Asset Allocation & Portfolio performance TEMPLETON GROWTH FUND Asset Allocation & Portfolio performance By: Matthew Moriarty Brian Polcar Nick Thomas

Templeton Growth Fund Goal: Investing in World Markets Long term capital appreciation by investing in global equities Investing in World Markets 3 Principals: Bargain Hunting Worldwide Diversification Long-tern Investors

International performance analysis (ipa) Measure of the return on a portfolio or segment Performance benchmark measure MSCI World Index Risk Analysis Measure of Total Risk SD of its rate of return

International Portfolio Management and Performance Evaluation Optimal Portfolio? Portfolio Composition Evaluation Factors: Risk and Return: MSCI Indexes RVAR Beta Templeton's portfolio is not optimal because it weights the investments such that those countries that have a RVOL < Ci are included in the portfolio.

Internationally Diversified Portfolio Construction Countries to Invest in & Allocation Amounts: Portfolio Statistics: RVAR 0.557273 Beta 1.01047 RVOL 0.135764 Country Weight Denmark 0.382867 Turkey 0.056033 Brazil 0.081745 Switzerland 0.235753 Russia 0.035359 India 0.048605 Sweden 0.109885 Singapore 0.027571 Japan 0.02218

Cap and Floor Restrictions Try to minimize effects on the asset allocation of measurement error in ex-post returns Cap 6.0% for each foreign market & Floor 45% the U.S. Optimally Constrained Portfolio Optimally Constrained Portfolio Stats: RVAR 0.497981 Beta 1.060313 RVOL 0.108181 Country Denmark (1) Turkey (1) Brazil (1) Switzerland (3) Russia (1) India (1) Sweden (2) Singapore (3) Japan (3) U.S. (30)

Performance Comparison Capped portfolio has a lower RVAR attributed to the increase in standard deviation due to inclusion of the domestic market. Suggesting the return will have a higher probability of deviating from the expected value Systematic risk is different due to the RVOL for the capped portfolio being lower. RVOL deviation due to the change in weighted beta value which increases slightly for capped portfolio Invest where RVOL > Ci Optimal Portfolio Capped Portfolio MSCI World MSCI USA Templeton RVOL 0.135764 0.108181 0.074928 0.087101 0.083733 RVAR 0.557273 0.497981 0.505273 0.518813 0.420687 β 1.01047 1.060313 0.998188 0.909785 0.991174

Out-of-Sample Performance Comparison Due to poor market performance in 2016, portfolios did not do as well as in the past. RVOL & RVAR of capped portfolio outperformed the optimal portfolio because returns in the optimal portfolio had a larger weight in markets affected. Optimal Portfolio Capped Portfolio RVOL -0.06048 0.066437 RVAR -0.29613 0.338352 β 1.01047 1.060313