Interim Management Statement

RNS Number : 0517A

Templeton Emerging Markets IT PLC

13 February 2014

 

Templeton Emerging Markets Investment Trust PLC ("the Company/TEMIT")

Interim Management Statement

For the three months ended 31 December 2013

The interim management statement relates to the period 1 October 2013 to 31 December 2013 and is the Company's second interim management statement for the financial year 31 March 2014, as required by the UK Listing Authority's Disclosure and Transparency Rule 4.3.

INVESTMENT OBJECTIVES

Summary of Investment Objective

TEMIT seeks long-term capital appreciation for its investors through investment in companies operating in emerging markets or whose stocks are listed in the stock markets of such countries.

Company Characteristics (as at 31/12/2013)

Pricing Information (as at 31/12/2013)

Launch Date

12/06/1989

NAV (Cum-Income)

580.6p

Benchmark

MSCI Emerging Markets (£)

NAV (Ex-Income)

572.2p

Lead Manager

Mark Mobius

Share Price

529.0p

Total Net Assets

£1,887m

Discount to NAV (Cum-Income)

8.9%

Market Capitalisation

£1,719m

Discount to NAV (Ex-Income)

7.5%

Gearing

0%

Current Yield (net)

1.1%

Invested Assets

95.9%

For the year to 31 December 2013

Ongoing Charge Ratio (OCR)

1.30%

Highest NAV (Cum-Income)

743.2p

Lowest NAV (Cum-Income)

576.5p

Highest Share Price

678.0p

Lowest Share Price

514.0p

Share price is at the UK market closing mid price.

Net asset value is closing bid prices.  Assets are priced at local close or adjusted for fair value at US market close.  Further information can be found at www.temit.co.uk. 

Ratings

Morningstar^TM Workstation Category: Global Emerging Markets Equity

Morningstar^TM Overall Rating: 

Morningstar^TM Analyst Rating: Bronze

INVESTMENT PERFORMANCE

For the three months to 31 December 2013, TEMIT's share price decreased by 2.7% compared with the MSCI Emerging Markets Index, which decreased by 0.4 %¹. Please note that past performance is not a guide to future performance.

Cumulative Performance (%)¹

31 December 2013

	3 Months %	6 Months %	Calendar Year to Date %	1 Year %	3 Years %	5 Years %	10 Years %	*Since 31/07/89 %
TEMIT (Share Price)    - annualised	-2.7	-4.4	-8.9	-8.9	-19.2 -6.8	+105.1 +15.5	+298.2 +14.8	+1,706.9 +12.6
TEMIT (NAV)    - annualised	-2.4	-6.1	-9.0	-9.0	-16.1 -5.7	+102.4 +15.2	+256.3 +13.6	+2,102.9 +13.5
MSCI Emerging Markets Index    - annualised	-0.4	-1.2	-4.1	-4.1	-10.3 -3.6	+75.7 +11.9	+221.7 +12.4	+959.4 +10.2

* The first available NAV was calculated as at 31/07/89.  NAV, share price and index performance are all calculated from this date.

1. Please see end of document for glossary and important information

Discrete Annual Performance (%)¹

To end of December each year

	Year to 31/12/13	Year to 31/12/12	Year to 31/12/11	Year to 31/12/10	Year to 31/12/09
TEMIT (Share Price)	-8.9	+8.0	-17.8	+29.4	+96.0
TEMIT (NAV)	-9.0	+11.4	-17.3	+28.2	+88.1
MSCI Emerging Markets Index	-4.1	+13.4	-17.6	+22.9	+59.4

1. Please see end of document for glossary and important information

INVESTMENT MANAGER'S MARKET COMMENTARY AND OUTLOOK

Market Overview (4Q13)

Major events impacting performance in emerging markets in the final quarter of 2013 included the US Federal Reserve's decision to taper its asset purchases by US$10 billion a month from January 2014 onwards while maintaining interest rates at low levels for the foreseeable future. Elsewhere, notable developments included an increase in China's interbank interest rates.  Top performing markets included India, Greece and Egypt. In India, the Bharatiya Janata Party's (BJP's) strong standing in state elections suggested that the BJP, seen as somewhat more pro-business than the incumbent Congress dominated government, was well placed ahead of general elections scheduled for later this year. Markets also welcomed the decision by the Reserve Bank of India to leave interest rates unchanged. At the other end of the spectrum, Turkey, Thailand and Colombia underperformed. Unrest in Thailand and Turkey impacted equities and domestic currencies in those markets while Columbia's market suffered setbacks in November.

