TEMPLETON GLOBAL BALANCED FUND - Kenanga

TEMPLETON GLOBAL BALANCED FUND

Unaudited Quarterly Report30 June 2019


UNAUDITED QUARTERLY REPORT FOR THE FINANCIAL PERIOD ENDING 30 JUNE 2019

I. GENERAL INFORMATION ABOUT THE FUND

II. MANAGER’S REPORT

III. STATEMENT BY THE MANAGER AND UNAUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 OCTOBER 2018 TO 30 JUNE 2019


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I. GENERAL INFORMATION ABOUT THE FUND

Launch and Commencement DateThe Templeton Global Balanced Fund (the “Fund”) was launched on 5 May 2015 andcommenced operations on 20 May 2015.

Fund Name, Category, Type

Fund Name Templeton Global Balanced Fund

Fund Category Wholesale – Feeder Fund (Balanced)

Fund Type Growth & Income

Investment Objective, Policy and Strategy The Fund is structured as a feeder fund and it is available in two share classes, Class A (MYR) and Class A (USD). The Fund seeks to provide capital appreciation and income by investing in the Franklin Templeton Investment Funds – Templeton Global Balanced Fund (“Target Fund”), which aims to invest principally in equity securities and government debt securities issued by entities throughout the world, including emerging markets.

The Fund aims to invest a minimum of 95% of the NAV of the Fund in the Target Fund which is denominated in USD and domiciled in Luxembourg; the balance of the NAV of the Fund will be held in cash or invested in liquid assets to defray operating expenses and to provide liquidity.

As the primary investment of the Fund, i.e., the Target Fund, is denominated in USD, the Manager intends to employ hedging for the classes of Units denominated in RM to reduce the Fund’s exposure to foreign exchange fluctuations. The hedging tools that the Manager may utilise include but are not limited to foreign exchange forwards and total return swap.

As the Fund is a feeder fund, it will stay invested in the Target Fund in so far as its investment strategy is consistent with the objective of the Fund. In view of the aforesaid, the Fund will not undertake any temporary defensive position. Accordingly, the Fund’s performance will be directly correlated to the performance of the Target Fund subject to the currency hedging strategy mentioned above being successful.

The Target Fund seeks capital appreciation and current income, consistent with prudent investment management by investing principally in equity securities and government debt securities issued by entities throughout the world, including Emerging Markets. The Investment Manager of the Target Fund anticipates that the majority of the Target Fund’s portfolio is normally invested in equity or equity-linked securities, including debt or preferred stock convertible or exchangeable into equity securities, selected principally on the basis of their capital growth potential. The Target Fund seeks income by investing in fixed or floating-rate debt securities and debt obligations issued by government and government-related issuers or corporate entities worldwide. The Target Fund may also purchase debt obligations issued by supranational entities organised or supported by several national governments, such as the International Bank for Reconstruction and Development or the European Investment Bank. The Target Fund may purchase equities, fixed income securities and debt obligations. Notwithstanding the foregoing, at no time will the Investment Manager of the Target Fund invest more than 40% of the Target Fund’s net assets into fixed income securities. The Target Fund may make distribution from capital, net realised and net unrealised capital gains as well as income gross of expenses. Whilst this might allow more income to be distributed, it may also have the effect of reducing capital.

The asset allocation of the Fund will be as follows:

Minimum 95% of the NAV to be invested in the Target Fund; and

Up to 5% of the NAV in cash and/or other liquid assets.

Fund Distribution Policy Distribution of income, if any, is subject to the availability of income and shall be in line with the dividend policy of the Target Fund.


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II. MANAGER’S REPORT

MARKET REVIEW Indications that several key central banks may be prepared to lower interest rates if the economic outlook worsens boosted global equities during 2019’s second quarter. Although trade relations drove heightened market volatility throughout the period and contributed to a selloff in May, new signs that the United States and China could resolve their trade dispute helped stock markets in late June. Sovereign bond yields around the world notably declined in May and June, while risk assets initially saw amplified volatility and sharp price declines before rallying on increasingly dovish comments from the US Federal Reserve (Fed) and European Central Bank (ECB) in June.

