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2017LONG-TERMCAPITAL MARKETEXPECTATIONS
“We’ve increased our forecast for developed-market
equities in view of an improving growth outlook and
moderate inflation expectations.”
1. Franklin Templeton Solutions is a global investment management group dedicated to multi-strategy solutions and is comprised of individuals representing various registered investment advisory entity subsidiaries of Franklin Resources, Inc., a global investment organization operating as Franklin Templeton Investments.
About Franklin Templeton Solutions
Franklin Templeton Solutions (FT Solutions)1 is a team of multi-asset and alternative investment
experts embedded within the global integrated platform of Franklin Templeton—a trusted partner
in asset management with clients in more than 170 countries. Our FT Solutions team has been
dedicated to managing multi-asset portfolios for over 20 years covering both traditional multi-asset
strategies and alternative strategies.
In addition to retail investors around the world, our FT Solutions team serves a variety of client
types in the institutional arena, ranging from sovereign wealth funds to public and private pension
plans. The hallmark of our approach is a disciplined discussion process—with an 80 plus-member
global investment forum—that manages assets of over US$40 billion (as of December 31, 2016).
BROOKS RITCHEY
Senior Vice President,
Director of Investment Solutions
CHANDRA SEETHAMRAJU, MBA, PH.D.
Vice President,
Director of Systematic Modeling
TOM NELSON, CFA, CAIA
Senior Vice President,
Director of Investment Solutions
Contents
THE WORLD FROM OUR PERSPECTIVE 2
OUR STRONGEST CONVICTIONS “FOR” 4
OUR STRONGEST CONVICTIONS “AGAINST” 10
OUR CAPITAL MARKET EXPECTATIONS 12
OUR METHODOLOGY AND MODELS 14
APPENDIX: INDEXES AND PROXIES USED 18
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution.
Not FDIC Insured | May Lose Value | No Bank Guarantee
1
See appendix for methodology and models used.
We believe the global growth outlook is
improving, supported by fiscal stimulus around
the world, the pro-growth policies of the incoming
US administration and stabilized growth in China.
We also see inflation hovering in the moderate
zone for the next five to 10 years.
After our annual review of the data and themes driving capital markets—
current valuation measures, historical risk premiums, economic growth
and inflation prospects—we’re pleased to report on our 2017 Capital
Market Expectations.
Our Strongest Convictions:
For Against
Global Stocks Global Government Bonds
Swedish Krona Swiss Franc
Japanese Equity
US Infrastructure
February 2017
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.
Global Growth. Significant
Uncertainty.
We believe the global growth outlook
is improving, supported by fiscal
stimulus around the world, pro-growth
policies of the incoming US
administration and stabilized growth
in China.
Stimulus fiscal policies finally arrived
center stage in 2016 as easy
monetary policies around the world
lost their effectiveness. For example:
• Japan announced a ¥28 trillion
stimulus package in August 2016.
• Donald Trump, president of the
United States, seems certain to
introduce significant fiscal stimulus
via a combination of tax cuts and
infrastructure spending.
• European Union (EU) countries are
still bound by Maastricht deficit and
debt limits, but given the anti-EU
populist movement in Europe, it’s
hard to rule out fiscal stimulus
completely.
The new US administration seems
likely to bring in fiscal stimulus and
de-regulation, which could be another
boost for growth. We expect the
financial, energy and health care
sectors (which combined account for
more than a third of the US economy)
to benefit the most.
China’s economic slowdown appears
to have reached its bottom in 2016.
The year-over-year Producer Price
Index finally nudged into positive
territory after almost four years of
negative results. The Manufacturing
Purchasing Managers’ Index also
tipped over 50, which should help to
keep the positive momentum.2 The
current strong dollar trend is also a
boost for the yuan and Chinese
exporters. It’s still too early to predict
the outcome of structural reforms in
China, but the country appears to be
making good progress on moving to a
consumer-driven economy from an
export-oriented economy, which we
also see as a big plus for global
growth.
Although we’re becoming more
confident about global growth, we
need to acknowledge that there are
significant uncertainties down the
road. For example:
• Current populist movements could
potentially create strong headwinds
in struggling European economies.
Based on the outcomes of the Brexit
vote and the recent Italian
referendum, the integrity of the EU
seems likely to face additional
challenges ahead before it
stabilizes—if it can stabilize.
• In the United States, markets seem
to be pricing in Trump’s ambitious
plans. Whether his administration
can deliver meaningful change to
the economy is still unknown, but
markets will be disappointed if
results fall short of expectations.
• China appears to have navigated
through another difficult trough,
however the country’s debt problem
has not been solved and appears to
be getting worse.
