Franklin Global Allocation Fund Q2 2024 Commentary

seekingalpha08-21

Although June political developments in Europe pressured results in that region, enthusiasm about artificial intelligence helped drive collective gains in global equities during the second quarter of ...

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href=https://seekingalpha.com/article/4715941-franklin-global-allocation-fund-q2-2024-commentary><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Although June political developments in Europe pressured results in that region, enthusiasm about artificial intelligence helped drive collective gains in global equities during the second quarter of ...</p>\n\n<a href=\"https://seekingalpha.com/article/4715941-franklin-global-allocation-fund-q2-2024-commentary\">Source 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INC"},"translate_title":"富兰克林全球配置基金2024年第二季度评论","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ABBV":1,"UST":1,"RH":1,"NR":1,"HTHIY":1,"HTHIF":1,"FELE":1,"ESG":1,"AAPL":0.9,"MSFT":0.9,"NVDA":0.9,"GOOG":0.8,"US2Y.BOND":0.79,"US10Y.BOND":0.79,"US12M.BOND":0.79,"US30Y.BOND":0.79,"US3Y.BOND":0.79,"US5Y.BOND":0.79,"US6M.BOND":0.79,"US7Y.BOND":0.79,"AMZN":0.7,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6},"content_text":"Although June political developments in Europe pressured results in that region, enthusiasm about artificial intelligence helped drive collective gains in global equities during the second quarter of 2024, particularly in the United States.The key themes that underpin our analysis - constructive global growth, easing inflation risks, and the likelihood that monetary policy easing cycles will begin soon - all remain in support of our established tilt toward risk assets.In fixed income markets, yields remain attractive, in our assessment, but may already largely discount a monetary-policy pivot.   primeimages/E+ via Getty Images Performance Review  Although June political developments in Europe pressured results in that region, enthusiasm about artificial intelligence helped drive collective gains in global equities during the second quarter of 2024, particularly in the United States. Renewed optimism about an economic soft landing in many regions, an interest-rate cut in the eurozone, and investor expectations for potential rate cuts in the United Kingdom and the United States during the second half of this year also aided investor sentiment. Global manufacturing activity expanded in June for the fifth consecutive month, and flash reports for June indicated services activity expanded in many regions. In this environment, the MSCI All Country World Index of stocks returned 3.01% in US-dollar terms for the quarter. Sector performance was mixed—information technology and communication services generated the largest gains, while materials and real estate posted the biggest losses. As measured by MSCI indexes in US-dollar terms, emerging market equities outperformed a global index, while developed and frontier market equities underperformed the index. Global growth stocks significantly outperformed global value stocks. Over the period, the US Treasury (UST) yield curve—while remaining inverted—steepened somewhat as yields decreased for the shortest maturities and increased across intermediate and longer maturities. Fixed income spread sectors saw mixed absolute returns during the quarter, with many sectors recording spread widening, as financial market sentiment oscillated between caution at hawkish-leaning central bank rhetoric and relief at a resumption of the disinflationary trend in the United States. Lower-rated credits generally fared better than their higher-rated counterparts, with US and major regional high-yield bond indexes posting broadly positive absolute returns.  Quarterly Key Performance Drivers   HELPED Equities contributed to relative performance during the period, driven primarily by stock selection. From a sector perspective, an overweight position in information technology was beneficial, as were underweight exposures to consumer staples and utilities. An out-of-index position in Taiwan Semiconductor Manufacturing boosted relative results.  Selection in fixed income contributed to relative performance. The portfolio’s positions in developed market sovereign bonds, corporate fixed income and US Treasuries contributed. From a regional perspective, selection within Asia lifted relative results. Chip design firm MediaTek (OTCPK:MDTTF), industrial conglomerate Hitachi (OTCPK:HTHIY)(OTCPK:HTHIF) and human resources firm Recruit Holdings (RH) were leading contributors. Markets rewarded MediaTek, which has been positioning to expand into new markets. Investors also liked Hitachi’s solid fundamentals, and were impressed by RH’s focus on technological innovation, operational efficiency, and global expansion.  HURT Currency exposure was a leading detractor from relative performance during the period. The portfolio includes positions in non-US securities that are unhedged, as well forward contracts that hedge these exposures.  