REVIEW OF THE TARGET FUND PERFORMANCE DURING THE PERIOD

QUARTERLY KEY PERFORMANCE DRIVERS

Equity Fixed Income

Helped

France (Stock Selection, Overweight) Duration Exposure in Brazil

India (Stock Selection) Mexican Peso

Utilities (Stock Selection) Duration Exposure in India

Hurt

United States (Stock Selection,

Underweight)

-

China (Stock Selection, Overweight) -

Communication Services (Stock

Selection, Overweight)

-

Within the communication services sector, shares of Chinese internet search firm Baidu came under pressure amidst a cyclical slowdown in China’s economy. We have growing concerns that excess advertising capacity and increasing competition can result in deteriorating cost/benefit dynamics in the digital advertising space going forward. Furthermore, Baidu’s core search offering is not proving to be as scalable as traditional search platforms. While the firm’s core search business has remained cheaply valued and Baidu has enjoyed strong growth in active daily users and a high cash position, the capital required to maintain leadership and innovation is significant, and we continue to monitor this investment closely. From the utilities sector, shares of French water- and waste-treatment firm Veolia Environnement advanced after the company reported better-than-expected earnings and received a favourable tax ruling from a US court. We remain positive on the stock; the effect of restructuring initiatives should become increasingly evident as tailwinds like greater environmental legislation and corporate commitments (as well as a potential rise in inflation) eventually bolster revenues. Over the quarter, the US dollar broadly weakened against a majority of global currencies, with some notable exceptions. Currency positions in Latin America (the Mexican peso and Brazilian real) contributed to the fixed income portfolio’s absolute performance. We continued to hold currency positions in a number of countries that we believe have strong growth fundamentals and compelling interest-rate differentials. Select duration exposures in Latin America (Brazil) and Asia ex Japan (India) contributed to the fixed income portfolio’s absolute results. We held select duration exposures in specific countries that we believe have attractive risk/return profiles, relatively higher yields, resiliencies to external shocks and favourable macro conditions for yields to remain relatively stable or shift lower.


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MANAGER’S REPORT (CONTINUED)

There were no significant detractors from the fixed income portfolio’s absolute performance during the second quarter.

OUTLOOK & STRATEGY

Despite continued challenges, we believe we are taking the necessary steps to potentially improve investment outcomes in a difficult environment. These steps include upgrading the quality of the equity portfolio to own more defensive, dividend-paying holdings in a late-cycle, low interest-rate environment, as well as allocating resources to pursue the best long-term investment opportunities in overlooked market segments.

Under Templeton Global Equity Group Chairman Dr. Sandy Nairn, we’ve enhanced our research database, developed a new system to quantify economic exposures at the portfolio level, made targeted changes to research coverage and investment personnel, and begun to manage more focused portfolios with fewer stocks to ensure that only the highest conviction names are represented.

From a global fixed income perspective, we expect ongoing labour market strength and continued expansion of the US economy. US growth is likely to moderate from its 2018 pace, but remain at or above potential in 2019, in our view. We do not see economic conditions that indicate an imminent recession, or that justify rate cuts from the Fed. Resilient US consumer spending should continue to fuel US growth and support global growth, as the economy moves deeper into the late-cycle phase of expansion.

In emerging markets, we continue to see a subset of countries with domestically strong economies that have demonstrated their resiliencies to global shocks, including potential trade disruptions. We are focused on specific countries that are less externally vulnerable and more domestically driven, and that have orthodox fiscal and monetary policies. We see additional scope for strengthening valuations in specific countries.