Finally, we believe aging population—
in China and in developed markets
overall—is a powerful demographic
factor that may depress global
growth. Given the current anti-
globalization and anti-trade
sentiments, it’ll be even harder to
mitigate the impact of these long-term
changes.
Moderate Inflation Ahead
In 2015 and early 2016, deflation
fears topped the list of risks to the
global economy. That concern has
diminished since commodity prices
stabilized. Inflation expectations
around the world started to notch
upward in the middle of 2016, well
before Trump’s victory. We believe
inflation will normalize faster in the
United States than the rest of the
world. However, long-term structural
2
2. Source: Bloomberg.
THE WORLD FROM OUR PERSPECTIVE
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution.
factors such as aging populations and
the savings glut should keep inflation
in the moderate zone for the next five
to 10 years.
Currently, US Personal Consumption
Expenditure Core (PCE Core), a price
inflation measure that the US Federal
Reserve (Fed) emphasizes, is at
1.7% year-over-year.3 Trump’s fiscal
stimulus plan could create jobs and
increase aggregate demand in the
short term, which may bring PCE
Core back to the Fed’s target of 2%
within the next two years.
Although we believe that most of the
potential new US policies are
inflationary, if the rest of world does
not follow suit—given the openness of
our global economy—we do not
expect the US inflation rate to differ
significantly from those in the rest of
the world. Japan and Europe are
experiencing an aging population
trend, which we believe suppresses
aggregate demand and growth
potential. Negative interest rates still
exist in Japan and some European
countries. On top of that, the current
account surplus of major exporters
such as Germany, China and Japan
is now back to 2006–2008 levels and
therefore, the excessive supply of
capital is still a depressing factor for
interest rates and inflation. See chart
to the right.
Developed-Market Equities
Look Attractive, but
Developed-Market Bonds
Are Shaky
We’ve increased our forecast for
developed-market equities in view of
an improving growth outlook and
moderate inflation expectations.
Emerging-market equities are less
attractive this year primarily because
they recovered in 2016 and today’s
valuations are therefore less
attractive. On top of that, a rising
interest-rate cycle in the United
States could make emerging markets
vulnerable to significant capital
outflows.
After more than a 30-year run-up,
developed-market bond markets were
poised to sell off in the middle of
2016, even before the US election.
Since then, markets seem convinced
that the rising-rate cycle in US
Treasuries is likely to accelerate
regardless of negative interest rates
in Japan or quantitative easing (QE)
in Europe. Given the current low
yields and high durations, the
expected returns of developed-market
bonds are even lower than our last
year’s forecast.
Consensus Economics (10Y) Breakeven Rate (5Y5Y)
United States 2.2% 1.9%
Canada 2.0% 1.5%
Eurozone 1.9% 1.2%
United Kingdom 2.0% 3.0%
Japan 1.3% 0.6%
Australia 2.5% 1.9%
3
Source: Consensus Forecasts, October 2016; Bloomberg, November 2016. There is no assurance that any forecast will be realized.
Long-Term Inflation Forecasts
3. Source: Bloomberg.
Long-term
structural
factors such
as aging
populations
and the
savings glut
should keep
inflation in the
moderate
zone for the
next five to 10
years.”
“
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Billions USD
Source: Bloomberg, International Monetary Fund (IMF), as of 12/31/16. Past performance does not guarantee future results.
Export-Driven Economies Nearing 2006–2008 Current Account Surplus Levels
Current Account Balance of Germany + Japan + China1998–2016
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.
7.8%7.5%
8.7%
9.4%
0.3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
GlobalEquity
Developed-MarketEquity
Emerging-MarketEquity
GlobalSmall-Cap
Equity
GlobalDeveloped
Gov't Bonds
Expected Return
4
We believe global stocks have greater
performance potential than other
asset classes in anticipation of
stimulus fiscal policy and a moderate
inflation environment in the next five
to 10 years.
As we expected at the beginning of
2016, markets recovered from the
initial volatility and ended the year in
positive territory. The MSCI World
Index was up 8.16%, and the SPX
Index was up 11.93%. Markets
showed significant resilience given
that two so-called “black-swan” events
occurred during the year: Brexit and
Trump’s election. We believe stocks
can benefit more from the expected
fiscal stimulus of the new Republican
regime in the United States. A
combination of tax cuts, deficit
spending, deregulation and foreign
cash repatriation could have a broad
boost effect on the economy. At the
same time, we believe the structural
problems in Europe and Japan will
keep global inflation moderate.
Although the US dollar (USD) and the
US 10-year yield moved up
significantly after the election, we
expect both markets to slow down in
2017, and the rate hike cycle will still
be a moderate one.