Within equities, the health care sector was a leading detractor from relative performance. A key detractor was AbbVie (ABBV). The company’s share price moved lower even though it is positioned to benefit from its acquisition of ImmunoGen (which brings a sought-after class of cancer therapies) and demand for AbbVie's newer biologic drugs. The portfolio’s underweight exposure to sovereign fixed income in emerging markets held back relative performance. From May, US dollar-denominated emerging market sovereign bonds outperformed many other fixed income markets. \nClick to enlarge Outlook & Strategy  The key themes that underpin our analysis—constructive global growth, easing inflation risks, and the likelihood that monetary policy easing cycles will begin soon—all remain in support of our established tilt toward risk assets. The growth outlook is more constructive but may already be reflected in sentiment indicators. Declining inflation and easier policy may be enough to justify the elevated valuations of equities. We believe global stocks have greater performance potential than global bonds. Sustained reductions in inflation are likely to be needed to allow policymakers to grow comfortable in delivering the pivot to lower interest rates, which markets continue to anticipate. Progress along this path has been bumpy, but the ongoing disinflationary process is more likely to support the improvement in our growth outlook, rather than see growth slow the disinflation, in our view. With a constructive view on inflation, we continue to believe that interest rates will be able to act as an offset to any economic surprise. We broadly agree with the market’s anticipated timing of the first interest-rate cuts from the US Federal Reserve (Fed), which have been pushed back toward the middle of the year. We are more optimistic about the outlook for US equities than those of most other developed market stocks, despite still-elevated US stock valuations. We retain a more constructive view on the prospects for ongoing earnings growth over the next year. Analysis of recent US economic data shows that the risks of recession are now low, and the consumer continues to exhibit remarkable momentum. We have a moderately bearish outlook for European equities. Europe faces headwinds for consumers and businesses as past ECB rate rises feed through the economy. Corporate earnings results may disappoint, as the lagged effect of wage rises starts to impact profit margins. We have increased our conviction on the Japanese market, taking a more optimistic view than we do for the Pacific ex-Japan, which remains vulnerable due to tensions with China. Japan is starting to see real-term wage gains, which may boost domestic consumption. Equity valuations remain attractive relative to other markets, in our view, even after recent gains. Our outlook for emerging markets is moderately bullish, while we are neutral on Chinese equities. Stronger long-term growth opportunities are offsetting emerging markets’ idiosyncratic risks. Property market risks in China, which have led to an easier policy environment, are holding back the economy. We retain a neutral stance to reflect growth risks, despite the valuation attractions of this market. In fixed income markets, yields remain attractive, in our assessment, but may already largely discount a monetary-policy pivot. Corporate bond spreads have tightened recently and do not fully reflect any potential default rate risk, in our view. We retain a more cautious view of bonds overall relative to stocks. We downgraded our outlook for US Treasuries, to neutral, and have diversified our greater interest-rate sensitivity away from US government bonds. We have a slightly cautious stance on investment grade bonds. The sector has benefited from ample corporate liquidity and earnings levels that make high debt loads more sustainable. At recent elevated yield levels, this market was more attractive to some investors, driving spreads lower. Corporate earnings have supported the fundamental attractions of high-yield bonds. Despite a more optimistic growth outlook, we maintain a modestly cautious stance due to stretched valuations.  Fund Details   Inception Date 08/15/2003   Benchmark  Blended Benchmark MSCI All Country World Index-NR   \nClick to enlarge Fund Description The fund seeks the highest level of long-term total return that is consistent with an acceptable level of risk by investing in a diversified portfolio of debt and equity securities and, to a lesser extent, alternative strategies. The fund may shift its investments from one asset class to another based on the investment manager’s analysis of the best opportunities for the fund’s portfolio in a given market. Under normal market conditions, at least 40% of the fund’s net assets are invested in non-US investments, including in emerging markets. Performance Data1 Average Annual Total Returns2 (%) at NAV     1 Mth 3 Mths 1 Year 3 Year 5 Year 10 Year Since Inception Inception Date   Advisor Class - With Sales Chargesa 1.83 2.10 15.48 4.57 5.76 4.30 6.30 08/15/2003   