected sales growth from its digital technology units. Other laggards included Siemens in Germany, as well as Tyco, Time Warner, Expedia and Bristol-Myers in the US. In the United Kingdom, Aviva underperformed After it announced the USD 2.9bn acquisition of AmerUs, a US life assurer.
STRATEGY & ACTIVITY
The fund's strategy remains unchanged. Our Bargain List continues to guide us towards the US and towards large-cap stocks. The Fund used market weakness to add to a variety of holdings, and initiated two new positions.
In the UK, the Fund participated in the IPO of Standard Life, a top five player in the UK life and pensions market. Due to a variety of short-term market factors as well as some operational issues, the stock was priced at an attractive discount to the sector and the market, presenting us with the opportunity to invest in an attractive longer-term restructuring and growth opportunity. In Italy, the Fund purchased a holding in Mediaset, the free-to-air TV operator, again taking advantage of short-term uncertainty regarding the political environment and the outlook for pay-per view for Italian football to purchase a well-managed franchise with a strong balance sheet and an attractive dividend yield.
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Templeton Growth (Euro) comment - Oct 05
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Friday, 18 November 2005
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Fund Manager Comment
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In October, Templeton Growth (Euro) Fund under-performed its benchmark, returning a net -3.46% (in euros), compared to -2.13% for the MSCI World Index.
Equity market declines during the month were widespread. Emerging markets performed particularly poorly, with China, India and Russia all falling 10-12%. European markets also under-performed those in the US, reversing a trend over the previous year.
Equity market weakness was reflected in the widespread concern that central banks, notably the US Federal Reserve, were committed to raising interest rates to head off inflationary threats. While bond yields rose, oil prices fell from USD66 per barrel, to USD61 per barrel during the month. In line with these declines, the energy sector was the worst performing sector for the month, declining over 10%. However, it still remains the best-performing sector year to date. Semiconductors, materials, and utilities stocks all performed poorly, while consumer staples, software, and financials stocks all outperformed the market in October.
A low exposure to financials, and high exposure to healthcare hurt the fund's overall performance. While a decline in the energy sector also acted as a drag, this was somewhat mitigated by the fund's low exposure to the sector.
Of the fund's top-10 performing stocks, five were US registered. Bank of New York, a US- registered stock, delivered encouraging third-quarter results and Merck, also a US holding, recovered some of its recent underperformance during the period. Computer services firm EDS reported good progress in its long-term restructuring, while Ace, the Bermudan-registered reinsurer, performed well. Swiss RE, also performed positively during the month, following news that pricing in the reinsurance market was firming-up once again.
Other top-performing stocks included TDC, the Danish telecom operator, which continued to strengthen on the back of consolidation activity in the telecoms industry. GlaxoSmithKline and Nestle also reported strong results. Netherlands-based media company VNU also strengthened as it became apparent that a proposed merger with IMS Health, a pharmaceutical research and marketing company, was unlikely to proceed.
The bottom 10 contributors accounted for 86% of the fund's underperformance, relative to its benchmark. Seven of these top-ten were U.S.-registered stocks. Notable detractors included Tenet Healthcare, which was negatively impacted by Hurricane Katrina, resulting in a number of hospital closures in the Southern Gulf Coast region. Subsequently, the Fund took the opportunity to add to its holding in Tenet, which it currently sees as an undervalued stock. Elsewhere in the healthcare sector, Pfizer and Bristol Myers performed poorly for the fund. And while Pfizer reduced expectations for 2006, during the month, the Fund also used the opportunity to increase its holdings in the company.
Newscorp, another recent addition to the Fund, was weak during the period. As a result, the Fund purchased additional shares in this out-of-favor media stock. In Canada, BCE and Quebecor also acted as drags on performance, while in the US, El Paso, the natural gas utility, gave back some of its recent gains.
In Europe, BSkyB under-performed, whilst another recent 'bargain-list' addition, France Telecom, surprised the market with weak results from its Polish subsidiary. The fund also took the opportunity to purchase more France Telecom shares during the month.