From a valuation perspective, price-
to-earnings (P/E) ratios are currently
below their long-term average, which
is favorable for long-term global stock
return potential.
Our average annual return
expectation for global equities is fairly
close to the historical average.
Overall, we expect global equities to
return 7.8% annually over the seven-
year period, with developed markets
returning 7.5%, emerging markets
8.7% and global small caps 9.4%. By
comparison, we expect global
government bonds to return less than
1%.
OUR STRONGEST CONVICTIONS “FOR”
Global Stocks Could Benefit from Improved Growth and Moderate
Inflation Outlook
Source: Thomson Reuters, Institutional Broker’s Estimate System (I/B/E/S), MSCI, as of 10/31/16. Past performance does not guarantee future results.
0
5
10
15
20
25
30
35
1988 1992 1996 2000 2004 2008 2012 2016
P/E Ratio
Average
P/E Ratios Favor Long-Term Global Equity Return Potential
MSCI All Country World Index P/E Ratio1988–2016
We Expect Global Equities to Outperform Many Other Asset Classes
Comparison of Expected Annualized Returns of Major Stock Indexes
vs. Global Government BondsAs of November 30, 2016
Projected Annualized Returns, January 1, 2017–December 31, 2023
Source: FT Solutions. See appendix on page 18 for representative indexes for each asset class. Opinions and beliefs expressed are those of FT Solutions and are subject to change without notice. There is no assurance that any forecast or projection will be realized.
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution.
We are bullish on the Swedish krona
(SEK) from three different
perspectives:
• valuation
• growth prospects
• the expected monetary policy
environment
In our opinion, from a valuation
perspective, the SEK is the most
undervalued relative to other
developed-market currencies.
Sweden’s policy rate relative to its
growth trajectory is the most
displaced among developed markets:
While its policy rate is one of the most
negative, its nominal gross domestic
product (GDP) growth is one of the
most positive. The growth differential
between Sweden and the United
States has reached its widest point in
five years yet the Riksbank, the
Swedish central bank, maintains its
accommodative policy.
Unemployment has reached an eight-
year low, and the economic tendency
indicator (a survey of business and
consumer views of the economy)4
continues to trend higher. We expect
the positive trajectory for the Swedish
economy to continue.
The Riksbank remains committed to
its easy monetary policy, pledging not
to raise rates from its current negative
level until 2018 and offering to extend
its bond purchases in order to support
the economy. This policy has
effectively kept SEKUSD subdued.
Amid strengthening economic
fundamentals and rising house prices
in Sweden, however, it’s difficult to
see how negative policy rates could
continue. The IMF expects inflation in
Sweden to reach the central bank’s
target of 2% in 2018, leaving less
room for the central bank to maintain
its easy monetary policy.
We believe this policy is unlikely to
hold over the long term, especially if
inflation starts to pick up. The
Riksbank will need to begin its
tightening cycle, ultimately boosting
SEKUSD.
5
4. The Economic Tendency Indicator measures overall business and consumer sentiment. It is based on monthly business surveys in the manufacturing, construction, retail trade and private service sectors, as well as monthly consumer surveys. The indicator has a mean value of 100 and a standard deviation of 10. Values between 100 and 110 are equivalent to a stronger-than-normal economy, whereas values above 110 represent a much stronger-than-normal economy. Likewise, values between 90 and 100 show a weaker-than-normal economy and values below 90 are equivalent to a much weaker-than-normal economy.
Long Swedish Krona vs. US Dollar
Source: Bloomberg, National Institute of Economic Research (Sweden), as of 11/30/16. Past performance does not guarantee future results.
Sweden’s Economy Stronger than Normal
Sweden: Economic Tendency Indicator4
2010–2016
80
85
90
95
100
105
110
115
120
2010 2011 2012 2013 2014 2015 2016
Index above 110:
Economy is much
stronger than normal
Index below 90:
Economy is much
weaker than normal
Economic Tendency Indicator
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
2010 2011 2012 2013 2014 2015 2016
Unemployment Rate
Sweden’s Unemployment Rate at Eight-Year Low
Sweden: Unemployment Rate2010–2016
Source: Bloomberg, National Institute of Economic Research (Sweden), as of 12/31/16. Past performance does not guarantee future results.
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.6
5. Source: Bloomberg.
6. Source: Organisation for Economic Co-operation and Development (OECD) Economic Outlook, Volume 16, Issue 2.
An improved growth outlook, high
profit margins and attractive
valuations all support Japanese
equity.