Company Performance (4Q13)

For TEMIT, performance lagged that of the benchmark MSCI Emerging Markets Index in the final quarter of 2013 largely due to its overweight exposures to the underperforming Thai and Turkish markets, as well as other holdings in the banking sector. Both Thailand and Turkey had difficult quarters with the MSCI Thailand and Turkey Total Return Indices declining 12.4% and 16.0% respectively, in sterling terms, compared with a decline of 0.4% in the wider MSCI Emerging Markets Index.

The developing Thai political crisis led to a foreign sell-off on the local equity market as well as of the Thai Baht, leaving shares lower in the quarter. Weakness was most apparent in domestic sectors such as banks, real estate and consumer discretionary. Economic data mirrored the market, impacting domestic confidence. As a result, major detractors from TEMIT's performance over the quarter included banks, Kasikornbank and Siam Commercial Bank, as well as Land & Houses, one of Thailand's largest residential property developers. Taking a longer-term view, TEMIT continues to hold these stocks as they remain well positioned to benefit from greater consumer and business demand fuelled by rising disposable income levels and a growing economy. Furthermore, the valuations of these companies remain attractive at current levels. While the current political crisis may be prolonged, we believe that it will eventually be resolved.

Turkey experienced similar deterioration.  Tapering of the US quantitative easing programme and its impact on the country's substantial current account deficit, along with a corruption investigation implicating figures close to the government, prompted a sell-off in the Turkish market. Banks came under particular pressure, especially after the chief executive of a leading bank was arrested. Investors also became uneasy about suggestions that central bank policy was being influenced by the government, with interest rates held at an inappropriately low level given the prevailing economic and financial market conditions. Post the period end, the Central Bank surprised investors by sharply raising key interest rates in late January 2014. In consequence, key detractors from TEMIT's performance over the quarter included Akbank, one of the country's leading banks, and Tupras, Turkey's biggest industrial company and one of Europe's ten largest refiners. Akbank's good asset quality and exposure to growing demand for financial and banking services is expected to bode well for the bank in the long term. As the country's only oil refiner, Tupras commands a dominant downstream and marketing position in Turkey. The company should benefit from increasing per capita demand for its products, which is currently far below the European Union or the US. Moreover, the valuations of these companies remain attractive at current levels.

Market Overview (January 2014)

Equity markets globally declined further in January as concerns about slowing growth in major world economies and the continuing effect of the US Federal Reserve's decision on tapering quantitative easing led investors to adopt a more cautious position. In emerging markets, a sharp devaluation of the Turkish Lira and Argentine Peso, political unrest in Thailand and Turkey, and worries about monetary tightening exerted additional pressure on equity prices. Weakness in a number of emerging market currencies and inflation concerns led central banks in India, Brazil, South Africa and Turkey to raise interest rates during the month. The MSCI Emerging Markets Index declined by 5.7% in sterling terms in January. Asian markets proved to be more resilient in January, as Indonesia, Pakistan and the Philippines ended the month with positive returns. Indonesian equities rallied on news of strengthening foreign currency reserves, an oversubscribed bond issue and improving trade balance. Elsewhere, Peru also recorded a small gain. Turkey, Brazil, Colombia and Chile were, however, among the worst performers.

Company Performance (January 2014)

Against this backdrop, TEMIT's NAV fell 4.2% in sterling terms for the month of January, outperforming the MSCI Emerging Markets Index's 5.7% decline. Key contributors to the relative performance included our stock selection and overweight positions in Thailand and India. Our positions in South Africa, China and Peru also had a positive impact. Holdings in Brazil and Turkey, however, underperformed, while a zero position in Taiwan also hurt relative performance. In terms of sectors, stock selection in financials, consumer staples and industrial contributed the most, while energy and information technology detracted.