Asset Breakdown as at end June 2019*

Equity 65.54%

Cash & Cash Equivalents 17.53%

Fixed Income 16.94%

Sector Allocation (Equity) as at end June 2019*

Financials 21.41%

Communication Services 15.89%

Health Care 15.37%

Energy 10.82%

Industrials 10.25%

Information Technology 8.52%

Materials 6.01%

Utilities 3.15%

Consumer Staples 3.10%

Others 5.47%

Sector Allocation (Fixed Income) as at end June 2019*

Local Curr. Govt/Agency Bonds: Investment Grade 71.67%

Local Curr. Govt/Agency Bonds: Non-Investment Grade 25.32%

Supranational 3.20%

US Treasuries/Agencies 0.00%

Derivatives -0.18%

* The data relates to the Target Fund


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MANAGER’S REPORT (CONTINUED)

CUMULATIVE RETURNS AS OF 30 JUNE 2019

Currency 3 Months 1 Year 3 Years Since

Commencement (20 May 2015)

Templeton Global Balanced Fund – Class A

MYR 0.97% -1.09% 17.11% -3.11%

Templeton Global Balanced Fund – Class A

USD 0.98% -0.77% 17.15% -4.36%

Franklin Templeton Investment Funds – Templeton Global Balanced Fund (the “Target Fund”)

USD 1.42% 0.95% 24.40% 9.27%

65% MSCI ACWI1 + 35%JP Morgan Global Government Bond Index2**(the Fund’s benchmark)

USD 3.74% 6.31% 26.87% 25.86%

Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up.

**1. Source: All MSCI data is provided “as is.” The Fund described herein is not sponsored orendorsed by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the Fund described herein. Copying or redistributing the MSCI data is strictly prohibited. 2. Copyright JPMorgan Chase & Co. All rights reserved.


III. STATEMENT BY THE MANAGER AND UNAUDITED FINANCIAL STATEMENTS

FOR THE FINANCIAL PERIOD FROM 1 OCTOBER 2018 TO 30 JUNE 2019

CONTENTS PAGE(S)

UNAUDITED STATEMENT OF FINANCIAL POSITION 1

UNAUDITED STATEMENT OF COMPREHENSIVE INCOME 2

UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE

TO UNIT HOLDERS 3

UNAUDITED STATEMENT OF CASH FLOWS 4

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 5 - 9

STATEMENT BY THE MANAGER 10


UNAUDITED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2019

30 Jun 2019 30 Sep 2018

Note RM RM

CURRENT ASSETS

Financial assets at fair value through

profit or loss 1 22,604,838 28,298,156

Derivative financial instruments 2 65,684 1,340

Cash and cash equivalents 3 357,863 442,043

TOTAL ASSETS 23,028,385 28,741,539

CURRENT LIABILITIES

Derivative financial instruments 2 - 28,259

Accrued management fee 4 27,896 36,458

Accrued trustee fee 5 1,480 1,480

Other payables and accruals 14,121 24,318

TOTAL LIABILITIES (EXCLUDING NET

ASSETS ATTRIBUTABLE TO UNIT

HOLDERS) 43,497 90,515

NET ASSETS ATTRIBUTABLE TO UNIT

HOLDERS 22,984,888 28,651,024

REPRESENTED BY:


HOLDERS

– RM CLASS 6(a) 18,088,474 23,046,679

– USD CLASS 6(b) 4,896,414 5,604,345

22,984,888 28,651,024

NUMBER OF UNITS IN CIRCULATION

– RM CLASS 6(a) 37,711,705.39 46,863,550.85

– USD CLASS 6(b) 2,504,319.65 2,799,156.13

NET ASSET VALUE PER UNIT

– RM CLASS RM 0.4797 RM 0.4918

– USD CLASS USD 0.4734 USD 0.4840

The accompanying notes form an integral part of these financial statements.