An ultra-loose monetary policy—
massive QE and negative interest
rates—combined with three stimulus
fiscal budgets in 2016 alone have
finally resulted in a positive impact on
growth. Real GDP increased at an
annualized rate of 1.6% in the first
three quarters of 2016.5
Exports were very resilient given
significant yen appreciation. After
declining in the first half of 2016,
exports rebounded sharply in the third
quarter.6 After the US election, the
Source: Bloomberg, as of 11/30/16. Past performance does not guarantee future results.
Japanese Profit Margins Near 20-Year High
TOPIX Profit Margins1996–2016
Source: Bloomberg, as of 11/30/16. Past performance does not guarantee future results.
Japanese Valuations Nearer to Historic Lows
TOPIX P/E Ratio2012–2016
-8%
-6%
-4%
-2%
0%
2%
4%
6%
1996 2001 2006 2011 2016
Profit Margin
10
15
20
25
30
35
2012 2013 2014 2015 2016
P/E Ratio
It’s Time to Go Long on Japanese Equity
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 7
An improved growth outlook, high profit margins and
attractive valuations all support Japanese equity.”“
Source: Calculations by FT Solutions using data sourced from Bloomberg. See appendix on page 18 for representative indexes for each asset class. Opinions and beliefs expressed are those of FT Solutions and are subject to change without notice. There is no assurance that any forecast or projection will be realized.
7.5% 7.3%
8.1%
6.9% 6.8%
9.6%
8.3% 8.3%
0%
2%
4%
6%
8%
10%
12%
Developed-MarketEquity
United States Canada Europe ex UnitedKingdom
United Kingdom Japan Pacific ex Japan Australia
Expected Return
Among Developed-Market Equities, Japan Offers the Greatest Forward-Looking Opportunity
Comparison of Expected Annualized Returns of Various Developed-Market EquitiesAs of November 30, 2016
Projected Annualized Returns, January 1, 2017–December 31, 2023
yen reversed its appreciation trend.
Given the US rising rate cycle, we
expect there is room for additional
depreciation, which could be a further
boost for Japanese exports.
We believe private consumption is
another driver for potential growth
because of an increasing labor
shortage and subsequent potential
wage growth.
The profitability of Japanese firms is
very favorable. The profit margin of
the Tokyo Stock Price Index (TOPIX)
is at a 20-year high. At the same time,
valuations are attractive. The P/E
ratio is around 19, which is very low
compared to its own history.
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.8
Public and private spending in US
infrastructure had already been
trending upward before the election.
Combined with strong interest in
revamping infrastructure on the part of
the new administration, we believe
this should bode well for investment
returns in this category.
On the public side, the Department of
Transportation’s FY 2017 budget
request is US$98.1 billion, up
significantly from the FY 2016 request
of US$72.4 billion (the enacted budget
ended up being US$76.0 billion). FY
2017 includes some major expansions
of the budget—extra spending
initiatives on pipeline safety, clean
energy transport, advanced
metropolitan planning, cybersecurity
US Infrastructure Will Benefit from the Coming Fiscal Stimulus
Source: Bloomberg, MSCI as of 11/30/16. Past performance does not guarantee future results.
Source: Bloomberg, MSCI, as of 11/30/16. Past performance does not guarantee future results.
Profit Margins for US Infrastructure Higher than Broad US Equities
Profit Margins: MSCI US Infrastructure vs. MSCI US Equity2012–2016
2012 2013 2014 2015 2016
10
12
14
16
18
20
22
US Infrastructure US Equity
P/E Ratio
0%
2%
4%
6%
8%
10%
12%
2012 2013 2014 2015 2016
MSCI US Infrastructure MSCI US Equity
Profit Margin
US Infrastructure Valuations Favorable Compared with Broad US Equities
P/E: MSCI US Infrastructure vs. MSCI US Equity2012–2016
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 9
7. Source: US Department of Transportation, Transforming Communities in the 21st Century: Budget Highlights, Fiscal Year 2017.
and others.7 Election campaign
proposals included a US$1 trillion
dollar spending plan to update
infrastructure over the coming
decade. These plans will kick off new
projects and will require buy-in from
private financing, creating many
opportunities for investment in the
asset class.
While additional public expenditures
should boost infrastructure, on the
private side valuations and corporate
fundamentals also appear to bode
well for the asset class. Valuations
are looking more favorable for the
asset class than US equities, and
corporate profit margins are now
higher than broad US equities. (See
charts in this section.)
Infrastructure, as a real asset, also
demonstrates inflation-linked pricing
power. As we expect US inflation and
GDP to increase, we also expect
asset classes like US infrastructure to
protect against erosion in purchasing
power and to offer favorable risk-
adjusted returns compared to other
equity sectors less linked to the real
economy.
