Inside Investor Relations – Volume 18 Foreign institutional investor series – Franklin Templeton Investments

Source: Franklin Templeton Investments

For any listed company and its IRO, knowing who the investors are, their investment strategies and styles are crucial for investors targeting or preparing for an effective investor meeting. In this new Inside Investor Relations series, we will take a closer look at some of the major foreign institutional investors that have been investing in Taiwan.

Founded in 1947 in New York by Rupert H. Johnson, Franklin Resources, or Franklin Templeton Investments is a global investment company. Rupert had been running a successful retail brokerage company at Wall Street. He praised American polymath Benjamin Franklin for his frugality and prudent investment, so Rupert named his company “Benjamin Franklin”. This company’s first series of mutual funds were composed by several conservative Equity/Fixed income funds which targeted retail investors. In 1986, the company began to be traded on the NYSE with the stock code "BEN". In the same year, it expanded its business overseas and opened its first office outside North America in Taiwan.

Franklin carried out a series of acquisitions in the 1990s. In 1992, the company reached an agreement with Sir John Templeton, a well-known global investor, to acquire Templeton, Galbraith & Hansberger Ltd. for US$440 million. After that, the company was renamed Franklin Templeton. Templeton brought Franklin a series of global equity funds and the professional knowledge of Dr. Mark Mobius, who specializes in emerging markets. After leading Templeton Emerging Markets Group for 25 years, Dr. Mobius announced his retirement from Franklin Templeton in 2018.

In July 2020, Franklin Templeton acquired Legg Mason and its professional subsidiaries for US$4.5 billion. After the acquisition, Franklin Templeton became one of the world’s largest independent and specialized asset management companies, with US$1.4 trillion dollars of assets under management. After the merger, Franklin Templeton's position in the market was further strengthened, while a broader investment platform was created to maintain a balance between institutional/retail investor management.

Frank Templeton’s Investment Philosophy

Franklin Templeton Investments Equity Fund invests in high-quality companies with long-term sustainable growth potential, combined with rigorous "bottom-up" fundamental research. Templeton's investment philosophy is built upon nothing but in search of "undervalued/cheap stocks" and "globalized investments", and they always buy stocks when people are in panic or when the share prices are severely undervalued.

As a result, Templeton tend to look beyond short-term news, noise, and emotion. Their goal is to identify those companies that appear to be trading at a discount to what estimation indicates as their project future intrinsic value, which over time, may produce strong share price return. They seek to reduce portfolio turnover, as a result, their holding period of particular stock can be multi-years.

Franklin Templeton’s investment team seek to identify value through rigorous fundamental analysis, proprietary screens, and a worldwide network of experienced research resources. Research is done a company-by-company basis in different countries and industries to determine what they consider is economic worth to be based on projected future earnings, cashflow, asset value potential, and material environmental, social and governance (ESG) factors.

Templeton’s Investment Process

Source: Templeton Investments

In Templeton, the research process begins with the Master List - a proprietary database of approximately 25,000 emerging markets companies. That analysts with primary country or sector responsibilities, are responsible to narrow the list down to a smaller group of stocks (normally 1,500-2,000 companies) that warrant an in-depth fundamental analysis that are further narrowed down to a group of a viable Action List candidates. Companies in the Action List will then go through a rigorous peer review process that are discussed and debated among research team and portfolio managers. Based on the feedback from the Review Team, analysts will set their final recommendation with target prices to allow portfolio manager to choose, construct, and maintain their portfolio.

Franklin Templeton Investments’ exposure in Taiwan

According to our research, as of October 30, 2020, Franklin Templeton Group has invested in 82 listed companies in Taiwan, with a total investment of more than US$1.3 billion. The top five Taiwan-listed companies with the highest investment value are TSMC, Merida, Catcher, Novatek, and MediaTek. Among them, there are companies such as Merida, Primax, PharmaEssentia, Quang Viet, etc., for all the above companies, Franklin Templeton Group is the largest foreign shareholder.

Source: QIC Research

Templeton’s investment team that has a direct investment responsibility in Taiwan is mainly based in Hong Kong (Emerging Markets & Greater China). Although there are other investment professionals based in Singapore (Emerging Markets & Asia Small-caps), South Korea (Emerging Markets/Sectors), and Florida, USA (Global Small-Caps) that would also look at Taiwan companies. Taking Templeton Emerging Markets Smaller Companies Fund as an example, this US$452mn AUM fund has Merida Industries (9914 TT) as its largest holding (5.15%) as of Oct 31, 2020, and 19% of its fund invested in Taiwan, the second largest country only after China (20.8%), and 29% of its funds are invested in companies under US$1bn market cap.

Source: QIC Research

Source: QIC Research

In Taiwan, Franklin Templeton Securities Investment Consulting (SinoAm) was established in 2002 as a local securities investment trust company. Franklin Templeton SinoAm offers 27 funds and also has its own research team. They were previously the exclusive master agent for the Franklin Templeton Investments in offering and selling offshore funds in Taiwan. Based on public data, Franklin Templeton holds a 20% stake in Franklin Templeton SinoAm.

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