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Franklin US Opportunities A(acc)RMB-H1

Analyst Report
Morningstar's Take
|13/05/2019

by Fatima Khizou
*  This rating and report were issued for a different share class of this fund. The performance and fee structure of this class may vary from that referenced.


Our lower conviction in the strategy’s investment process and poor showing over various periods sees us drop its Morningstar Analyst Rating to Neutral from Bronze. Grant Bowers, who has over 20 years of investment experience, manages this strategy. Bowers took the helm in March 2007 and has been a Franklin Templeton employee since 1993. He benefits from the support of deputy manager Sara Araghi, who was appointed to the role in May 2016, and a deep and broad equity analyst team whose members operate as industry specialists and average 13 years of firm tenure. The investment approach is typical of a growth strategy, with the manager targeting firms that will generate sustainable long-term earnings growth--emphasising those with solid balance sheets, barriers to entry, and strong management. The mandate allows Bowers to invest across the market-cap spectrum, with exposure to smaller-cap companies varying depending on the opportunities, as well as a degree of flexibility, with share price valuations being allowed to run. This is evident in the strategy’s price multiples, which have remained steadfastly higher than the benchmark and typical peer. This approach has consistently been applied under Bowers’ watch and has led to elevated volatility and downside capture levels relative to the benchmark without compensating investors for the increased risk. Since Grant Bowers took charge in March 2007 through April 2019, the strategy’s annualised gain of 10.2% beats that of the flex-cap category but lags that of the Russell 3000 Growth Index. Relative to the latter comparator, the strategy’s returns also trailed over one, three, five, and 10 years, including on a risk-adjusted basis. The outcome achieved by the strategy is disappointing, particularly given that growth investing has been in favour for the past 11 years. A combination of poor stock-picking and underestimation of risk in some segments of the market explains a large part of the strategy’s underperformance relative to the index. Furthermore, the team has, at times, shown that it has held on to names to the strategy’s detriment, raising questions around its sell discipline.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleSupporting Player. The strategy has exposure to high-growth stocks and a mid-cap bias.
Morningstar Pillars
PeoplePositive
A seasoned manager backed by a deep and broad analyst bench.
ParentNeutral
Changes afoot.
ProcessNeutral
A consistent inability to add value beyond a strong style bias lowers our view on Process to neutral.
PerformanceNeutral
Weaker results relative to its comparative benchmark lead to a neutral view on Performance.
PriceNeutral
Average expenses.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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In order to provide consistency across the report data provided by different Asset Managers, the calculated data points presented are generated using Morningstar’s proprietary calculation methodology which is set out in more detail at(https://www.morningstar.com/research/signature)

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