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UNAUDITED STATEMENT OF COMPREHENSIVE INCOME


1 Oct 2018 1 Oct 2017

to to

30 Jun 2019 30 Jun 2018

Note RM RM

INVESTMENT LOSS

Interest income 261 1,743

Net loss from financial assets at fair value

through profit or loss 1 (452,743) (904,801)

Net (loss)/gain from derivative financial

instruments 2 (54,626) 215,780

Net foreign currency exchange gain/(loss) 5,306 (5,502)

(501,802) (692,780)

EXPENSES

Management fee 4 278,028 302,258

Trustee fee 5 13,464 14,183

Audit fee 6,520 6,523

Professional fee 4,308 4,351

Custodian fee 585 10,778

Printing fee 378 6,698

303,283 344,791

NET LOSS BEFORE TAXATION (805,085) (1,037,571)

Taxation - -

DECREASE IN NET ASSETS

ATTRIBUTABLE TO UNIT HOLDERS (805,085) (1,037,571)

Decrease in net asset attributable to

unit holders comprises the following:

Realised amount (742,853) (102,674)

Unrealised amount (62,232) (934,897)

(805,085) (1,037,571)


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UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS


1 Oct 2018 1 Oct 2017

to to

30 Jun 2019 30 Jun 2018

RM RM


HOLDERS AT THE BEGINNING OF THE

FINANCIAL PERIOD 28,651,024 14,224,334

Movement due to units created and cancelled during

the financial period:

Creation of units 763,629 24,117,201

Cancellation of units (5,624,680) (3,365,990)

(4,861,051) 20,751,211

Decrease in net assets attributable to unit

holders during the financial period (805,085) (1,037,571)


HOLDERS AT THE END OF THE FINANCIAL

PERIOD 22,984,888 33,937,974


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UNAUDITED STATEMENT OF CASH FLOWS


1 Oct 2018 1 Oct 2017

to to

30 Jun 2019 30 Jun 2018

Note RM RM

CASH FLOWS FROM OPERATING

ACTIVITIES

Proceeds from sales of financial assets at

fair value through profit or loss 6,548,234 3,854,941

Payments for purchase of financial assets at

fair value through profit or loss (1,299,607) (25,581,422)

Settlement of derivative financial instruments (147,229) 291,424

Interest income received 261 1,743

Management fee paid (286,590) (275,900)

Trustee fee paid (13,464) (14,271)

Audit fees paid (8,752) (8,634)

Professional fee paid (5,565) (6,063)

Custodian fee paid (585) (10,778)

Printing fee paid (7,086) (5,153)

Expense reimbursement received - 26,272

Net cash generated from/(used in) operating

activities 4,779,617 (21,727,841)

CASH FLOWS FROM FINANCING

ACTIVITIES

Proceeds from creation of units 763,629 25,504,737

Payments for cancellation of units (5,624,680) (3,362,253)

Net cash (used in)/generated from financing

activities (4,861,051) 22,142,484

NET (DECREASE)/INCREASE IN CASH AND

CASH EQUIVALENTS (81,434) 414,643

CASH AND CASH EQUIVALENTS AT

BEGINNING OF THE FINANCIAL PERIOD 442,043 106,537

EFFECTS OF UNREALISED FOREIGN

EXCHANGE (2,746) 5,282

CASH AND CASH EQUIVALENTS AT

END OF THE FINANCIAL PERIOD 3 357,863 526,462


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NOTES TO THE UNAUDITED FINANCIAL STATEMENTS


1. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

30 Jun 2019 30 Sep 2018

RM RM

Designated at fair value through profit or loss

at inception:

- Foreign collective investment scheme 22,604,838 28,298,156

1 Oct 2018 to 1 Oct 2017 to

30 Jun 2019 30 Jun 2018

RM RM

Net loss on financial assets at fair value

through profit or loss:

- Realised loss on disposals (300,655) (40,412)

- Unrealised fair value loss (152,088) (864,389)

(452,743) (904,801)

Foreign collective investment scheme

Name of collective Percentage

investment scheme Quantity Value of net asset

value

30 Jun 2019 Units RM %

Luxembourg

Target Fund - Cost 22,954,508

Accumulated unrealised loss on

financial assets at fair value

through profit or loss (349,670)