Outlook

The uncertain start to the year in global and emerging equity markets should be placed in context. We are of the opinion that the tapering of quantitative easing that has generated much of the turmoil is a signal that the US Federal Reserve sees the US economy to be on a sustainable growth path, and US progress has begun to be matched by economic growth in Europe and Japan. The improving condition of developed markets is already showing up in export data from a number of emerging markets. The tapering itself is minor in extent compared with the huge expansion of central bank liquidity seen in recent years, which has yet to leak significantly into real economic activity. Currency market developments are disciplining governments that have been adopting excessively aggressive or populist economic policies, and devaluations can be positive for equity markets if economic policies are adjusted so that their benefits are not dissipated through inflation. Export businesses in a number of emerging markets that have seen currency weakness have already begun to respond very positively to their improved competitive position, while some of the markets severely affected in 2013 are now seeing renewed investment inflows as investors recognise their attractive valuations. We should note that economic growth in emerging markets remains substantially faster than in developed markets and that the underlying financial condition of emerging markets as a group, in terms of consumer and public indebtedness and foreign exchange reserves, is superior to that of developed markets. Economic growth does not always seamlessly pass into corporate profit growth; lags are likely before investment feeds into profitability, for example. Nevertheless, we believe that in the long term, strong economies pave the way to corporate profitability. In this context, we believe emerging market valuations appear very attractive at present, standing at a discount to those of developed markets overall and the TEMIT portfolio is positioned to benefit from the growth which we expect.

INVESTMENT PORTFOLIO

TEMIT Holdings

10 Largest Equity Issuers²

31 December 2013

Issuer	Sector	Country	Total Assets (%) 31/12/13	Total Assets (%) 30/09/13
Brilliance China Automotive Holdings Ltd.	Consumer Discretionary	Hong Kong / China	10.0	12.4
Tata Consultancy Services Ltd.	Information Technology	India	6.3	5.5
Itau Unibanco Holding SA, ADR	Financials	Brazil	4.1	4.2
Dairy Farm International Holdings Ltd.	Consumer Staples	Hong Kong / China	3.9	4.1
Banco Bradesco SA, ADR, pfd.	Financials	Brazil	3.8	4.2
Vale SA, ADR, pfd., A	Materials	Brazil	3.7	3.7
Siam Commercial Bank Public Co. Ltd, fgn.	Financials	Thailand	3.6	3.8
PT Astra International Tbk	Consumer Discretionary	Indonesia	3.6	3.4
VTech Holdings Ltd.	Information Technology	Hong Kong / China	3.5	3.4
MCB Bank Ltd.	Financials	Pakistan	3.0	2.9

2. Please see end of document for glossary and important information

The securities above used to calculate the NAV have been valued on a bid basis. The valuation of the assets is as at each local market close or, where appropriate, adjusted for changes in the fair value of these assets at US close.

Largest Contributors and Detractors to Performance (% contribution in GBP)

30 September 2013- 31 December 2013

Top Security Contributors²

Security	Sector	Country	Contribution (%)
Brilliance China Automotive Holdings Ltd.	Consumer Discretionary	Hong Kong / China	0.9
Tata Consultancy Services Ltd.	Information Technology	India	0.7
Mining and Metallurgical Co. Norilsk Nickel	Materials	Russia	0.2
Sesa Sterlite Ltd.	Materials	India	0.2
Infosys Technologies Ltd.	Information Technology	India	0.2

2. Please see end of document for glossary and important information

Top Security Detractors²

Security	Sector	Country	Contribution (%)
Akbank TAS	Financials	Turkey	-0.6
Kasikornbank Public Co. Ltd, fgn.	Financials	Thailand	-0.4
Banco Bradesco SA, ADR, pfd.	Financials	Brazil	-0.4
Siam Commercial Bank Public Co. Ltd, fgn.	Financials	Thailand	-0.4
Dairy Farm International Holdings Ltd.	Consumer Staples	Hong Kong / China	-0.3

2. Please see end of document for glossary and important information

Performance Attribution for the period 1 October 2013 to 31 December 2013

Leading stocks contributing to performance, relative to the benchmark MSCI Emerging Markets Index, included overweight positions in Brilliance China Automotive, and Indian companies, Tata Consultancy Services and Sesa Sterlite. In terms of sectors, stock selection in information technology was the largest contributor. An overweight exposure to the consumer discretionaries sector also had a positive impact. Geographically, good stock selection and overweight positions in India and China were the largest contributors.

In contrast, major stock detractors included overweight positions in Akbank in Turkey, and Thai banks, Kasikornbank and Siam Commercial Bank. In terms of sectors, holdings in financials, energy, and consumer staples resulted in negative attribution effects. In terms of markets, Thailand, Brazil and Turkey were the biggest detractors.

Investment portfolio updates

Purchases

TEMIT undertook purchases in five existing holdings for a total consideration of £19.9 million during the quarter to 31 December 2013.