Outlook
The fund added to a range of existing holdings in October, using short-term market weakness to increase exposure to a number of stocks we believe are undervalued.
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Templeton Growth (Euro) comment - Aug 05
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Wednesday, 14 September 2005
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Fund Manager Comment
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PERFORMANCE
The Templeton Growth (Euro) Fund declined a net 0.28% in August (in euros), compared with a 0.45% decline in the MSCI World Index. The Fund outperformed the market in August for a variety of reasons. The most important were its exposure to equity markets in Japan and the United Kingdom. Both performed well in August. Although exposure to the US market was a drag on short-term performance, the low exposure to the U.S., (26.6% of portfolio assets, compared with 52.7% of the World Index), meant the Fund was impacted much less than the Index by the weak performance of US stocks. Turning to industries, exposure to energy stocks continues to help the portfolio, but the best contribution came from telecommunications, due to a combination of a high weighting and good stock selection. Conversely, rising exposure to healthcare continued to be a drag on short-term performance.
In the first seven months of 2005, the Fund appreciated a net 12.29% (in euros), compared to an index return of 14.86%. Since the beginning of the year, the fund's cash balance has been something of a drag on performance in a rising market, whilst paper sector holdings have performed poorly, in contrast to other basic materials stocks. We believe the paper sector is trading at the low end of its long-term valuation range, and have been buying paper stocks through the year. Holdings in the energy, aerospace and healthcare sectors (excluding pharmaceuticals) have helped performance since the start of the year.
MARKET CONDITIONS
Market headlines in August were dominated by the steady rise in the oil price and the steady decline in long bond yields. US markets performed poorly with financial stocks in particular hurt by the flattening US yield curve, which tends to be bad for banking profits. The NASDAQ also had a tough month, and has declined over 1% (in US dollars) in the first seven months of 2007.
The best-performing major market in August was Japan, with the Nikkei 225 risingover 4% in local currency. The Japanese Prime Minister, Junichiro Koizumi, called an early election for September 11. This, combined with some encouraging economic data, has raised hopes that Japan is on the cusp of a sustainable recovery. European equity markets also performed well in August, led by the UK, although the weakness of sterling against euro offset some of gains from our UK holdings.
The oil sector continued its recent track record of out-performance, followed by utilities and aerospace stocks. Paper stocks reversed some of their year-to-date underperformance. Financial stocks performed poorly, with insurance stocks in particular hit by the cost of Hurricane Katrina in the southern US. Technology stocks in general also weakened during the month.
TOP TEN CONTRIBUTORS OVER THE PAST MONTH
Four of the top 10 contributing stocks in August belonged to the telecommunications stocks. TDC in Denmark appreciated as rumours circulated of a possible private equity bid for the company. The other three were: KDDI Corp., the Japanese mobile operator; Vodafone, the UK mobile operator; and BCE, the Canadian operator. We have been adding to telecoms holdings recently, in light of their strong cash generation and attractive valuations following years of underperformance.
Our top-performing stock, Mitsubishi Tokyo Financial Group, was only added to the Fund in July. Its market price was helped by investors' belief that Mitsubishi Financial stands to benefit from the outcome of the Japanese general election as well as a broad-based recovery of the domestic Japanese economy. In the UK, Royal Dutch Shell, the oil major, performed well, as did British Sky Broadcasting, the pay TV operator. In the U.S., EDS surprised the market with a better-than-expected set of interim results. EDS is a cheap and out-of-favor restructuring story that has featured in the portfolio for some time. The signs of recovery are encouraging. The final top 10 stock was VNU, the Dutch media company. VNU has underperformed the MSCI World Index by nearly 50% in local currency over the past five years, providing us with an opportunity to build up a position earlier this year in a company with a good portfolio of assets but an unclear corporate strategy. We believe this is an undervalued stock.