Advisor Class - Without Sales Chargesa 1.83 2.10 15.48 4.57 5.76 4.30 6.30 08/15/2003   Class A - With Sales Chargesa -3.77 -3.59 8.83 2.36 4.30 3.44 5.73 08/15/2003   Class A - Without Sales Chargesa 1.81 2.01 15.19 4.30 5.50 4.03 6.01 08/15/2003   Blended Benchmark 1.64 1.92 13.46 3.32 6.99 6.05 6.62 -   MSCI All Country World Index-NR 2.23 2.87 19.38 5.43 10.75 8.43 8.57 -   Performance data quoted represents past performance, which does not guarantee future results. Current performance may be lower or higher than the figures shown. Principal value and investment returns will fluctuate, and investors’ shares, when redeemed, may be worth more or less than the original cost. Performance would have been lower if fees had not been waived in various periods. Total returns assume the reinvestment of all distributions and the deduction of all fund expenses. Returns for periods of less than one year are not annualized. All classes of shares may not be available to all investors or through all distribution channels. For current month-end performance, please call Franklin Templeton at (800) DIAL BEN/(800) 342-5236 or visit www.franklintempleton.com. An investor cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.  \nClick to enlarge    The Blended Benchmark consists of 60% MSCI All Country World Index-NR, 30% Bloomberg Multiverse (100% hedged to USD) Index and 10% cash and cash equivalents. MSCI All Country World Index is a market capitalization-weighted index designed to measure the equity market performance of developed and emerging markets. The Bloomberg Multiverse (100% hedged to USD) Index provides a broad-based measure of the global fixed income bond market. Source: MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Bloomberg Indices. Net Returns (NR) include income net of tax withholding when dividends are paid. The MSCI All Country World Index is a market capitalization-weighted index that is designed to measure equity market performance of developed and emerging markets. Source: MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Portfolio Diversification  Top Holdings % of Total  Top Holdings %   GOVERNMENT OF THE UNITED STATES OF AMERICA 9.38   GOVERNMENT OF GERMANY 2.95   APPLE INC (AAPL) 2.92   NVIDIA CORP (NVDA) 2.80   MICROSOFT CORP (MSFT) 2.77   GOVERNMENT OF UNITED KINGDOM 2.16   ALPHABET INC (GOOG) 1.73   GOVERNMENT OF CANADA 1.53   AMAZON.COM INC (AMZN) 1.44   ABBVIE INC 1.41  \nClick to enlarge Investment Team Jacqueline Hurley Kenney, CFA | Michael Greenberg, CFA | Wylie Tollette, CFA  Footnotes [1]Effective May 1, 2024, the fund changed the fixed income component of its Blended Benchmark to the Bloomberg Multiverse (100% hedged to USD) Index. [2]Periods shorter than one year are shown as cumulative total returns. What Are The Risks? All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal. Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default. The investment style may become out of favor, which may have a negative impact on performance. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. To the extent the portfolio invests in a concentration of certain securities, regions or industries, it is subject to increased volatility. To the extent the fund invests in alternative strategies, it may be exposed to potentially significant fluctuations in value. The manager may consider environmental, social and governance (ESG) criteria in the research or investment process; however, ESG considerations may not be a determinative factor in security selection. In addition, the manager may not assess every investment for ESG criteria, and not every ESG factor may be identified or evaluated. These and other risks are discussed in the fund’s prospectus. Important Information The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager’s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund’s portfolio selection process. Holdings are subject to change. Before investing, carefully consider a fund’s investment objectives, risks, charges and expenses. You can find this and other information in each prospectus, or summary prospectus, if available, at www.franklintempleton.com. Please read it carefully. Franklin Distributors, LLC. Member FINRA/SIPC. Effective February 1, 2021, the fund modified its principal investment goal and strategies. CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute. Source: FactSet. Important data provider notices and terms available at www.franklintempletondatasources.com. a. Gross expenses are the fund’s total annual operating expenses as of the fund’s prospectus available at the time of publication. Actual expenses may be higher and may impact portfolio returns. Net expenses reflect contractual fee waivers, expense caps and/or reimbursements, which cannot be terminated prior to 04/30/2025 without Board consent. Additional amounts may be voluntarily waived and/or reimbursed and may be modified or discontinued at any time without notice. \nClick to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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