Compania De Minas Buenaventura SA (existing holding) is the largest precious metals company in Peru and a major holder of mining rights in the country. This company is a beneficiary of the strong growth in demand in emerging markets and of the long-term uptrend in commodity prices. 

Oil & Natural Gas Corp. Ltd. (existing holding) is India's dominant player in the Indian upstream sector, with leading market shares in the country's oil and gas production. Trading at attractive valuations, the company is well positioned to benefit from the growing energy demand of a major emerging market economy.

OAO TMK (existing holding) is one of the world's leading manufacturers of value-added pipe products for the oil and gas industry based in Russia. Its undemanding valuations and attractive growth prospects lead us to maintain a positive view on the company.

PT Astra International Tbk (existing holding) is one of the market leaders in Indonesia's motor vehicle industry, with alliances with manufacturers such as Toyota, Honda, Peugeot, BMW, Isuzu and Daihatsu. The company is well placed to benefit from growing consumer demand and higher disposable income in Indonesia.

Anglo American PLC (existing holding) is one of the largest diversified mining companies in the world. This company is a beneficiary of the strong demand growth in emerging markets and the long-term uptrend in commodity prices. 

Sales

TEMIT undertook sales in two holdings for a total consideration of £75.2 million during the quarter to 31 December 2013.

Brilliance China Automotive Ltd. (partial sale) is a major automobile manufacturer in China with a joint venture with BMW for the production and sale of BMW 3-series and 5-series in China. The Investment Manager is still positive on the stock and it remains TEMIT's largest holding.The Investment Manager trimmed their holdings in Brilliance China Automotive to realise gains following a strong run in the share price in the latter part of 2013.

MOL Hungarian Oil and Gas Nyrt. (complete disposal) holdings were disposed of to raise funds for other investment opportunities, allowing the Company to realise gains.

Portfolio Turnover Rate³

Year to 31 December 2013

	Turnover Rate (%)
Portfolio Turnover Rate (annualised)	15.5

3. Please see end of document for glossary and important information

Market Capitalisation Breakdown (%)³

As at 31 December 2013

	Less than £1.5bn	£1.5bn to £5bn	Greater than £5bn	Liquid Net Assets**
Market Capitalisation	62.0	29.0	4.9	4.1

3. Please see end of document for glossary and important information

Split Between Markets⁴

31 December 2013

% Split
Emerging Markets	91.5	Frontier Markets	3.2	Developed Markets*	1.2	Liquid Net Assets**	4.1

4. Please see end of document for glossary and important information

*Developed markets exposure represented by Austria

**Liquid Net Assets are the result of sales proceeds awaiting reinvestment

Sector Information                                                                                

Sector Weightings vs. Benchmark (%)⁴                                                                 Sector Overweights/Underweights vs. Benchmark (%)⁴

As at 31 December 2013                                                        As at 31 December 2013

Sector	TEMIT (%)	MSCI Emerging Markets Index (%)		Sector	Over Benchmark (%)	Under Benchmark (%)
Financials	25.0	26.9		Energy	8.5
Energy	19.8	11.2		Consumer Discretionary	7.9
Consumer Discretionary	16.8	8.9		Materials	4.1
Materials	13.8	9.7		Telecommunications Services		-7.4
Information Technology	11.1	15.8		Information Technology		-4.7
Consumer Staples	6.4	8.6		Industrials		-3.5
Industrials	3.0	6.5		Utilities		-3.3
Healthcare	-	1.7		Consumer Staples		-2.2
Telecommunications Services	-	7.4		Financial		-1.9
Utilities	-	3.3		Healthcare		-1.7

4. Please see end of document for glossary and important information

Largest Contributors and Detractors to Performance⁵ (% contribution in GBP)

30 September 2013- 31 December 2013

Top Sector Contributors                                                      Top Sector Detractors          

Sector	Contribution (%)		Sector	Contribution (%)
Information Technology	0.8		Financials	-2.4
Consumer Discretionary	0.8		Energy	-1.0
Industrials	0.1		Consumer Staples	-0.4

5. Please see end of document for glossary and important information

Geographic Information

10 Largest Country Weightings vs. Benchmark (%)⁴                                   Regional Weightings vs. Benchmark (%)⁴

As at 31 December 2013                                                            As at 31 December 2013