Quantity/Market Value 547,881 22,604,838 98.35

Name of collective Percentage

investment scheme Quantity Value of net asset

value

30 Sep 2018 Units RM %

Luxembourg

Target Fund - Cost 28,495,738

Accumulated unrealised loss on

financial assets at fair value

through profit or loss (197,582)

Quantity/Market Value 678,597 28,298,156 98.77

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NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (CONTINUED)


2. DERIVATIVE FINANCIAL INSTRUMENTS

Foreign currency swap

30 Jun 2019 30 Sep 2018

RM RMFinancial assets/(liabilities) at fair value through profit or loss

- held for trading :

- Foreign currency swap 65,684 (26,919)

1 Oct 2018 to 1 Oct 2017 to

30 Jun 2019 30 Jun 2018

RM RM

Net realised (loss)/gain on foreign currency swap (147,229) 291,425

Net unrealised gain/(loss) on foreign currency swap 92,603 (75,645)

(54,626) 215,780

3. CASH AND CASH EQUIVALENTS

30 Jun 2019 30 Sep 2018

RM RM

Bank balances in a licensed financial institution 357,863 442,043

4. ACCRUED MANAGEMENT FEE

1 Oct 2018 to 1 Oct 2017 to

30 Jun 2019 30 Jun 2018 30 Jun 2019 30 Sep 2018

RM RM RM RM

Management fee 278,028 302,258 27,896 36,458

Management fees are billed and payable monthly in arrears.

Expense Accrual

At the end of the financial period, there is 1 (30 September 2018: 1) foreign currency swap outstanding. The

notional principal amount of the outstanding foreign currency swap amounted to RM17,169,426 (30

September 2018: RM22,501,075 ).

The foreign currency swap entered into during the financial period was for hedging against the currency

exposure arising from the investment in the foreign collective investment scheme denominated in US Dollar.

As the Fund has not adopted hedge accounting during the financial period, the change in the fair value of the

foreign currency swap is recognised immediately in the statement of comprehensive income during the

financial period.

Net fair value (loss)/gain on the foreign currency swap at fair value through profit or loss is as follows:

For the current and prior comparative periods, the Manager is entitled to receive a fee of 1.50% per annum of

the net asset value of the Fund.

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5. ACCRUED TRUSTEE FEE

1 Oct 2018 to 1 Oct 2017 to

30 Jun 2019 30 Jun 2018 30 Jun 2019 30 Sep 2018

RM RM RM RM

Trustee fee 13,464 14,183 1,480 1,480

Trustee fees are billed and payable monthly in arrears.

6. NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS

(a) RM CLASS

Number of Number of

units RM units RM

Beginning balance 46,863,550.85 23,046,679 24,312,287.29 12,114,729

Creation 1,361,383.89 642,751 40,304,169.99 20,470,585

Cancellation (10,513,229.35) (4,961,926) (18,264,879.77) (9,146,245)

Reinvestment of

distributions - - 511,973.34 255,987

Decrease

in net assets

attributable

to unit holders - (639,030) - (648,377)

Closing balance 37,711,705.39 18,088,474 46,863,550.85 23,046,679

30 Jun 2019 30 Sep 2018

Expense Accrual

For the current and prior comparative periods, the Trustee is entitled to receive a fee of 0.05% per annum of

the net asset value of the Fund, subject to a minimum fee of RM18,000 per annum.

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6. NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS (CONTINUED)

(b) USD CLASS

Number of Number of

units RM units RM

Beginning balance 2,799,156.13 5,604,345 1,023,260.00 2,109,605

Creation 60,937.52 120,878 2,171,468.53 4,353,956

Cancellation (355,774.00) (662,754) (423,108.33) (862,751)

Reinvestment of

distributions - - 27,535.93 55,044

Decrease

in net assets

attributable

to unit holders - (166,055) - (51,509)

Closing balance 2,504,319.65 4,896,414 2,799,156.13 5,604,345

TOTAL 22,984,888 28,651,024

7. UNITS HELD BY RELATED PARTY

Number of Number of

units RM units RM

Holding company of the

Manager

- Franklin Templeton

Capital Holdings

Pte. Ltd.

