Franklin Brazil Opportunities Fund

Transcript

1 November 2012 Franklin Brazil Opportunities Fund A Dynamic, Opportunistic Multi-Asset Class Absolute Return Fund Stephen H. Dover, CFA Managing Director Int l Chief Investment Officer Local Asset Management

2 Local Asset Management (LAM) Group Specialized Investment Teams Local Asset Management Capabilities 2 *The established date refers to either the year the acquired company was established or the year Franklin Templeton Investments opened an office in that country, whichever came first. 1. Managed under the Bissett Investment Management brand. 2. Minority interest in separate joint ventures with Sealand Securities Company, Ltd (China), China Life (Hong Kong) and Vietcombank (Vietnam). 3. Franklin Templeton Investments (ME) is an indirect wholly owned subsidiary of Franklin Resources, Inc.

3 3 My Fixed Income Adventure in Brazil % Brazil Overnight Interest Rate Stephen in Brazil Source: Factset data, as of November 12, 2012.

4 4 Why Invest in Brazil? Brazil fixed income market offers some of the highest nominal and real interest rates in the world Strong economic fundamentals and solid fiscal dynamics Leader in commodities exports, but not export dependent $650 billion USD in planned major infrastructure investments over the next 3 years Hosting the 2014 FIFA World Cup and 2016 Olympic Games

5 5 More Reasons To Invest In Brazil Income potential Attractive fixed income (currently approx. 7% overnight) and equity dividend yields (currently approx. 3%) Capital appreciation potential Brazilian equities offer attractive appreciation opportunities Growth potential Economy expected to rebound and offer an attractive long-term GDP growth rate (4% real, 9% nominal) One of the most dynamic absolute return markets globally

6 6 Why Consider an Absolute Return Approach for Brazil Less likely to be correlated with other investments Aims to maximize a combination of capital appreciation, income and currency gains by investing across the entire range of available investment opportunities Aims to minimize volatility and have consistent returns through different market environments Takes advantage of an unconstrained view on Brazil independent from any benchmark Builds on the solid track record of our Brazilian local asset management funds - bringing the first fund of this type to the cross-border space

7 7 Franklin Brazil Opportunities Absolute Return Fund Investment Opportunities: Brazilian Government Fixed Income: yield and rate changes USD-denominated Brazilian Government bonds: yield and spread over US treasuries Brazilian inflation: Positioning for rising inflation. One of the largest inflation-linked bond markets Brazilian currency: strategic hedging with USD Equity: 10-40% long-term equity portfolio with opportunistic hedging

8 8 Team: Unique Structure Seeks to Identify the Best Risk/Return Opportunities Responsibilities MARCO AURÉLIO FREIRE Strategy/ Portfolio Construction CIO CARLOS THADEU DE FREITAS GOMES FILHO Economic Research, Inflation Forecasts Chief Economist INVESTMENT COMMITTEE COUNTRIES INVESTED IN MULTIPLE FUNDS Co-Chairs: Marco Aurélio Freire, Frederico Sampaio & Stephen Dover DENIS RICARDO FERRARI Local Fixed Income Markets Portfolio Manager GULHERME PARIS Volatility Portfolio Manager CRISTIANO DE AGUIAR VIANNA USD Brazilian Bonds and Currency (BRL) Portfolio Manager VAGNER ALVES Economic Research, focus on economic activity Economist FREDERICO SAMPAIO / EDUARDO BOPP Equities CIO/ Portfolio Manager Information Sharing BRAZILIAN EQUITIES TEMPLETON FRONTIER Frederico Sampaio, CFA MARKETS FUND 7 Professionals INTERNATIONAL FIXED INCOME TEMPLETON GLOBAL Michael Hasenstab, PhD BOND FUND 13 Professionals

9 9 Brazil Opportunities Risk Management Approach Positions are sized to have a projected annual volatility in the 6 to 12% range Intended volatility less than Brazilian Equities and in line with Brazil Fixed Income in dollar terms Portfolio is simulated under adverse scenarios to control extreme event risk Brazil is used to volatile markets and risk techniques are advanced Annual Volatility 30% 27% 25% 19% 20% 18% 14% 15% 9% 10% 5% 0% MSCI Brazil MSCI EM S&P 500 Brazilian Target FT Brazil Currency Opportunties Source: Annual Volatility as measured by standard deviation since 2010, as of Nov 15, All returns expressed in US dollars.

10 10 Very Low Real Yields For A Long Time In The US 5,0 US 10 Year TIPS 4,0 Yield % 3,0 2,0 1,0 0,0-1,0-2,0 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Negative real return Source: US Treasury For Professional / Institutional Investor Use Only. Not for Public Distribution.

11 11 Brazil Has Positive Real Rates Brazilian Real Interest Rate Yield Curve Positive real return Source:ANBIA For Professional / Institutional Investor Use Only. Not for Public Distribution.