Country	TEMIT (%)	MSCI Emerging Markets Index (%)		Region	TEMIT (%)	MSCI Emerging Markets Index (%)
Hong Kong / China	27.0	19.8		Asia	65.0	63.0
Brazil	13.2	10.7		L. America/Caribbean	17.1	19.1
India	12.0	6.3		Europe	11.2	10.3
Thailand	11.8	2.1		Mid-East/Africa	2.6	7.6
Indonesia	6.4	2.2
Turkey	4.9	1.5
Russia	4.8	6.1
South Korea	4.5	16.1
Pakistan	3.2	-
South Africa	2.5	7.4

4. Please see end of document for glossary and important information

Largest Contributor and Detractors to Performance⁵ (% contribution in GBP)

30 September 2013- 31 December 2013

Top Country Contributors                     Top Country Detractors

Country	Contribution (%)		Country	Contribution (%)
India	1.3		Thailand	-1.6
Hong Kong / China	0.4		Brazil	-0.9
Pakistan	0.1		Turkey	-0.7
Russia	0.1		Indonesia	-0.3
Poland	0.1		South Africa	-0.2

5. Please see end of document for glossary and important information

Statistics⁶

Fundamental Portfolio Characteristics⁶

31 December 2013

	Price to Earnings	Price to Book Value	Price to Cash Flow	Dividend Yield	Average Market Cap (Millions)
TEMIT (Weighted Average)	11.3x	1.5x	7.5x	2.8%	£17,034
MSCI Emerging Markets Index (Weighted Average)	10.1x	1.5x	6.2x	2.4%	£26,913

6. Please see end of document for glossary and important information

Risk Statistics - TEMIT Market Value Total Return vs MSCI Emerging Markets Index⁷ (in GBP)

31 December 2013

Risk Statistics	1 Year	3 Years (annualised)		Risk Statistics	1 Year	3 Years (annualised)		Risk Statistics	1 Year	3 Years
Alpha	-2.17	-2.50		R2	96.94	90.07		Maximum Gain	12.44	29.32
Beta	1.51	1.14		Sharpe Ratio	-0.51	-0.39		Maximum Loss	-19.33	-22.87
Annualised Downside Risk	5.41	4.81		Annualised Tracking Error	6.80	6.30		Negative Months	7	18
Information Ratio (Relative)	0.70	0.52		Annualised Volatility	18.07	18.78		Positive Months	5	18

7. Please see end of document for glossary and important information

Investment Style

•     The Investment Manager and his group use in-depth company research to find securities in any emerging market country or industry sector, regardless of company size, that they believe are undervalued by the market, but have the potential to increase in value over time.

•     TEMIT is actively managed, aiming to invest in those securities that the Investment Manager believes have the best potential to grow in value over a five year period. Although performance is measured against the MSCI Emerging Markets Index for reporting purposes, there is no requirement for the Investment Manager to invest in the same companies or in the same amount as the index. TEMIT's performance or portfolio positioning may therefore be very different to the Index.

•     TEMIT invests in emerging markets; these markets can experience significant and sudden changes in price and can carry a higher degree of risk than developed markets. An investment in TEMIT should be considered as long-term.

The Investment Manager takes a long-term investment view, evaluating a company's potential for earnings and growth over a five-year horizon. The investment process includes continual in-person company visits and extensive fundamental research to model a company's potential future earnings, cash flow and asset value relative to its stock price, reviewing the portfolio's stock selection and risk management on an on-going basis. 

Investment Manager and Group

Mark Mobius, Ph.D., Executive Chairman, Templeton Emerging Markets Group.

The Templeton Emerging Markets Group is one of the pioneers of emerging market investing. Established in 1987, the Group has over 25 years of experience and now manages £28.5 billion in emerging markets assets for retail, institutional and professional investors across the globe (as at 31/12/13).

The Templeton Emerging Markets Group is one of the largest of its kind and has a presence in 18 offices around the world.

The Group includes 52 dedicated emerging markets portfolio managers, analysts and product specialists; senior members of the Group include Allan Lam, Carlos Graf Von Hardenberg and Chetan Sehgal. Together on average, each of the Group's investment professionals has over 13 years of relevant industry experience, and has been with the company for over 10 years. Between them, the group speak 27 different languages (as at 31/12/13).

Investor Suitability

TEMIT may be appropriate for investors who want to invest in emerging markets and are willing to take some risk for the potential of strong capital growth over the long-term.

Emerging market companies can be more volatile than developed markets and an investment in TEMIT could occasionally change in value significantly over the short-term. Shareholders in TEMIT should therefore consider it as a long-term financial commitment.

Please refer to the latest annual report for more details of the risks associated with an investment in TEMIT.

