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Franklin Templeton Launches A European Equity Fund July 24, 2001
Fundsupermart has more on the fund with a 10-year track record.
Author : Bharathi Rajan


Untitled Document
BARGAIN HUNTING IN EUROPE


(Fundsupermart.com) - The Franklin Templeton European Equity Fund is the latest in the stable of Templeton funds to be offered here. The fund feeds into the Luxembourg-registered Templeton European Fund and seeks long term capital growth through investments in European equities. Even though Europe is still suffering the effects of the global slowdown, this is a good a time as any to invest says lead fund manager Ken Cox (click here to read interview). "No-one is ever accurate in their prediction for a revival in the economy. So we don't go for that kind of investment approach. What we do is look at individual companies, and assess the profitability of a company over a 3-5 year period. For example, we never buy a commodity related stock because we are predicting that commodity prices will pick up. Rather we look at the overall demand for the product and then look at whether the company is cheap relative to earnings."

REASONS TO INVEST IN EUROPE

Cox thinks there are compelling reasons to be invested in Europe. The most obvious he says, is that Europe is too large a market to ignore. It's the world's second largest economy and currency bloc and accounts for 38% of global output and world trade. He points out that the combined Eurozone economy is almost as large as the US yet it only makes up 34% of the total world's stock market value. The following developments in Europe, are also increasing its attractiveness as an equity market.

  • present Mergers & Acquisitions will enhance productivity and economies of scale
  • more companies tapping stock market for fund raising
  • equity culture growing but still at an early stage compared to the developed US markets
  • attractive valuations represent long term buying opportunities
  • pension funds a major factor in boosting liquidity in domestic markets
  • pension funds to sustain long term equity investments expansion
  • continued expansion of EU benefits and anticipation of benefits that monetary union will bring

And even if times are bad for the global economy, Cox says Europe in some ways is more stable than the United States. "We are positive on European companies and the Euro. I think the GDP forecast for Europe is more stable than the GDP forecast for the States. I don't think people expect it to be as weak as it had been for the last two years. The growth forecast for Europe has been revised downwards but not as much as the States."

INVESTMENT METHOD

Cox says the European Equity Fund adheres strictly to a value oriented bottom-up strategy. His team of 31 analysts are constantly on the hunt for bargains within the 12-member European equity market. Their mission - to find the 'cheapest stocks' for the fund, with no reference to the benchmark on a sector or geographical basis. This often means the fund gives large cap stocks a miss if they seem expensive. "At the moment we have 11% of the fund in Finland but it's only 3% of the European market. That's nearly a triple weighting in that area. The Finnish market is dominated by Nokia, but we managed to get this weighting without having Nokia in the fund, as we believe that Nokia has been an expensive stock for some time."

Part of the bargain hunting process is to sniff out little known companies that are valued attractively with big upside potential. One such example is Sanitec, one of the top 5 holdings for the fund. The company was spun off from a Finnish conglomerate and makes bathroom fittings such as toilets, baths and basins. Cox says that fund made about 70% on that stock alone. "The analyst that looked at that stock decided that it was priced attractively compared to other such companies around the world. The reason that we have made money is that there have been a group of venture capitalists in Europe that have been going around Europe buying companies doing a similar type of business. If we buy stocks of companies that are undervalued and are eventually bought up others then they are recognizing the value of those stocks, and that causes the share price to go up. It also shows that you can have strong performance by ignoring sector weightings and buying little known companies that are undervalued."

He adds the fund doesn't pay much attention to sector allocation which ironically hasn't changed much in the last few years. The fund still has most of its holdings in industrials which is an area that Cox likes. "At the moment we are getting a lot of good ideas in the industrial sector, the capital goods and engineering related sectors. This has been a profitable area for the fund in the last few years."

Cumulative Performance of the Templeton European Fund as at 31 May 2001

Period
Fund (%)
Benchmark (%)
1-month
-2.82
-4.76
3-month
-3.87
-5.49
6-month
4.04
-7.77
1-year
5.88
-16.58
2-year
7.80
-4.15
5-year
45.68
69.99
10-year
116.12
196.57
Since Launch (Apr 91)
113.28
205.44
Source : Franklin Templeton Asset Management;
Benchmark : MSCI Europe


FUND FACTS

Launch Date - 16 Jul to 8 Aug 2001
Launch Price - 10 Singapore Dollars per unit
Minimum Initial Investment - 1,000 Singapore Dollars
Minimum Subsequent Investment - 500 Singapore Dollars
Regular Savings Plan - a minimum of 100 Singapore dollars every month
Initial Sales Charge - up to 5% depending on distributor
Annual Management Fee - 1.4%

Discount - up to 2% depending on the amount invested
CPF Approved - yes (Ordinary Account and SRS)

Top 5 Holdings as at 31 May 2001
1.83% in Wolters Kluwer NV
1.72% in Alstom SA
1.67% in Sanitec OYJ
1.64% in Lloyds TSB Group PLC
1.63% in Krones AG


Sector Allocation
as at 31 May 2001
33% in Industrials
19% in Consumer Discretionary
17% in Financials
14% in Materials
6% in Healthcare
4% in Consumer Staples
4% in Utilities
3% in Energy
0.4% in Cash

Country Allocation
as at 31 May 2001
27% in Netherlands
16% in United Kingdom
11% in Finland
13% in France
12% in Germany
8% in Austria
6% in Spain
3% in Switzerland
2% in Irish Republic
1% in Norway