- RM class 361,860.79 173,585 361,860.79 177,963

- USD class 10,099.35 19,746 10,099.35 20,222

8. DISTRIBUTION

9. MANAGEMENT EXPENSE RATIO (“MER”)

1 Oct 2018 to 1 Oct 2017 to

30 Jun 2019 30 Jun 2018

% p.a. % p.a.

MER 1.64 1.77

No distribution was declared by the Fund for the financial periods ended 30 June 2019 and 30 June 2018.

The MER of the Fund is the ratio of the sum of annualised fees and expenses incurred by the Fund to the

average net asset value of the Fund calculated on a daily basis.

As at 30 June 2019 and 30 September 2018, the above units are legally held and were transacted at the

prevailing market price.

30 Jun 2019 30 Sep 2018

30 Jun 2019 30 Sep 2018

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10. PORTFOLIO TURNOVER RATIO (“PTR”)

11. TRANSACTIONS WITH THE TARGET FUND MANAGERS

Details of transactions with the Target Fund Managers for the financial periods are as follows:

Target Fund

Managers

RM % RM %

Franklin Templeton

Investments Australia

Limited and Franklin

Advisers, Inc.* 7,839,788 100.00 28,803,250 100.00

*

12. CHANGES TO PRESENTATION OF COMPARATIVE AMOUNTS

For the current financial period, foreign currency swap has been classified as derivative financial

instruments. Comparative amounts have been reclassified from financial assets at fair value through profit or

loss and net gain/loss from financial asset at fair value through profit or loss to conform with the current

period's presentation.

The above transaction values are in respect of transactions in foreign collective investment scheme.

Transactions in this investment do not involve any commission or brokerage and all the above transactions

have been established under terms that are no less favorable than those arranged with independent third

parties.

1 Oct 2017 to

30 Jun 2018

With effect from 4 June 2018, the Target Fund Managers are Franklin Templeton Investments Australia

Limited and Franklin Advisers, Inc. (Prior to that, the Target Fund Managers were Franklin Templeton

Investment Management Limited and Franklin Advisers, Inc.)

The Fund is a feeder fund which invests primarily into the Target Fund, hence all transactions were made

with the Target Fund Managers.

1 Oct 2018 to

30 Jun 2019

The PTR of the Fund, which is the ratio of average total acquisitions and disposals of investment to the

average net asset value of the Fund calculated on a daily basis is 0.16 times (30 June 2018: 0.56 times).

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STATEMENT BY THE MANAGER

Avinash Deepak Satwalekar

For and on behalf of the Manager

Franklin Templeton Asset Management

(Malaysia) Sdn. Bhd.

Kuala Lumpur, Malaysia

20 August 2019

I, Avinash Deepak Satwalekar, being Director of the Manager, Franklin Templeton Asset Management

(Malaysia) Sdn. Bhd., for Templeton Global Balanced Fund do hereby state that in the opinion of the

Manager, the accompanying unaudited statement of financial position, unaudited statement of comprehensive

income, unaudited statement of changes in net assets attributable to unit holders and unaudited statement of

cash flows are drawn up so as to give a true and fair view of the financial position of the Fund as at 30 June

2019 and the comprehensive income, the changes in net assets attributable to unit holders and cash flows of

the Fund for the financial period from 1 October 2018 to 30 June 2019.

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© 2018 Franklin Templeton Investments. All rights reserved. FTIFMY TGBAR 07/19

Franklin Templeton Asset Management (Malaysia) Sdn. Bhd.Suite 31-02, 31st Floor, Menara Keck Seng203, Jalan Bukit Bintang55100 Kuala Lumpur, Malaysiatel +60 (3) 2264 6688fax +60 (3) 2145 9071www.franklintempleton.com.my

TEMPLETON GLOBAL BALANCED FUND - Kenanga

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