BOTTOM TEN CONTRIBUTORS OVER THE PAST MONTH
The bottom contributor in the portfolio in August was Merck, following news of an adverse court ruling in Texas related to its painkilling drug, Vioxx. Despite the ruling, we consider Merck's shares, which trade on multi-year lows on a variety of measures and which have under-performed the MSCI World Index by over 50% in the past two years, to be undervalued. We thus increased our holding in August. Pfizer also under-performed, and, again, true to our policy of buying during times of pessimism, we added to our holding in this company. Although the Fund's weighting of technology stocks is low, those we do own had a negative impact on relative performance in August. The hard-disk drive manufacturers, Seagate and Maxtor, both delivered poor performance, as did Philips Electronics. Although paper stocks in general had a decent month in August, Bowater, the US paper stock, was an exception. In all, seven out of the bottom 10 contributors to the Fund's relative performance in August were listed in the US, the others being El Paso and H&R Block. Finally, after performing very well in July, Amvescap the fund manager, gave back some of its gains, as hopes of a takeover of the firm receded.
STRATEGY & ACTIVITY
The Fund added to a range of existing holdings in August. On the sell side, holdings in Bayer, the German chemicals company, and Boeing, the US aerospace giant, were both sold after strong performance over the past two years, notably from Boeing. The Fund's holding in Office Depot, the US retailer, was also sold after the dramatic re-rating of this stock in the prior three months.
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Templeton Growth (Euro) comment - Jul 05
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Tuesday, 16 August 2005
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Fund Manager Comment
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Performance
Templeton Growth (Euro) Fund appreciated a net 2.2% in July (in euros), compared with a 3.2% rise in the MSCI World Index. In U.S. dollar terms, the Fund was up 2.3% in July, compared to a 3.5% rise in the index. The Fund lagged the market during July because of its low exposure to the U.S. and Canadian markets, both of which performed well, while its high exposure to the U.K. market, which was one of the weaker performers in July, was also a factor. On an industry basis, the high weighting of the healthcare sector was a drag on short-term performance. We continue to add to holdings in this out-of-favour sector, which we believe offers long-term value. Low exposure to the financials sector was a benefit, as financial stocks under-performed the index.
In the seven months to end July, the Fund has appreciated a net 12.6% (in euros), compared to an index return of 15.4%. In U.S. dollars, the same figures translated into a 0.6% increase versus a 3.1% move in the index. In a rising market, the Fund's cash balance has been something of a drag on performance year to date, whilst holdings in the paper sector have performed poorly, in contrast to other basic materials stocks. However, we believe the paper sector is trading at the low end of its long-term valuation range, and have been buying paper stocks through the year. Fund holdings in the energy and healthcare sectors have helped performance since the start of the year.
Market Conditions
Equity markets had a decent month in July as currencies stabilized and the flow of economic and corporate news was generally positive. The change in the Chinese currency regime, from a fixed U.S. dollar peg to a basket of currencies, was also viewed favourably, although it seems to have been driven primarily by political rather than economic considerations. (This means there is a risk that speculators looking for stronger remninbi appreciation may be disappointed.) North American markets performed well in July, but the best performance came from emerging markets, which responded well to signs of economic growth. Continental European markets also delivered solid returns, as investors anticipated political change in key markets such as Germany and there was more willingness to believe in the restructuring potential of the European corporate sector.
Top Ten Contributors Over The Past Month
Eight of the top 10 contributors to Fund performance in July were European, reflecting the strength of markets on that continent. Amvescap, the U.K.-listed fund manager was the top performer on the back of bid interest from a Canadian competitor. The opportunity for new management to restructure Amvescap is substantial. BP Respol and ENI continued their strong recent performance as oil prices remained high. In Switzerland, Nestle delivered strong performance, as did Accor, the French hotels group, and Vodafone, the U.K. mobile telecom stock. In Germany, investors started to price in some of the recovery potential at Volkswagen. Cheung Kong performed well in a good month for the Hong Kong market, while Cadence Design in the U..S showed signs of recovery.