Infrastructure, as a real asset, demonstrates
inflation-linked pricing power.”
7.3%
7.9%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
US Equity US Infrastructure
Expected Return
Source: FT Solutions. See appendix on page 18 for representative indexes for each asset class. Opinions and beliefs expressed are those of FT Solutions and are subject to change without notice. There is no assurance that any forecast or projection will be realized.
We Expect Many Opportunities to Arise in US Infrastructure
Comparison of Expected Annualized Returns of US Equity vs. US InfrastructureAs of November 30, 2016
Projected Annualized Returns, January 1, 2017–December 31, 2023
“
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.10
In spite of a brief improvement after the
US election, developed-market
government bond yields remain at very
low levels relative to the last 30 years—
largely as a result of QE and zero-
interest-rate policies around the world.
Given the improved growth outlook and
stabilized commodity prices, fears of
deflation appear to be diminishing:
Inflation is looming in the United States
and in the eurozone, and it is gradually
nearing the European Central Bank’s
2% target. We expect moderate
inflation to return and interest rates to
normalize in the next three to five
years. We believe the rising interest
rates will offset the already thin carry
benefit from yields.
We maintain our base-case expectation
of a gradual normalization of rates in
the United States. Although the pace of
rising rates in the United States might
be faster under Trump’s regime than
the market may otherwise have
expected, we think that given the
situation in Europe, Japan and China,
this is still a gradual shift. We live in a
more integrated world today than 30
years ago and the relative size of
different economies has changed. Even
if the new Republican regime can
deliver the expected stimulus, the
domestic policy changes in the United
States may not be as powerful as might
have occurred 30 years ago.
Overall, given the low starting yields,
our models suggest that the seven-year
expectations for developed-market
government bond returns are well
below what we’ve observed in history.
OUR STRONGEST CONVICTIONS “AGAINST”
Developed-Market Government Bonds: The Pain Shows No End
in Sight
0%
2%
4%
6%
8%
10%
12%
1984 1988 1992 1996 2000 2004 2008 2012 2016
World Government Bond Index
Yield to Maturity
Average since 1984
0.8%
1.5%
0.8%0.6%
0.9%
0.1%
2.4% 2.6%
5.6%5.8%
0%
1%
2%
3%
4%
5%
6%
7%
Expected Return
Developed Government Bonds Likely to Underperform
Comparison of Expected Annualized Returns of Developed Market
Bonds vs. Other Bond TypesAs of November 30, 2016
Projected Annualized Returns, January 1, 2017–December 31, 2023
Yields Remain at Historic Lows
World Government Bond Index Yield to Maturity1984–2016
Source: Calculations by FT Solutions using data sourced from Bloomberg. See appendix on page 18 for representative indexes for each asset class. Opinions and beliefs expressed are those of FT Solutions and are subject to change without notice. There is no assurance that any forecast or projection will be realized.
Source: Bloomberg, as of 11/30/16. Past performance does not guarantee future results.
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution.
7.9%
2.5%
-8.7%
8.4%
-20.1%
19.6% 18.3%
33.2%
-20.5%
-30%
-20%
-10%
0%
10%
20%
30%
40%
GBP EUR AUD CAD NZD JPY NOK SEK CHF
Expected Change vs. USD
0%
-4%
2%
-1% -1%
-4%
2%
-1%
-9%-10%
-8%
-6%
-4%
-2%
0%
2%
4%
GBP EUR AUD CAD NZD JPY NOK SEK CHF
Expected Change vs. USD
11
All three components of the long-term
currency expectations model are
bearish for the Swiss franc (CHF),
including valuation, carry and real
interest-rate parity.
From a valuation perspective, the
Swiss franc continues to be the most
overvalued relative to other
developed-market currencies.
Conventional wisdom says that the
Swiss franc is a safe haven currency.
Recent uncertainties in Europe—the
debt crisis, the Greek bailout, Brexit
and populist uprisings across the
continent—have combined to rattle
confidence in the eurozone and drive
investors to perceived havens
including the Swiss franc. This
overbought environment has the
potential to reverse with the recent
sentiment shift and prospects of
global growth and reflation in the
United States and Europe.
Carry is the second component of the
model and takes into account the
difference in rates between two
respective countries. The theory is
that assets with higher yields tend to
appreciate relative to assets offering
lower yields. We expect policy in
Switzerland to remain
accommodative and the
government’s bond yield curve to
remain depressed relative to the US
yield curve. The Swiss franc is likely
to remain a funding currency relative
to the US dollar and other developed
currencies and therefore we expect
the CHF will likely weaken relative to
the USD.
