Franklin Emerging Market Debt
Opportunities (EUR) Composite
Unconstrained
Fixed Income
30 September 2016
Product Profile
Product Details
Strategy Assets
Inception Date
Base Currency
Investment Style
€14.026.486,79
31.07.2006
EUR
Unconstrained
Overview1
• Emerging market debt strategy that takes an absolute return approach, whereby we will only
invest in countries or securities we find attractive, irrespective of benchmark weights
• Diversified portfolio of hard and local currency emerging market issuers
• Return Target: 8–10% per annum over the course of a full market cycle
Performance Data
Average Annual Total Returns (EUR %)2
Franklin Emerging
Market Debt
Opportunities
(EUR) Composite GROSS
Franklin Emerging
Market Debt
Opportunities
(EUR) Composite NET
JP Morgan EMBI
Global Diversified
(100% Hedged into
EURO) Index
JP Morgan GBI-EM
Broad Diversified
Index
BofA Merrill Lynch
Emerging Markets
Corporate Plus
(100% Hedged into
EUR) Index
1 month 3 months
1-Yr
3-Yrs
5-Yrs
10-Yrs
Since Inception
(31.07.2006)
0,55
4,51
14,59
6,27
7,22
7,33
7,37
0,49
4,33
13,80
5,54
6,45
6,52
6,57
0,26
3,67
14,89
7,54
7,15
6,96
7,13
0,86
1,64
13,66
5,62
4,68
6,61
6,64
0,05
2,65
10,95
5,25
6,26
5,84
5,98
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1. Targets represent the goal the strategy seeks against the JP Morgan EMBI Global Diversified (100% Hedged into EURO)
Index and do not take into account management fees or other expenses an investor would incur in the management of its
account, which would reduce any returns. There is no assurance that employment of the strategy will result in the intended
targets being achieved.
2. Periods of more than one year are annualised. Past performance is not an indicator or a guarantee of future
performance.
For Professional Investor Use Only / Not For Distribution To Retail Investors
Franklin Emerging Market Debt Opportunities (EUR) Composite
Calendar Year Returns (EUR %)
Franklin Emerging Market
Debt Opportunities (EUR)
Composite - GROSS
Franklin Emerging Market
Debt Opportunities (EUR)
Composite - NET
JP Morgan EMBI Global
Diversified (100% Hedged
into EURO) Index
30 September 2016
2015
2014
2013
2,61
12,71
2012
2011
4,12
17,61
54,98
-27,59
2008
2007
1,51
2,85
1,89
11,83
3,18
16,54
53,65
-28,08
4,01
0,74
7,09
-5,58
16,82
7,39
11,63
29,35
-13,51
4,69
2,22
3,56
2010
2009
4,69
Portfolio Manager Insight
Market Review
• Hard-currency emerging-market (EM) sovereign bonds delivered a total return of 4.04% for the third quarter, as per the JP Morgan Emerging
Markets Bond Index Global Diversified (EMBIGD).
• Local-currency EM sovereign debt returned 2.82%, unhedged in US-dollar terms, as per the JP Morgan Government Bond Index–Emerging
Markets (GBI-EM) Broad Diversified.
• Hard-currency EM corporate bonds returned 3.03%, as per the BofA Merrill Lynch Emerging Markets Corporate Plus Index, hedged into
US dollars.
Performance Review3
• US-dollar bonds issued by El Salvador were the main contributors to the strategy’s performance during the third quarter. Salvadoran bonds
performed strongly after the country’s government reconfirmed its commitment to seeking the International Monetary Fund’s support for
its economy.
• The strategy’s position in US-dollar bonds issued by a Ukrainian iron ore producer also contributed to performance for the quarter, as a rally in
iron prices since the beginning of 2016 has greatly benefited the company. Additionally, investors appeared to perceive the company’s low cost
base as an advantage, relative to its competitors, even if iron prices were to soften.
• The strategy’s exposure to the weakening Mexican peso was the main detractor from performance for the quarter. During the period, investors
worried about the impact of a possible victory by Donald Trump in November’s US presidential election, Mexico’s finance minister Luis Videgaray
resigned, and economic data showed that the country’s economy shrank in the second quarter of 2016.
Outlook & Strategy
• Commodity prices, especially oil, recovered in the first half of the year, boosted by a more optimistic view on global growth and by supply-side
disruptions. As a result, EM fundamentals have been showing modest signs of improvement. However, commodity prices have now plateaued
and are likely to trade in a range for the foreseeable future, with only a marginal impact from the recent agreement among some members of the
Organization of the Petroleum Exporting Countries regarding a framework to cut oil production.
• Accommodative central bank policies, meanwhile, have led to a drop in implied volatility and to lower risk premiums as many investors search for
yield. We believe the recent extension of, and increase in, the Bank of Japan’s quantitative easing program and the continued pause in the US
Federal Reserve’s tightening cycle are likely to support EM financial assets.