COMPANY NEWS AND OTHER INFORMATION

Share Buy Backs

During the period, the Company bought back and cancelled 1,046,000 shares which amount to 0.3% of the issued share capital for a total consideration of £5,806,000.

Communication with shareholders

In addition to the Interim Report which was sent to investors in November, the Company has continued its efforts to keep shareholders informed about their investment in TEMIT. On a monthly basis, a factsheet and an investment commentary are posted to the Company's website - www.temit.co.uk and a link is emailed to all subscribers to the TEMIT email service. The interim management statement for the end of June was released to the London Stock Exchange on 29 July 2013 and, posted to the TEMIT website. A link to the report was also sent to those who have subscribed to the Company's email service. The website is also updated daily with the latest Stock Exchange announcements, share prices and any Company news.

Other than described above, the Board is not aware of any events during the period from 1 October 2013 to the date of this statement which would have had a material impact on the financial position of the Company.

This interim management statement has been produced solely to provide additional information to shareholders of the Company to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purposes. In addition, the views, information and data in this publication should not be deemed as a financial promotion or recommendation.

Issued on behalf of the Board
Sara A MacIntosh
for and behalf of Franklin Templeton Investment Management Limited
Secretary

Date: 13 February 2014

End of interim management statement

For further information please contact Client Dealer Services at Franklin Templeton Investment Management Limited on UK freephone 0800 305 306 or [phone] for overseas investors.

GLOSSARY OF TERMS

Alpha - Alpha measures the difference between a portfolio's actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha means that the portfolio has over performed, a negative alpha means the portfolio has underperformed; for example, an alpha of 1.0 means the portfolio outperformed the market 1.0% (On a Risk adjusted basis).

Beta - Beta is a measure of a portfolio's sensitivity to market movements. It measures the relationship between a portfolio's excess return over an investment in a risk-free investment such as cash and the excess return of the benchmark index. For TEMIT, this is the MSCI Emerging Markets Index. By definition, the beta of the benchmark (in this case, an index) is 1.00. Accordingly, a portfolio with a 1.10 beta has performed 10% better (after deducting the cash rate) than the index in up markets and 10% worse in down markets, assuming all other factors remain constant. A portfolio with a high beta will tend to move more than the benchmark, a portfolio with a low beta will tend to move less.

Contributor -The amount an individual stock, country or sector has added to the performance of the entire portfolio for a given period.

Cumulative Performance -The percentage increase or decrease of a portfolio's share price or NAV over a given time period, with net income (dividends) reinvested. The fund's performance is usually benchmarked against either a relevant index or sector.

Detractor - The amount an individual stock, country or sector has subtracted from the performance of the entire portfolio for a given period.

Discrete Annual Performance -The percentage increase or decrease of a portfolio's share price or NAV over a complete 12 month period, with net income (dividends) reinvested. The fund's performance is usually benchmarked against either a relevant index or sector.

Dividend Yield - The yield a company pays out to its shareholders in the form of dividends. It is calculated by the dividends paid per share over a year divided by the stock's price. For a vehicle like TEMIT, which invests in a number of companies, this figure represents the weighted average annual dividend paid by all of the companies in which it invests. Because of share types, fees and other considerations, the dividend yield quoted here should not be used as an indication of the income to be received from this portfolio.

Downside Risk - Downside risk is shown as the semi-deviation of monthly return below the target return, which has been set as the monthly benchmark return.

Gearing - Gearing (sometimes described as leverage) - a term used to describe the process of borrowing money for investment purposes in the expectation that the returns on the investments purchased using the borrowings exceeds the costs of those borrowings. It illustrates the effect that current prior charges may have on the value of the shareholder funds if the total assets were to rise or fall. A figure of 115 means that the shareholder funds are 15% geared and indicates the extra amount by which the shareholder funds would rise or fall if the total assets were to rise or fall. A figure of 100 means there is no gearing.

Information Ratio - The Information Ratio represents the excess of the annualised portfolio return over the annualised benchmark return, divided by the Tracking Error, or standard deviation of excess monthly return.

Market Capitalisation - The total market value of a company's shares. For a vehicle like TEMIT, which invests in a number of companies, this is calculated by the share price on a certain date multiplied by the number of shares in issue.

Market Cap (average) - The weighted average of all the companies in which it invests.

MSCI Emerging Markets Index ("MSCI") - The MSCI is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets

NAV - Net Asset Value, or the total value of the portfolio at any one time, including all shares and cash, divided by the number of shares in issue.