The prospect of global reflation,
driven in part by the proposed policies
in the United States, may buoy yields
and inflation in the United States. The
IMF expects long-term inflation in
Switzerland to remain subdued,
further allowing the Swiss central
bank to maintain negative rates.
Swiss inflation is only expected to
reach 1% in 2021, substantially below
the central bank’s 2% target. This
inflation and policy difference will put
pressure on the Swiss franc versus
the US dollar. Real interest-rate parity
takes into account differences in
expected inflation between countries.
Because of the expected inflation
differential, this component of the
model forecasts depreciation of the
Swiss franc versus the US dollar in
the long term.
The Swiss franc continues to be the
most overvalued relative to other
developed-market currencies.”“
Short Swiss Franc vs. US Dollar
Source: Bloomberg, FT Solutions. Opinions and beliefs expressed are those of FT Solutions and are subject to change without notice. There is no assurance that any forecast or projection will be realized.
Thumbs Up Swedish Krona; Thumbs Down Swiss FrancLong-Term Expected Change vs. USD Based on Purchasing Power
Parity (PPP) ModelAs of November 30, 2016
Projected January 1, 2017–December 31, 2023
Long-Term Expected Change vs. USD Based on Real Interest-Rate
Parity ModelAs of November 30, 2016
Projected January 1, 2017–December 31, 2023
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.12
OUR CAPITAL MARKET EXPECTATIONS
Expected Return Source: Franklin Templeton Solutions. Past performance does not guarantee future results. There is no assurance any forecast or projection will be realized. See appendix on page 18 for representative indexes for each asset class.
As of November 30, 2016
Seven-Year Annualized Return Capital Market Expectations (in Local
Terms), Projected January 1, 2017–December 31, 2023
*Data not available for full 20-year period. Returns calculated using data since inception of
the representative index, beginning 12/31/98.
Traditional Beta: Equity
Seven-Year Capital
Market Expectations
20-Year Annualized
Return
Global Equity 7.8% 6.8%
Developed-Market Equity 7.5% 6.8%
United States 7.3% 8.3%
Canada 8.1% 9.0%
Europe ex UK 6.9% 7.6%
United Kingdom 6.8% 6.4%
Japan 9.6% 1.1%
Pacific ex Japan 8.3% 5.4%
Australia 8.3% 8.6%
Specialty Equity
Global Natural Resources 8.3% 7.3%
Global Gold Miners 3.1% 0.1%
US Listed Infrastructure 7.9% 2.2%*
Global Real Estate Investment
Trusts (REITs)5.9% 9.8%
Seven-Year Capital
Market Expectations
20-Year Annualized
Return
Emerging-Market (EM) Equity 8.7% 8.9%
EM Europe, Middle East, Africa
(EMEA)8.3% 5.1%
EM Latin America 8.8% 12.1%
EM Asia 8.8% 3.5%
Global Small-Cap Equity 9.4% 7.9%
US Small Cap 9.2% 8.5%
As of November 30, 2016
Seven-Year Annualized Return Capital Market Expectations (in Local
Terms), Projected January 1, 2017–December 31, 2023
Traditional Beta: Fixed Income
Seven-Year Capital
Market Expectations
20-Year Annualized
Return
Global Developed-Market
Government0.3% 4.6%
US Government 1.3% 4.9%
Canadian Government 0.5% 5.7%
Europe ex UK Government 0.4% 4.7%
UK Government 0.1% 6.7%
Japanese Government -0.7% 2.6%
Australian Government 1.7% 6.6%
Global Corporate High Yield 4.0% 6.7%
US High-Yield USD 4.3% 7.2%
Pan-European EUR 2.4% 5.9%*
Pan-European GBP 3.9% 11.0%*
Seven-Year Capital
Market Expectations
20-Year Annualized
Return
Global Investment-Grade Credit 3.0% 5.1%
Issued in USD 2.7% 5.8%
Issued in GBP 2.1% 5.8%*
Issued in JPY 0.4% 1.1%*
Issued in EUR 1.7% 4.9%*
Issued in CAD 2.1% 5.7%*
Issued in AUD 3.3% 6.6%*
EM Debt Composite (36% Hard,
39% Local, 25% EM Corp)3.7% 8.6%
EM Debt–Government (Hard) 4.2% 10.1%
EM Debt–Government (Local) 6.3% 8.5%*
EM Corporate (Hard) 2.9% 6.6%*
Other Fixed Income
Inflation-Linked Bonds 0.7% 5.9%*
US Securitized 1.5% 5.2%
US Mortgage-Backed Securities 1.5% 5.2%
*Data not available for full 20-year period. Returns calculated using data since inception of
the representative index, beginning 1/31/99.
