Franklin Brazil Opportunities Fund

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
Local Asset Management (LAM) Group
Specialized Investment Teams
Local Asset Management Capabilities
*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.
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FRANKLIN BRAZIL OPPORTUNITIES FUND
My Fixed Income Adventure in Brazil
%
Brazil Overnight Interest Rate
Stephen in Brazil
Source: Factset data, as of November 12, 2012.
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
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FRANKLIN BRAZIL OPPORTUNITIES FUND
Team: Unique Structure Seeks to Identify the Best
Risk/Return Opportunities
INVESTMENT COMMITTEE
COUNTRIES INVESTED IN MULTIPLE FUNDS
Co-Chairs: Marco Aurélio Freire, Frederico Sampaio & Stephen Dover
Responsibilities
MARCO AURÉLIO
FREIRE
Strategy/ Portfolio
Construction
CIO
CARLOS THADEU
DE FREITAS
GOMES FILHO
Economic
Research, Inflation
Forecasts
Chief Economist
GULHERME
PARIS
CRISTIANO DE
AGUIAR VIANNA
VAGNER ALVES
Local Fixed Income
Markets
Volatility
USD Brazilian
Bonds and
Currency (BRL)
Economic
Research, focus
on economic
activity
Portfolio Manager
Portfolio Manager
Portfolio Manager
Economist
DENIS RICARDO
FERRARI
BRAZILIAN EQUITIES
TEMPLETON FRONTIER
Frederico
Sampaio, CFA
MARKETS FUND
7 Professionals
Information Sharing
INTERNATIONAL FIXED INCOME
TEMPLETON GLOBAL
Michael
Hasenstab, PhD
BOND FUND
13 Professionals
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FREDERICO
SAMPAIO /
EDUARDO BOPP
Equities
CIO/
Portfolio Manager
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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%
25%
20%
15%
10%
5%
0%
27%
19%
18%
14%
9%
MSCI Brazil
MSCI EM
S&P 500
Brazilian
Currency
Target FT Brazil
Opportunties
Source: Annual Volatility as measured by standard deviation since 2010, as of Nov 15, 2012. All returns expressed in US dollars.
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FRANKLIN BRAZIL OPPORTUNITIES FUND
Very Low Real Yields For A Long Time In The US
US 10 Year TIPS
5,0
4,0
Yield %
3,0
Negative real
return
2,0
1,0
0,0
-1,0
Source: US Treasury
For Professional / Institutional Investor Use Only. Not for Public Distribution.
Feb-12
Feb-11
Feb-10
Feb-09
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
Feb-02
Feb-01
Feb-00
-2,0
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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.
FRANKLIN BRAZIL OPPORTUNITIES FUND
Brazil Yields Remain Attractive On A Relative Basis
1. Source: Bloomberg, Bureau of Labor Statistics
2. Source: MSCI
As on September 30, 2012
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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%
36.0%
40%
25.6%
14.3%
13.6%
20%
29.4%
15.1%
32.9%
9.2%
5.9%
11.0%
0%
17.4% 14.1%
9.7%
5.2%
2.0%
0.4%
-12.5%
-20%
2003
2004
2005
2006
2007
Brazilian USD Bonds (JPM EMBI+ Brazil)
2008
2009
2010
2011
Brazilian Local Bonds in USD (IRF-M)
Source: Morningstar Direct and Bloomberg, as of June 30, 2012. All returns expressed in US dollars.
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YTD
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FRANKLIN BRAZIL OPPORTUNITIES FUND
Brazil: A Leading Commodities Supplier
World Ranking in Production and Exports
IRON ORE
#1
#2
ORANGE JUICE
#1
SOYBEANS
#2
#1
#1
COFFEE
#1
BEEF
#2
#3
#1
CORN
#4
Source: United States Department of Agriculture (USDA), as of July 2012.
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#5
POULTRY
#3
#1
PORK
#6
#1
SUGAR
#1
#1
ETHANOL
#2
#2
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FRANKLIN BRAZIL OPPORTUNITIES FUND
Brazil’s Economy is Driven by Domestic Demand
 Output is being driven primarily by household consumption, investment and
government spending
Contributions to GDP Growth
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
2003
2004
Net Exports
2005
2006
2007
Household Consumption
Source: IBGE, as of December 31, 2011.
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2008
2009
Government
2010
2011
Investment
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
Source: Banco Central do Brasil, Jan 2012.
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Net Public Debt
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
Major
billion
to Infrastructure
be injectedInvestments Planned for 2012-2015
213 Billion USD
Affordable Housing
164 Billion USD
Energy
125 Billion USD
Oil and Gas
Transportation
Other
64 Billion USD
87 Billion USD
Source: Ministry of Planning.
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FRANKLIN BRAZIL OPPORTUNITIES FUND
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
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Legal Disclaimer
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valuta straniera.
Quando si investe in un fondo denominato in una valuta estera, anche la vostra performance può subire variazioni dovute alle oscillazioni valutarie.
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Siete pregati di consultarvi con il vostro consulente finanziario prima di decidere di investire. Una copia dell’ultimo prospetto, del relativo Documento Chiave per
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© 2012 Franklin Templeton Investments. All rights reserved.
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