Ongoing Charges Ratio ("OCR") - From the year ending 31 March 2012, the Ongoing Charges Ratio ("OCR") replaces the Total Expense Ratio. Prior year numbers have not been restated as the ratios are not materially different. The OCR represents the annualised ongoing charges of the Company divided by the average daily net asset values of the Company for the year, and has been prepared in accordance with the AIC's recommended methodology.

Portfolio Turnover Rate- The frequency with which assets within a portfolio are bought and sold by the manager. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold - whichever is less - over a particular period, divided by the total Net Asset Value (NAV) of the portfolio. The measurement for a 12-month time period.  

Price to Book (P/B) - The price per share of a stock divided by its book value (i.e. net worth) per share. For a portfolio, the ratio is the weighted harmonic average price/book ratio of the stocks it holds.

Price to Cash Flow (P/CF)- Supplements price/earnings ratio as a measure of relative value; it represents a weighted harmonic average of the price/cash flow ratios for the underlying portfolio holdings.

Price to Earnings (P/E) - The share price of a stock, divided by its per-share earnings over the past year. For a portfolio, it is the weighted harmonic average P/E ratio of the stocks in the portfolio. P/E is a good indicator of market expectations about a company's prospects; the higher the P/E, the greater the expectations for a company's future growth in earnings.

R² - R² or R squared, is an indication of how closely aligned the portfolio and the benchmark index are. R² ranges between 0 and 1, with 0 indicating a lot of difference and 1 indicating a perfect match. A value of 0.7 and upwards generally suggests that a portfolio's performance is very closely linked to the performance of the benchmark index.

Share Price - The cost of a unit of ownership in a company as purchased through the stock exchange.

Sharpe Ratio - Sharpe Ratio judges whether the relationship between a portfolio's risk and its return is good or bad. The underlying assumption is that a portfolio manager could invest in a riskless asset (such as cash), therefore the return of the risk free asset is deducted from the annualised average return. This net return is then divided by the total risk (annualised volatility). The higher the ratio the better the return for investors for the risk taken.

Total Net Assets - The total value of a company's shares. For a vehicle like TEMIT, which invests in a number of companies, this is calculated by the Net Asset Value (NAV) on a certain date multiplied by the number of shares in issue.

Tracking Error - Tracking Error measures the volatility of the portfolio's excess return relative to the benchmark index. The lower the tracking error of the portfolio, the more it resembles the benchmark in terms of risk and return characteristics.

Trust - A Trust, or Investment Trust, is a closed ended vehicle investing in a wide variety of underlying investments. Investment Trusts are traded in exactly the same way as any other equity on the London Stock Exchange. The price at which they are traded (share price) depends on the demand for the shares in the investment trust and is often at a variance with the value of their underlying holdings (or NAV).

Volatility - This is a statistical measure of the amount of movement in the price of a share or portfolio over a given period of time. If a portfolio's share price hardly moves over time, it is said to have a low volatility. Volatility is a simple measure of the consistency of returns

IMPORTANT INFORMATION

1.     Source for NAV Performance: Franklin Templeton Investments as at 31/12/13. NAV Performance is calculated NAV-NAV, GBP, net of fund management fees. Source of Share price ©Morningstar as at 31/12/13. Benchmark returns are sourced from FactSet Research Systems Inc. Past performance is not a guide to future performance. Emerging markets can carry a higher degree of risk than developed markets.

2.     For the "10 Largest Equity Issuers", please note that top ten equity holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. Holdings of the same issuers have been combined. The information provided is not a recommendation to purchase, sell, or hold any particular security. The securities identified do not represent TEMIT's entire holdings and in the aggregate may represent only a small percentage of such holdings. There is no assurance that securities purchased will remain in TEMIT, or that securities sold will not be repurchased.In addition, it should not be assumed that any securities mentioned were or will prove to be profitable. Stocks mentioned in this report are not a solicitation to purchase those stocks, and are for example purposes only.
The portfolio manager for TEMIT reserves the right to withhold release of information with respect to holdings that would otherwise be included in a top 10 holdings list.
"Top Security Contributors" and "Top Security Detractors" are holdings based on the last 3 months period and are calculated gross of investment management fees. These securities do not represent all the securities purchased, sold or recommended, and the reader should not assume that investment in the security listed was or will be profitable. Holdings are subject to change, holdings of the same issuer have been combined. The information provided is not a recommendation to purchase, sell or hold any particular security.
Source for "Top Security Contributors" and "Top Security Detractors": FactSet Research System, Inc. three months as at 31/12/13. Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined.