• Strong inflows into emerging markets, specifically into hard-currency EM assets, have also fueled the EM rally, as higher cash balances have
resulted in more money needing to be put to work. Uncertainty over the outcome of the upcoming US presidential election, however, is likely to
be investors’ main focus in the near term, together with country-specific stories.
Portfolio Characteristics of a Representative Account3,4
Portfolio
JP Morgan EMBI Global Diversified (100%
Hedged into EURO) Index
Yield to Maturity5
9,77
4,67
Average Duration
3,76
6,92
Number of Securities Including Cash
Yield to Worst5
82
9,76
Average Credit Quality
6
B+
535
4,66
BB+
Average Weighted Maturity
8,96
10,50
Duration to Worst5
3,88
6,86
Coupon Rate
6,34
6,07
6. The average credit quality (ACQ) rating may change over time. The portfolio itself has not been rated by an independent rating agency. The letter rating, which may be based on bond ratings
from different agencies, is provided to indicate the average credit rating of the portfolio’s underlying bonds and generally ranges from AAA (highest) to D (lowest). The ACQ is determined by
assigning a sequential integer to all credit ratings AAA to D, taking a simple, asset-weighted average of debt holdings by market value and rounding to the nearest rating. The risk of default
increases as a bond’s rating decreases, so the ACQ provided is not a statistical measurement of the portfolio’s default risk because a simple, weighted average does not measure the
increasing level of risk from lower rated bonds. The ACQ is provided for informational purposes only. Derivatives are excluded from this breakdown.
For Professional Investor Use Only / Not For Distribution To Retail Investors
2
Franklin Emerging Market Debt Opportunities (EUR) Composite
30 September 2016
Portfolio Diversification of a Representative Account3
Country Allocation (%)7,8
Percent of Total
423
3
123
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Risk Category Allocation7,8
Geographic Allocation7,8
Percent of Total
Percent of Total
Currency Allocation7,8
Portfolio Allocation7,8
Percent of Total
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For Professional Investor Use Only / Not For Distribution To Retail Investors
3
Franklin Emerging Market Debt Opportunities (EUR) Composite
30 September 2016
Top Ten Holdings9
Percent of Total
Top Holdings
%
REPUBLIC OF IRAQ LOAN FRN 01/01/2028
4,22
Sphynx Capital Markets PCC, zero cpn., 2/05/09
3,44
Government of South Africa, 8.00%, 12/21/18
3,11
Government of Uruguay, senior bond, Index Linked, 3.70%, 6/26/37
3,03
Government of El Salvador, senior bond, Reg S, 7.65%, 6/15/35
2,69
Government of Turkey, 8.20%, 11/16/16
2,74
Government of Russia, 7.50%, 3/15/18
2,45
Government of Argentina, 11.75%, 5/20/11
2,45
Mexican Udibonos, Index Linked, 4.00%, 11/15/40
2,41
Government of Seychelles, senior bond, Reg S, 7.00% to 1/01/18, 8.00% thereafter, 1/01/26
2,27
Supplemental Performance Statistics
Supplemental Performance Statistics (EUR)10,11
Standard Deviation
Franklin Emerging Market Debt Opportunities (EUR)
Composite
JP Morgan EMBI Global Diversified (100% Hedged
into EURO) Index
Tracking Error
Information Ratio12
Alpha
Beta
Sharpe Ratio
Franklin Emerging Market Debt Opportunities (EUR)
Composite
JP Morgan EMBI Global Diversified (100% Hedged
into EURO) Index
3-Yrs
5-Yrs
10-Yrs
Since Inception
6,10
6,13
10,52
10,44
3,89
4,37
6,66
6,62
-0,34
2,09
1,09
1,00
5,29
-0,33
0,89
1,07
1,47
6,44
0,02
0,72
1,20
1,13
9,13
0,05
0,90
0,61
0,66
9,07
0,04
0,90
0,61
0,68
Investment Philosophy
Our philosophy is that a diversified portfolio consisting of issues denominated in hard and local currencies has the potential to generate attractive
returns at lower levels of absolute risk than the standard emerging market debt benchmarks, which tend to be concentrated in a few issuers. We
believe that a bottom up, research-driven, qualitative investment process, combined with a risk-controlled approach, has the potential to achieve our
objective of outperforming standard benchmarks at low levels of absolute risk.
Investment Process
Franklin’s Emerging Market Debt Opportunities investment process can be summarised in three integral steps—country allocation, currency
allocation and issue selection.
Country Selection
We believe that country selection is the most important decision in structuring an emerging market debt portfolio. The first step in the investment
process is conducting bottom-up research on emerging countries. Our approach is largely qualitative and based on intensive fundamental research.