12 12 Brazil Yields Remain Attractive On A Relative Basis 1. Source: Bloomberg, Bureau of Labor Statistics 2. Source: MSCI As on September 30, 2012

13 13 Why An Absolute Return Approach In Fixed Income? Exchange rate fluctuations and domestic business cycles allow an active approach to improve the return profile through time 80% 60% Annual Return 69.0% 57.1% 49.4% 40% 20% 0% 36.0% 32.9% 29.4% 25.6% 14.3% 13.6% 15.1% 9.2% 5.9% 17.4% 11.0% 9.7% 14.1% 5.2% 2.0% 0.4% -20% Source: Morningstar Direct and Bloomberg, as of June 30, All returns expressed in US dollars % YTD Brazilian USD Bonds (JPM EMBI+ Brazil) Brazilian Local Bonds in USD (IRF-M)

14 14 Brazil: A Leading Commodities Supplier World Ranking in Production and Exports IRON ORE ORANGE JUICE COFFEE POULTRY SUGAR # 1 # 2 # 1 # 1 # 1 # 1 # 3 # 1 # 1 # 1 SOYBEANS BEEF CORN PORK ETHANOL # 2 # 1 # 2 # 3 # 4 # 5 # 6 # 1 # 2 # 2 Source: United States Department of Agriculture (USDA), as of July 2012.

15 15 Brazil s Economy is Driven by Domestic Demand Output is being driven primarily by household consumption, investment and government spending 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Net Exports Household Consumption Government Investment Source: IBGE, as of December 31, Contributions to GDP Growth

16 16 Brazil Is an Investment Grade Country Primary fiscal surplus since the beginning of the series in 2001 Net public debt has declined from 60% of GDP in 2002 to 36.5% of GDP in 2011 Upgrades by all 3 main rating agencies in 2011 Fiscal Surplus Net Public Debt Source: Banco Central do Brasil, Jan 2012.

17 17 Infrastructure Spending An Important Growth Driver Brazil has over $650 billion USD in planned major infrastructure investments over the next 3 years Brazil will host the 2014 World Cup and 2016 Olympic Games. Up to US$100 billion Major to Infrastructure be injected Investments Planned for Affordable Housing 213 Billion USD Energy 164 Billion USD Oil and Gas 125 Billion USD Transportation 64 Billion USD Other 87 Billion USD Source: Ministry of Planning.

18 18 Franklin Brazil Opportunities Fund Current Portfolio Positioning Long-term local bonds in an investment grade country at about 9% yield Domestic-linked equities: o/w consumption, infrastructure, healthcare and education sectors Reduced equity market exposure on a tactical basis Long USD vs. BRL as currency becomes more volatile Neutral on inflation, we think it is fair-priced

19 19 Legal Disclaimer Questo documento è da intendersi unicamente di interesse generale e non costituisce alcun consiglio di tipo legale o fiscale, e nemmeno un offerta di azioni o un invito a richiedere azioni di alcuna delle SICAV di diritto lussemburghese Franklin Templeton Investment Funds. Nessuna parte di questo documento deve essere interpretata come consiglio all investimento. Le sottoscrizioni alle azioni di un Fondo possono essere effettuate solo sulla base del prospetto del Fondo, del relativo Documento Chiave per gli Investitori, accompagnato dall ultima relazione annuale rivista disponibile e dall ultima relazione semi-annuale se pubblicata successivamente. Il valore delle azioni in un Fondo ed i rendimenti che ne derivano possono scendere come salire, e gli investitori possono non riottenere l intero importo investito. Le performance passate non sono garanzia di rendimenti futuri. Le fluttuazioni valutarie possono influire sul valore degli investimenti effettuati in valuta straniera. Quando si investe in un fondo denominato in una valuta estera, anche la vostra performance può subire variazioni dovute alle oscillazioni valutarie. Un investimento in un Fondo comporta rischi che sono descritti nel prospetto completo e nel Documento Informativo Chiave per gli Investitori. Nei mercati emergenti i rischi possono essere maggiori rispetto a quelli nei paesi sviluppati. Gli investimenti in strumenti derivati comportano rischi specifici più ampiamente descritti nel prospetto del Fondo e nel Documento Chiave per gli Investitori. Nessuna azione dei Fondi può essere direttamente o indirettamente offerta o venduta a cittadini o residenti degli Stati Uniti d America ed ai cittadini o residenti in Canada. Le azioni di un Fondo non sono disponibili per la distribuzione in tutte le giurisdizioni e i potenziali investitori sono tenuti a confermare la disponibilità con il loro rappresentante locale Franklin Templeton Investments prima di assumere qualsiasi decisione di investimento. Qualsiasi ricerca ed analisi contenuta in questo documento è stata fornita da Franklin Templeton Investments per le sue finalità ed è a voi fornita solo per inciso. Riferimenti a particolari settori o aziende sono a scopo informativo generale e non sono necessariamente indicativi della posizione di un fondo in alcun momento. Siete pregati di consultarvi con il vostro consulente finanziario prima di decidere di investire. Una copia dell ultimo prospetto, del relativo Documento Chiave per gli Investitori e dell ultima relazione annuale e della relazione semi-annuale, se pubblicata successivamente, possono essere reperiti sul nostro sito web o reperiti senza alcun onere presso Franklin Templeton Italia Sim. Pubblicato da Franklin Templeton Italia SIM S.p.A. - Corso Italia, Milano - Tel: Fax: Franklin Templeton Investments. All rights reserved.