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For Professional Investors Only. Not for Distribution to Retail Investors. UK Equity - Behind the Headlines and the Hype Ben Russon Fund Manager September 2013 Franklin UK Select Growth Fund Franklin Templeton Funds

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Page 1: City wire brighton september 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

UK Equity - Behind the

Headlines and the Hype

Ben Russon

Fund Manager

September 2013 Franklin UK Select Growth Fund

Franklin Templeton Funds

Page 2: City wire brighton september 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

FRANKLIN UK SELECT GROWTH FUND

Franklin UK Select Growth Fund – June 2013

Onwards

• Ben Russon, lead manager from June 2013

• 30-50 Stocks

• Concentrated holdings of between 1.5% – 5%

• Large-cap bias, high quality, long-term investments

• Name change – Franklin UK Opportunities Fund from

30 September 2013

2

Page 3: City wire brighton september 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

FRANKLIN UK SELECT GROWTH FUND

Key Investment Themes – September 2013

• UK Housing ‘Recovery’

• US Housing & Construction

• Traditional Roll-Out Models

• Online Opportunities

3

Page 4: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND

Investment Theme: UK Housing ‘Recovery’

4

Source: Oriel Securities and Franklin Templeton Investments as at 30/06/13.

-30

-20

-10

0

10

20

30

40

0

500

1,000

1,500

2,000

2,500

3,000

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Housing transactions (000,LHS) House prices (% yoy, RHS)

Housing transactions and house prices

• Government policy very committed:

• Funding for Lending Scheme

• Help to Buy

• Planning environment

• Far reaching implications:

• Bank balance sheets

• Construction employment

• Consumer confidence

• It gets you re-elected

A ‘proper’ correction never happened

Housing ticking up again

House price/earnings ratio (x)

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

House Price/Earnings Ratio Average

Page 5: City wire brighton september 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

FRANKLIN UK SELECT GROWTH FUND 5

Pricing of 2-year fixed rate mortgages by LTV (%)1

Investment Theme: UK Housing ‘Recovery’

Borrowing has got cheaper over last 12 months…

Source: Bloomberg and Franklin Templeton Investments as at 30/06/13. 1. Source: Regulated Mortgage Survey, CML.

%

-40

-35

-30

-25

-20

-15

-10

-5

0

01/0

6/20

08

01/1

0/20

08

01/0

2/20

09

01/0

6/20

09

01/1

0/20

09

01/0

2/20

10

01/0

6/20

10

01/1

0/20

10

01/0

2/20

11

01/0

6/20

11

01/1

0/20

11

01/0

2/20

12

01/0

6/20

12

01/1

0/20

12

01/0

2/20

13

01/0

6/20

13Consumer confidence recovering UK Consumer Confidence Index

• Mortgage availability increasing

• Mortgage terms improving

• Pent up demand

• Ripple effect and feel-good factor

• Variety of ways to gain exposure

Page 6: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND 6

• Greater downturn and more

established recovery than UK

• Different supply/demand balance

versus UK

• Many corporates well positioned to

benefit

• Challenged by recent moves in

interest rates

Investment Theme: US Housing & Construction

200

400

600

800

1000

1200

1400

1600

Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12

New

Ho

me

Sal

es (

Th

ou

san

ds)

New Home Sales (Thousands)

Jun-13

Source: Franklin Templeton Investments and Bloomberg US Census Bureau as at 30/06/13. 1. Source: S&P Case-Shiller Composite 10 Home Price Index

US recovery from a lower base and further

advanced than UK US New home sales

-30%

-20%

-10%

0%

10%

20%

30%

88 93 98 03 08 13

Sharp recovery in US house prices US home price appreciation. Year-over-year change 31 January 1988 - 30 April 20131

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FRANKLIN UK SELECT GROWTH FUND 7

Investment Theme: US Housing & Construction

• Construction equipment rental

business

• 3 drivers – cyclical, structural and

market trends

• High degree of operational leverage

• Debate is centred upon the

valuation

2010 2011 2012 2013e 2014e

Sales (£m) 834 919 1121 1345 1552

EBIT (£m) 65.5 101 175 281 347

Margin (%) 7.9 11.0 15.6 20.9 22.4

Source: 1. Kaplan Associates/Management Estimates. 2. Bloomberg as at 29/08/13. This is an example of an investment purchased pursuant to investment advice of

Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact

regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its

performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently

verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security

or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance.