Since the portfolio is constructed through bottom-up fundamental research and not relative to a benchmark, there is no requirement to hold issues in
any one country for the sake of controlling tracking error. Countries are only held when they are considered suitable investments. An investment is
made only if three key questions are answered positively:
1. Does the yield adequately compensate for the fundamentals?
2. Is the country an improving credit?
3. Will the security generate a return in line with the performance target?
Currency Assessment
After individual countries have been selected, the next decision is whether to take exposure in the form of hard currency or local
currency instruments.
10. Risk statistics are calculated using gross of fees performance.
11. Tracking Error, Information Ratio, Alpha and Beta information are displayed for the product versus the listed benchmark.
For Professional Investor Use Only / Not For Distribution To Retail Investors
4
Franklin Emerging Market Debt Opportunities (EUR) Composite
30 September 2016
This is a distinguishing characteristic of our investment process. Although both hard and local currency instruments are not available in all emerging
market countries, the inclusion of local currency instruments results in a significantly expanded investment universe, thus increasing the potential for
uncovering undervalued investment opportunities. The decision to invest hard or local currency-denominated issues is based on whether yield
spreads are sufficient to compensate for the perceived risk.
Security Selection
The final decision concerns selecting the most attractive security within each selected country and denominated in the chosen currency. The primary
decisions at this stage concern selecting the appropriate maturity and the appropriate coupon structure—fixed or floating. These decisions are based
on three factors:
1. The extent of optimism on the country concerned
2. The shape of the sovereign spread curve
3. The outlook for yields in the underlying government market
Investment Team
Franklin Emerging Market Debt Opportunities Management Team
William Ledward, Ph. D., Portfolio Manager
Years with Firm
Years Experience
1
9
19
Stephanie Marjan Ouwendijk, CFA, Portfolio Manager/Analyst
31
Nicholas Hardingham, CFA, Portfolio Manager/Analyst
13
16
Philip Spires, Trader
10
21
Fatma Charlwood, Research Analyst
Additional Resources
Corporates - High Yield
Global Sovereign/EMD
Product Managers
12
Corporates - Investment Grade
Local Asset Management
Alberto Landi
Stuart Lingard
For Professional Investor Use Only / Not For Distribution To Retail Investors
Years with Firm
8
5
13
Fixed Income Policy Committee
Templeton Emerging Markets Equity
Years Experience
8
18
5
Franklin Emerging Market Debt Opportunities (EUR) Composite
30 September 2016
Important Legal Information
Franklin claims compliance with the Global Investment Performance Standards (GIPS®).
Franklin (the “firm”) encompasses the equity, fixed income and balanced accounts managed by Franklin Advisers, Inc., and related Franklin affiliates, including, effective 1 January 2007, the
equity accounts managed by the institutional investment teams of Franklin Templeton Institutional, LLC under the former firm name of Fiduciary Global Advisors. The combined equity assets of
Franklin and Fiduciary Global Advisors form the Franklin Equity Group (formerly Franklin Global Advisers prior to 30 June 2010) unit of Franklin. Effective 1 January 2006, the fixed income
assets managed from that date forward by Franklin Templeton Institutional, LLC (“FTI”) or its related affiliates (managed previously by Fiduciary Trust Company International - Institutional
Division or “FTCI’s Institutional Division”) that went through the institutional portfolio review process were combined with the fixed income assets of Franklin to form the Franklin Templeton Fixed
Income unit of Franklin.
Franklin Emerging Market Debt Opportunities (EUR) Composite consists of all portfolios managed on a fully discretionary basis with an investment objective that seeks to achieve an above total
return by investing in emerging market sovereign, quasi-sovereign and corporate debt instruments in both local and G7 currencies. In addition, the strategy may invest in below investment
grade bonds (rated below BBB-). The strategy is not constrained by benchmark weightings and may take tactical exposure to G7 as well as to emerging market currencies, but with the objective
of managing to the base currency needs of a euro (EUR) investor. The strategy regularly uses currency forwards, options, interest rate futures, credit-linked notes and, on a somewhat less
frequent basis, other derivatives such as swaps (including credit default swaps and total return swaps) for hedging purposes or for investment to control risk or assume tactical exposure to
various foreign currencies or asset classes consistent with the investment objective. Occasionally, the strategy may engage in writing puts and calls on securities.
Total returns are presented in euros both gross and net of investment advisory fees, are inclusive of commissions and transaction costs, and assume reinvestment of any dividends, interest
income, capital gains, or other earnings. Periods greater than one year are shown as average annual total returns. Performance data is shown rounded to the nearest hundredth. Past
performance is not an indicator or a guarantee of future performance.