3.     Source for "Portfolio Turnover Rate" Franklin Templeton Investments as at 31/12/13. Source for MarketCapitalisationbreakdown: FactSet Research System, Inc

4.     Source for the Company's "Split Between Markets", "Geographic Information" and "Sector Information": FactSet Research System, Inc as at 31/12/13. Holdings of the same issuer have been combined. Weightings as percent of total. Source for the benchmark's "Geographic Information" and "Sector Information", MSCI, as at 31/12/13. Geographic split between "Emerging Markets", "Frontier Markets" and "Other" are as per MSCI index classifications. The MSCI Index, the primary benchmark for TEMIT, is an equity index calculated by Morgan Stanley Capital International (MSCI). The index measures the total return (gross dividends are reinvested) of equity securities available to foreign (nonlocal) investors in the relevant geographic region as reflected in the name of the index or as defined by MSCI. Securities included in the index are weighted according to their Free Float adjusted marketcapitalisation(Price*Shares outstanding*Foreign Inclusion Factor). Percentage may not equal 100% due to rounding.

5.     Source for Country and Sector "Largest Contributors and Detractors to Performance", FactSet Research System, Inc. as at 31/12/13. Profile data is calculated as a percentage of total. Holdings of the same issuer have been combined.

6.     Source for "Fundamental Portfolio Characteristics": FactSet Research System, Inc. as at 31/12/13. The Price to Earnings, Price to Cash Flow and Price to Book Value calculations shown herein use harmonic means. Market capitalisation statistics are indicated in the base currency for the portfolio presented.

7.     Source for "Risk Statistics": FactSet Research System, Inc as at 31/12/13. Total return, annualised ratios (31/12/13). Risk free rate used is the UK 3 Month T-bill rate.

Copyright © 2013 Franklin Templeton Investments. All rights reserved.

© 2013 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

All MSCI data is provided "as is." The portfolio described herein is not sponsored or endorsed 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 portfolio described herein. Copying or redistributing the MSCI data is strictly prohibited.

The price of shares in TEMIT and income from them can go down as well as up and you may not get back the full amount that you invested.  Past performance is not a guide to future performance. Currency fluctuations will affect the value of overseas investments. When investing in a fund denominated in a currency other than sterling, your performance may also be affected by currency fluctuations. In emerging markets, the risks can be greater than in developed markets. TEMIT primarily invests in equities, which may result in the returns being more volatile than other investments such as cash or bonds.

This document does not constitute or form part of an offer for shares or an invitation to apply for shares. An investment in TEMIT entails risks which are described in the current Annual Report document. Please consult your professional adviser before deciding to invest. Performance figures are not based on audited financial statements and, unless indicated otherwise, assume reinvestment of interest and dividends. Data from third party sources may have been used in its preparation and Franklin Templeton Investments has not independently verified, validated or audited such data. A copy of the latest annual report and semi-annual report, if published thereafter can be obtained, free of charge, from Franklin Templeton Investments, The Adelphi,
1-11 John Adam Street, London, WC2N 6HT.

References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. The indices include a greater number of securities than those held in the portfolio.

Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security's issuing company. This methodology may cause small differences between portfolio's reported characteristics and the portfolio's actual characteristics. In practice, Franklin Templeton's portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalisationfigures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. The dividend yield quoted here should not be used as an indication of the income to be received from this portfolio.

When comparing the performance of TEMIT with the benchmark index, it is important to note that the securities in which TEMIT invests may be substantially different than those represented by the benchmark index. Furthermore, an investment in TEMIT represents an investment in a managed investment company in which certain charges and expenses, including management fees, are applicable. These charges and expenses are not applicable to indices. Lastly, please note that indices are unmanaged and are not available for direct investment. Certain data and other information shown have been supplied by outside sources. While we consider that information to be reliable, we give no assurance that such data and information is accurate or complete.

For more information, UK investors should contact: Franklin Templeton Investments, The Adelphi, 1-11 John Adam Street, London WC2N 6HT.  Telephone: [phone], Email: [e-mail]. Issued by Franklin Templeton Investment Management Limited (FTIML). FTIML is authorised and regulated by the Financial Conduct Authority.

 

END

 

 

IMSGMGMZVFLGDZM