Ashtead Group earnings and estimates2

US and UK retail penetration (%)1

Stock Example:

25

45 50

60+

0

15

30

45

60

75

2000 2011 2014E USPotential

%

75

0

15

30

45

60

75

2012

%

US UK

Page 8: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND 8

Investment Theme: Traditional Roll-Out Models

• Self-funded expansion of successful

concepts

• Leading and developing the markets

in which it operates

• Benefitting from structural and

market opportunities

Premier Inn UK structural growth opportunity Independent sector in structural decline

2008 2010 2012

Rooms* 40,251 43,374 51,671

Share (%) 5.8% 6.4% 7.6%

Share of rooms has increased

60% 57% 54%

23% 24% 25%

17% 19% 21%

2008 2010 2012

Independents Other Branded Budget Branded

Total UK

hotel market 686,000

rooms 679,000

rooms

682,000

rooms CAGR

+5.1%

+2.3%

-2.8%

42%

30%

12%

6% 5% 3% 2%

Premier Inn

Travelodge

Holiday Inn

Ibis

Jurys Inn

Days Inn

Ramada Encore

Source: Whitbread as of 03/07/13. 1. Companies, Exane BNP Paribas estimates. This is an example of an investment purchased pursuant to investment advice of Franklin

UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an

industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not

be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness

or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of

trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance.

Budget hotel marketshare1

Stock Example:

Page 9: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND 9

Investment Theme: Traditional Roll-Out Models

• Plenty of potential domestic capacity

• Backing the management to execute

• It works with coffee too…

Other interesting roll outs models:

Half of the growth opportunity comes from London Premier Inn rooms in London

2,415 2,911 3,500 3,177

5,179 8,250 2,474

2,848

5,750 1,100

2,500

2012/2013 Total includingcommitted pipeline

2018 milestone*

Hub by PremierInn

Central London

Greater Londonexcl. CentralLondon

12,038

c. 20,000

650

1,005 1,300

c. 2,000

0

500

1000

1500

2000

2500

2010/2011 2012/2013 2015/2016 2017/2018

Sys

tem

Sal

es (

£m)

8,066

6.0% 9.0% 13.0% Premier

Inn share

Costa Coffee doubling system sales by 2018

20%

22%

c.33%

International System

Sales Share

Source: Whitbread as of 03/07/13, Preliminary Results Presentation 2012/2013. This is an example of an investment purchased pursuant to investment advice of Franklin UK

Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an

industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its performance, may not

be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently verified for completeness

or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security or as an indication of

trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance.

Stock Example:

Page 10: City wire brighton september 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

FRANKLIN UK SELECT GROWTH FUND 10

Investment Theme: Online Opportunities

• Publisher and information provider

operating in the science, medical,

legal, risk and business sectors

• Managing the transition from print

to digital

• Diversified across geographies

and business sectors

Online-derived revenues growing in importance1

Reed Business Information: electronic revenue in proportion to total revenue

Division Digital Revenues

Scientific, Technical & Medical 73%

Risk Solutions 95%

Business Information 59%

Legal 79%

Source: 1. Reed Elsevier Annual Report and Accounts 2012. 2. Reed Elsevier Interim Results 30 June 2013. This is an example of an investment purchased pursuant to

investment advice of Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of

every material fact regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this

investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not

been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for

a particular security or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance.

38%

46% 51%

54%

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

Electronic Revenue

Reed Divisions: % digital revenue2

Stock Example:

Page 11: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND 11

Investment Theme: Online Opportunities

Other examples: 2011a 2012a 2013e 2014e 2015e

Sales (£m) 6002 6116 6215 6341 6528

EBIT (£m) 1267 1384 1450 1526 1603

Margin (%) 21.1 22.6 23.3 24.1 24.6

• Strong balance sheet

• Structural growth opportunities

that benefit margins

• Strong dividend growth and

attractive valuation

Online-derived revenues growing in importance

Reed Business Information: electronic revenue in proportion to total revenue

+4%

Electronic

Face to Face

Print

Subscription Transactional

Advertising

-5-7%

+7%

+5-6%

-5-7%

+2-3%

Source: Reed Elsevier Interim Results 30 June 2013, Nomura Equity Research 26/07/13. This is an example of an investment purchased pursuant to investment advice of

Franklin UK Select Growth Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact

regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its

performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently

verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security

or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance.

Format Type

Stock Example:

Page 12: City wire brighton september 2013 final

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Appendix

Page 13: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND 13

Investment Process

Business Risk

Balance Sheet Risk

Management Risk

Valuation Risk

A broad top-down perspective on the outlook for economies and financial markets provides the framework for our bottom-up stock picking selection

process

A fundamental research approach focussed on high quality companies

Page 14: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND

Portfolio Overview

• Tobacco

• Pharmaceuticals

• Utilities

Stable Core

• Travel & Leisure

• Software

• Media

Structural Growth

• Support Services

• Financial Services Special Situations

14

References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund’s holding at any one time.