The first benchmark is the JP Morgan EMBI Global Diversified (100% Hedged into EURO) Index, a market value weighted index which consists of USD denominated securities issued by
emerging market sovereign and quasi-sovereign entities where the currency risk has been hedged to EUR. The second index, to capture local currency instruments but with returns expressed
in euro, is the JPM GBI-EM Broad Diversified EUR-Unhedged Index which is comprised of local currency government bonds of emerging market countries. The third benchmark was changed to
The BofA Merrill Lynch Emerging Markets Corporate Plus (100% Hedged into EURO) Index. This benchmark is a capitalisation weighted fixed income index hedged to the euro and comprised
of emerging markets non-sovereign debt publicly issued within the major domestic and European markets. Prior to this, the benchmark was Merrill Lynch Emerging Markets Credit Plus (100%
Hedged into EURO) Index. The index was changed as it is a more appropriate benchmark given the significant changes to composition and constituents of Emerging Markets Corporate
benchmark. Because a few countries dominate most emerging markets indices (Brazil, Russia, and Mexico comprise 30% of the JP Morgan EMBI Global Diversified Index and Brazil, China,
India, Mexico and Poland comprise 50% of the JP Morgan GBI-EM Broad Diversified Index), Franklin does not base its asset allocation upon any emerging market index. Rather, Franklin’s
asset allocation is constrained by three sets of investment guidelines consisting of currency denomination, regions, and country selection. Although Franklin’s strategy in emerging market debt
is not managed to a benchmark, the three indices are included in the presentation for comparative purposes, to represent the investment environment existing during the time periods shown.
Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
To receive a complete list and description of Franklin composites (including any single account mutual fund composite) and/or a presentation that adheres to the GIPS® standards for any
composite, contact your Franklin Templeton institutional representative at +1.800.321.8563.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
3. Portfolio information is based on a representative account taken from the Franklin Emerging Market Debt Opportunities (EUR) Composite. The information is historical, may not reflect current
or future characteristics and may vary significantly among individual separate accounts depending on a variety of factors such as portfolio size, specific investment guidelines and inception
dates of the individual accounts.
4. Yield to Maturity, Yield to Worst, Average Duration, Average Life and Coupon Rate reflect certain derivatives held in Portfolio (or their underlying reference assets).
5. Adjusted for defaulted securities. Excludes cash/other net assets for the Franklin portfolio. Yield to Worst and Duration to Worst are calculated based on call structures of the underlying
securities that are the least favourable to the bond holder.
7. Information is historical and may not reflect current or future portfolio characteristics.
8. Figures reflect certain derivatives held in the portfolio (or their underlying reference assets) and may not total 100% or may be negative due to rounding use of derivatives, unsettled trades or
other factors.
9. Holdings of the same issuer have been combined. Top ten holdings information is based on a representative account, is historical, and may not reflect current or future portfolio
characteristics. All holdings are subject to change.
12. Information ratio is a way to evaluate a manager’s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This
measure is calculated by dividing the portfolio’s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly
differences between the portfolio return and the benchmark return over time).
For Institutional Professional Investors only—not for distribution to retail clients. This material is intended to be of general interest only and should not be construed as individual
investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are
those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not
intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.
This material is made available by the following Franklin Templeton entities in those countries where it is allowed to carry out relevant business: Europe: Franklin Templeton Investment
Management Limited (FTIML), registered office: Cannon Place—5th Floor, 78 Cannon Street, London EC4N6HL. Tel +44 (0) 20 7073 8500. Authorised and regulated in the United Kingdom by
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branches in: • Germany: FTIML Branch Frankfurt, Mainzer Landstr. 16, 60325 Frankfurt/Main, Germany. Tel +49 (0) 69/27223-557, Fax +49 (0) 69/27223-622,
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Please visit www.franklinresources.com to be directed to your local Franklin Templeton website with further contact details/information.
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Franklin Emerging Market Debt Opportunities (EUR) Composite
30 September 2016
Important Information – Inducements: With regards to the provision of our service (e.g. for distribution of investment funds), we receive payments from within our Group covering for all costs
of the services provided. Additionally, we receive a margin of 5-10 % for tax law purposes on all of the incurred and claimed costs. Inducements are being used to guarantee, maintain, further
enhance or to facilitate the quality of the investment services provided to you. We make use of the payments received to establish and to maintain an efficient infrastructure of high quality when
providing our services. For example for maintenance and expansion of our infrastructure of high quality and human resources – especially staff-related costs, costs for further trainings for our
staff, expansion of information technology and costs for our forms – and consequently, enhancing our client services. We are positive that the information mentioned above gives you a clear
picture about the inducements we receive when providing our services. We are happy to answer any further questions and of course offer providing you more information.
For Professional Investor Use Only / Not For Distribution To Retail Investors
© 2016 Franklin Templeton Investments. All rights reserved.