*Data not available for full 20-year period. Returns calculated using data since inception of the representative indexes: Global Corp IG Credit GBP beginning 12/31/99; Global Corp IG Credit JPY beginning 7/31/00; Global Corp IG Credit EUR beginning 7/31/98; Global Corp IG Credit CAD beginning 10/31/02; Global Corp IG Credit AUD beginning 6/30/04; EM Debt Government (Local) beginning 12/31/02; EM Debt Government (Hard) beginning 1/31/03; Inflation-Linked Bonds beginning 1/31/02.
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 13
Expected Return Source: Franklin Templeton Solutions. Past performance does not guarantee future results. There is no assurance any forecast or projection will be realized. See appendix on page 18 for representative indexes for each asset class.
As of November 30, 2016
Seven-Year Annualized Return Capital Market Expectations (in USD),
Projected January 1, 2017–December 31, 2023
Traditional Beta: Commodities
Seven-Year Capital
Market Expectations
20-Year Annualized
Return
Commodities 4.0% 1.4%
Oil 6.2% 4.7%
Gold 1.1% 5.2%
Precious Metal 8.9% 5.5%
Agriculture 7.5% -1.4%
As of December 31, 2016
Seven-Year Forecasts Capital Market Expectations, December 31, 2023
Traditional Beta: Currency
Seven-Year Capital
Market Expectations
Spot
as of 12/31/16
FX Rate
USD CAD 1.34 1.34
EUR USD 1.01 1.05
GBP USD 1.25 1.23
USD JPY 114.69 116.96
AUD USD 0.73 0.72
As of November 30, 2016
Seven-Year Annualized Return Capital Market Expectations (in USD),
Projected January 1, 2017–December 31, 2023
Alternatives
As of November 30, 2016
Seven-Year Annualized Return Capital Market Expectations (in Local
Terms), Projected January 1, 2017–December 31, 2023
Economic
Seven-Year Capital
Market Expectations
Policy Rate
as of 12/31/16
Cash Expected Return
USD Cash 2.2% 0.5%
CAD Cash 2.1% 0.5%
EUR Cash 1.4% 0.0%
GBP Cash 1.9% 0.3%
JPY Cash 0.5% 0.1%
AUD Cash 2.8% 1.5%
*Risk premia strategy (and sub-strategy) historic composite returns are simulated based on third-party data we pull from Bloomberg and aggregate using a proprietary methodology. See “Risks of Assumptions for Risk Premia and Other Alternatives” on page 17 for important information about risk premia composite calculation methodology.
**US Private Equity return calculated through 6/30/16.
Seven-Year Capital
Market Expectations
20-Year Annualized
Return
Alternatives
FT Solutions Risk Premia
Composite*3.2% 7.6%
US Private Equity 9.3% 13.9%**
Hedge Fund 6.0% 7.5%
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.14
This period coincides with the
average length of a US business
cycle, as defined by the National
Bureau of Economic Research. Since
1945, there have been 11 US
business cycles with an average
duration of 69.5 months. The
timeframe also historically
corresponds to the average duration
of aggregate fixed income indexes
that we use.
Our long-term return expectations are
driven by current valuations, analyst
expectations, expected growth rates
and expected economic
environments. We use inputs and
model techniques specific to each
asset class within a process that
blends quantitative analysis with
fundamental research. The process
includes using the residual income
model (a form of the dividend
discount model) as well as
regressions on economic scenarios
for equity expectations and stressing
the yield curve for fixed income
expectations.
We base our CMEs more on forward-
looking assumptions rather than a
long-term historical average return for
an asset class. Using forward-looking
returns is an important distinction
since past performance should not
necessarily be an indication of future
returns, especially in times of
changing macroeconomic
environments. We build our return
expectations using informed forward
estimates of fundamentals and
economic regimes over the next five
to 10 years rather than simply relying
on historical performance.
OUR METHODOLOGY AND MODELS
This section provides an overview of the methodology and models we use to develop
long-term capital market expectations (CMEs) for various asset classes, including equities,
fixed income, commodities and alternatives. In total our 2017 CMEs cover 66 asset
classes including 19 in equity, 25 in fixed income, seven in commodities, five within
currency and four in the alternative beta and alpha spaces. In terms of economic
expectations, we deliver six expectations of regional three-month cash returns.
Our CMEs are intended to provide annualized seven-year return expectations. However,
the time horizon can be generalized to the next five to 10 years, and we update our
models annually.
Our long-term
return
expectations
are driven by
current
valuations,
analyst
expectations,
expected
growth rates
and expected
economic
environments.”