Bottom Ten Contributors Over The Past Month
Four of the bottom 10 contributors were healthcare stocks. HCA gave back some of its prior outperformance when it lowered its short-term earnings forecast, while drug stocks GlaxoSmithKline, Pfizer and Abbott Labs all lagged a rising market. Royal Dutch Shell was one of the few oil stocks to struggle in July, due to technical issues associated with its removal of a dual share class. Sappi, the South African paper producer and a recent addition to the Fund, continued to under-perform in the short term, although we believe the stock has long-term attractions. In Japan, exporters had a tough month, with both Sony and Fuji Photo under-performing.
Strategy & Activity
The Fund added two new holdings in July. The first was France Telecom, which is undervalued on a variety of measures. The company has strong cash flow and has recently raised its dividend to provide an attractive yield to its shareholders. The telecommunications industry faces many challenges, but our analysis suggests France Telecom is well placed to meet these challenges, which are discounted in the current share price.
In Japan, the Fund invested in Mitsubishi Tokyo Financial Group, one of the largest banks in Japan. The Japanese banking industry has only recently emerged from a multi-year clean up of its substantial bad debt problems. Profitability in the industry remains low, but to some extent this reflects the very subdued pace of growth in the Japanese economy as well as the large fall in land prices in recent years. Mitsubishi Tokyo is planning to merge with another bank, UFJ, and the combined entity will be well placed to benefit in any economic recovery, which is not currently discounted in the stock price.
We continue to be encouraged by the range of new ideas that are appearing on our Bargain List.
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Templeton Growth (Euro) comment - Jan 05
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Wednesday, 23 March 2005
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Fund Manager Comment
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Performance
The Templeton Growth (Euro) Fund appreciated 1.2% in January, compared with a 1.8% rise in the MSCI World Index, expressed in euros. In US$, the Fund declined 2.9%, compared to a 2.2% decline for the index. The major reason for the underperformance was currency related, due to the appreciation of the US dollar against the Euro.
MARKET CONDITIONS
Global equity markets had a tough start to 2005. All of the major indices fell in US dollar terms, although for euro based investors, these declines were offset by the appreciation of the US dollar against the euro. Asian markets ex-Japan performed better than most, with Korea in particular delivering strong positive gains. In Europe, defensive markets such as the United Kingdom and Switzerland out-performed more cyclical markets such as Germany. The U$5 per barrel recovery in the oil price dampened market sentiment but helped the energy sector, which was the best performing industry, followed closely by the defensive consumer staples and utilities sectors. The worst performing sectors were technology and telecoms.
TOP TEN CONTRIBUTORS OVER THE PAST MONTH
There was no obvious theme to the top ten contributors. The top three - Lonza, the Swiss chemicals company, HCA, the US hospitals group, and Samsung electronics, the Korean technology company, all delivered better than expected 4 th quarter earnings and were re-rated sharply by the market. All appreciated between 13% and 15% in euros during the month. In the oil sector, both Shell Transport & Trading and Noble Corp, the drilling company, performed well.
BOTTOM TEN CONTRIBUTORS OVER THE PAST MONTH
The bottom ten performers were also spread across geographies and sectors. In the USA, Bowater, the newsprint producer, delivered disappointing results, whilst the rating of DTV was hurt by evidence of increased subscriber acquisition costs as well as the news that the General Motors Pension Fund intends to sell a large block of stock. We believe the stock is undervalued at current prices. In Japan, the Broker Nomura was hurt by the falling equity market.
STRATEGY & ACTIVITY
The Fund continues to add to a range of existing holdings. The Fund has steadily reduced its exposure to both the US consumer and to direct China 'plays' over the year and tends to have exposure to companies which are cash rich, with strong balance sheets and reasonable long term growth prospects. Many, such as pharmaceuticals, media or food producers, are out of favour for short term reasons, but as a result trade on attractive valuations.
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