Page 15: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND

The Case for an Unconstrained Approach

0

100

200

300

400

500

600

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

From the 'great moderation' ...

40

50

60

70

80

90

100

110

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

... to a more volatile world

Source: Franklin Templeton Investments as at 20/05/13.

15

• Adopt unconstrained, flexible approach

• Importance of compounding income for total returns

• Focus on downside risk

• Look beyond short-term sentiment

Page 16: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND

Franklin UK Select Growth Fund

Fund Details

Management Ben Russon, Mark Hall, Colin Morton

Asset Category UK Equity

Investment Style Blend

IMA sector IMA UK All Companies

Benchmark FTSE All Share Index

Launch Date 17/10/2011

Number of Positions 42

Portfolio Size £103.3 million

16

Source: Franklin Templeton Investments, as at 31/07/13. The Franklin UK Smaller Companies Fund launched on 17 October 2011 to receive the assets of Rensburg UK

Smaller Companies Trust, a unit trust. All fund performance data is based on the mid price of the Rensburg UK Smaller Companies Trust from its launch on 01/07/1991 to

30/09/2011 and the net asset value of the Franklin UK Smaller Companies Fund A(inc) shares thereafter. Holdings of the same issuer have been combined.

ISIN SEDOL Bloomberg

A(inc) GB00B45MQD36 B45MQD3 BWDAGGI LN

W(acc) GB00B76GK996 B76GK99 FUKSGWA LN

Z(acc) GB00B7F47W60 B7F47W6 FUKSGZA LN

Page 17: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND 17

Market Cap Breakdown

16 April 2013 19 August 2013

FTSE 100 66.7% 78.3%

FTSE 250 30.9% 19.4%

Other 0.6% 2.2%

Cash 0.9% 0.7%

No. of stocks 66 42

Source: Franklin Templeton Investments as at 19/08/13.

Page 18: City wire brighton september 2013 final

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FRANKLIN UK SELECT GROWTH FUND

• UK equity specialists based

in Leeds

• Acquired by Franklin

Templeton Investments in

January 2011

18

About Franklin UK Equity Team

Source: Franklin Templeton Investments as at 30/06/13. The Franklin UK Equity Team was previously part of Rensburg Fund Management Limited. The

company changed its name to Franklin Templeton Fund Management Limited on 17/10/11.

• Strong and stable team

– Average investment

experience: over 20 years

– Cover the entire market

with specific areas of expertise

• Ben Russon joined in April 2013

Page 19: City wire brighton september 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

FRANKLIN UK SELECT GROWTH FUND

Important Information For professional investor use only, this document is not aimed at, nor intended for use by retail investors.

Copyright © 2013 Franklin Templeton Investments. All rights reserved.

This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of the UK-domiciled

OEIC, Franklin Templeton Funds OEIC (“the Fund”). Nothing in this document should be construed as investment advice.

The Franklin UK Select Growth Fund launched on the 17th October 2011 to receive the assets of the Rensburg UK Select Growth Trust, a unit trust.

Subscriptions to shares of the Fund can only be made on the basis of the current prospectus, the relevant Key Investor Information Document, accompanied by the latest available

audited annual report and the latest semi-annual report if published thereafter, which can be found on our website or requested from the address below.

The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Currency fluctuations may affect the

value of overseas investment. An investment in the Fund entails risks which are described in the Fund’s prospectus and in the relevant Key Investor Information Document. The Fund

invests in a specific sector or geographical area and the returns may be more volatile than a more diversified fund.

No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America. Shares of the Fund are not available for distribution in all

jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest.

Opinions expressed are the author's at publication date and they are subject to change without prior notice. References to indices are made for comparative purposes only and are

provided to represent the investment environment existing during the time periods shown. An index is unmanaged and one cannot invest directly in an index. The performance of the

index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton Group fund. Any research and analysis contained in this

document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally.

For a free copy of the latest prospectus, and the relevant Key Investor Information Document , the annual report and semi-annual report, if published thereafter or for more information

about any Franklin Templeton Investments’ fund, please contact: Franklin Templeton Investments, Telephone: 0800 305 306, Email: [email protected] or write to us at

the address below.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: The Adelphi, 1-11 John Adam Street, London WC2N 6HT. FTIML is authorised and

regulated by the Financial Conduct Authority.

19