ANNUAL REPORT - Franklin Templeton Investments

10.01.2015 Views
Templeton Growth Fund, Ltd. MESSAGE TO INVESTORS Dear Investor, I am pleased to present the Annual Report for Templeton Growth Fund, Ltd., containing the audited financial statements for the fiscal year ended April 30, 2013. As we look back at the last 12 months in global equity investing, it is interesting to see how things have changed in just one year. In particular, I am reminded of a sage quotation from the founder of this Fund, Sir John Templeton: People do not remain pessimistic forever. Sir John was not one to try to predict the future. However, I cannot help but think that when he was making his pronouncement, he was imagining a scenario like that of the past fiscal year. Almost 12 months ago, we were in the middle of period of less-than-encouraging market volatility worldwide, chiefly driven by the emotional reactions to economic turmoil in Europe. If we fast forward to 12 months later, economic worries in Europe flared up once again, sparked by events in Cyprus and Italy. Yet, markets behaved in a different manner in 2013. While there was some market reaction, it was mainly centred in Europe and was relatively measured. European markets and, especially, other global stock indices exhibited resilience to these short-term concerns. Instead, investors seemed more focused on improving US economic data, signals of supportive central bank policies worldwide and the fundamental strength of individual companies and their stocks. If markets are moving away from the more reactionary and impulse-driven markets of one year ago, that could be quite a meaningful shift for investors in bottom-up strategies. Accordingly, I encourage you to read the following annual report and message to shareholders, as they can give you a good idea of how your investments in this Fund are positioned in this changed environment. Thank you for your continued investment, and I wish you and your loved ones all the best this year. Sincerely, Donald F. Reed President and Chief Executive Officer Templeton Growth Fund, Ltd. Templeton Growth Fund, Ltd. 1

Templeton Growth Fund, Ltd. MESSAGE TO SHAREHOLDERS Dear Shareholder, For the fiscal year in review the Fund delivered solid double-digit absolute returns on the back of strong stock selection across numerous regions and sectors. In our opinion, the positive impact of stock selection, as opposed to allocations or weightings, on performance highlights the advantages of our bottom-up, value-oriented investment process. While isolated stock-level weakness in a handful of sectors offset some of the relative gains found elsewhere, the overall trend during the period was one of value recognition as some of our longest-held convictions captured the bulk of relative outperformance. This was particularly notable in light of a challenging market environment. While conditions appeared to improve as the period progressed, the market still exhibited characteristics adverse to our style of investment. For example, investors preferred the perceived safety of bonds to equities during the review period, and stock market correlations—the degree to which stocks move in unison—reached record highs as equities were viewed less for their fundamentals and more as proxies for overall risk appetite. Risk appetite continued to fluctuate broadly as investor focus swung between optimism from aggressive central bank stimulus and corporate earnings strength on the one hand, and skepticism stemming from anemic economic growth, political dysfunction and fiscal imbalances on the other. Stocks entered the annual period on a weak note as a political backlash against austerity shook confidence in European stability. However, European Central Bank President Mario Draghi’s promise to do “whatever it takes” to preserve the euro restored order over the summer of 2012. Equities experienced another bout of weakness in the fall of 2012 as Hurricane Sandy ravaged the US east coast and countries representing over 50% of global gross domestic product (GDP)—including the United States, China and Japan—all underwent political election or transition cycles. Ultimately, central bank vigilance and continued corporate earnings strength combined to sustain the global equity rally through the winter and spring of 2013. The main feature of the stock market rally in these final months was its growing defensiveness. Counter-cyclical sectors like Health Care, Utilities and Consumer Staples attracted the lion’s share of investor attention. However, we view the outperformance of some our highest conviction holdings, in a market still largely in the thrall of macroeconomic trends, as an encouraging sign. In short, if our “bottom-up” investment theses can gain traction in a market still dominated by “top-down” macroeconomic forces, we remain optimistic about the portfolio’s long-term potential once the market eventually reverts back to its traditional role as value arbiter. Our investment theses that have begun to materialize span both cyclical and defensive sectors. Consumer Discretionary and Information Technology stocks led Fund returns: while these traditionally cyclical sectors were the Fund’s biggest relative overweights during the period, outperformance had little to do with allocation. Stock selection, in fact, was the performance driver. Our long-held belief that select US media companies—including cable operators like Comcast Corp. and production studios like News Corp.—would benefit from the growing demand for premium content and high-capacity broadband access came to fruition as these companies exceeded earnings expectations and rose to record levels. In Information Technology, our belief that corporate customers in uncertain times would prioritize productivity—enhancing expenditures over capacityenhancing spending also materialized, much to the benefit of firms like Accenture PLC and SAP AG. We also reaped the benefits of our contrarian Health Care sector holdings during the fiscal year and continue to diversify into undervalued biotechnology, specialty pharmaceutical and medical technology firms with attractive growth prospects. In contrast, isolated weakness among overweighted Energy holdings and even-weighted Financials and Industrials stocks detracted. Here too, we maintain a high degree of confidence in our convictions. Our integrated oil holdings are in companies positioned for above-average production growth, while our oilfield services holdings should benefit from rising demand for technical expertise in extracting hydrocarbons from challenging locations. In Financials, we expect our banks and insurers to benefit as aggressive restructuring and fundamental repair restore normalized levels of profitability to the industry. Finally, our Industrials positions offer cyclical leverage and yield opportunity at significantly more attractive valuations than those found in other economically-sensitive sectors, like Materials. 2 Templeton Growth Fund, Ltd.

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