“
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 15
Risks of Assumptions for Equity Return ExpectationsThe residual income model relies on the theory that a company’s equity value is equal to the sum of its current book value and its expected future cash flows. Actual equity returns may deviate from the expected returns if the theory does not hold or if realized return on equity differs substantially from the analyst estimates used in the modeling. Unforeseen macroeconomic shocks (such as strong shocks to inflation or GDP) or major changes in the structure of the equity markets could also cause actual returns to differ from the expected returns. In addition, actual returns may deviate from expected returns if one or more of the forecast components comprising the building blocks model turn out to be different from actual dividend yields, EPS growth or P/E expansion.
Risks of Assumptions for Specialty Equity Return ExpectationsActual returns may differ from the expected returns for specialty equity if our forward-looking assumptions of the relationships between asset classes differ from reality.
We build our
return
expectations
using
informed
forward
estimates of
fundamentals
and economic
regimes over
the next five
to 10 years
rather than
simply relying
on historical
performance.”
“Traditional Equities
We use several models for our equity
return expectations. The benefit of
using several different models is that
we take into account both the
absolute and relative forecasts (as in
the residual income model). To
develop our 2017 CMEs within
traditional equities, we used the
“residual income” model and the
“building blocks” model.
Residual Income Model
The residual income model uses the
relationship between price-to-book
(P/B) ratios, historical return of equity
(ROE), and forward-looking (one-year
and two-year) ROE to determine
expected returns. A higher forward
ROE tends to contribute to a higher
return expectation. A lower P/B ratio
typically indicates a higher return
expectation. In addition, we found that
comparing expected returns relative
to their own histories provides
insightful information. The percentile
of current expected return in relation
to historical expectations indicates
major bullishness or bearishness
relative to history. Our analysis shows
that rank-adjusted results provide
strong guidance in forecasting
returns.
Building Blocks Model
The building blocks model forecasts
returns by summing three forecasts:
1. Dividend yield sourced from
Bloomberg analyst estimates
2. Earnings-per-share (EPS) growth
rates, which are the average of
bottom-up analyst forecasts from
the I/B/E/S and top-down long-
term GDP and inflation forecasts
3. P/E expansion, which assumes
that P/E will converge to its long-
term average.
Specialty Equities
To develop our expectations for
specialty equities, we use regression
models. The models identify relevant
equity and commodity factors that
drive the expected returns for each
asset class. Based on the historic
betas and alphas we construct
forward-looking views that determine
our expectations. We believe that
within the specialty equity category,
the returns in natural resources, gold
miners, listed infrastructure and real
estate investment trusts (REITs)
should be in line with traditional equity
indexes. With regard to gold miners,
we also consider the gold price to be
a factor in the model. For
infrastructure, oil prices are a relevant
explanatory factor. Therefore, main
inputs to our specialty equity long-
term return models is the relationship
between those factors and the asset
class indexes.
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.16
Risks of Assumptions for Fixed Income Return ExpectationsActual fixed income returns may deviate from the expected returns if the actual shift in the yield curve over seven years deviates substantially from the types of shifts and stresses applied to the yield curve in the model. Unforeseen macroeconomic shocks or major changes in the market structure or term structure could also cause actual returns to differ from expected returns.
Risks of Assumptions for CommoditiesActual returns may differ from the expected returns if the spot return and roll yield deviate from realized values.
Risks of Assumptions for Currency ExpectationsLong-term currency expectations depend on the accuracy of the theories (purchasing power parity, interest-rate differential and real interest-rate parity) and on the long-term projections for yields and inflation rates. If reality deviates from the theory, or if realized yields and inflation rates differ significantly from the projections, we may see that actual currency rates differ from the expected rates.
Fixed Income
Yield Curve Shift Model
The main input to our fixed income
return expectation is our yield curve
shift (YCS) model. Principal
component analysis (PCA) of
historical data has shown that the
expected returns for bonds are mainly
driven by current yield level and
parallel shift scenarios. Given a
parallel shift scenario, the YCS model
assumes current yield curve will shift
gradually to the target over seven
years. The model also involves
stressing the yield curve on a monthly
basis using a random walk approach.
The results include expected returns
and the confidence intervals of the
expected returns for the fixed income
asset classes. Major inputs into the
model include:
1. Term structure (the shape of the
yield curve)
2. Yield volatilities
3. Market structures (weights for
different durations)
4. Expected shift scenarios
For corporate bonds and emerging-
market debt instruments, we assume
credit spreads will revert to their own
long-term averages over a seven-
year horizon. We estimate
corresponding default and recovery
rates based on the averages of their
long-term history.
Commodities
Spot Return and Roll Yield
We based our expected returns from
commodities on two sources: spot
return and roll yield. For spot return,
we apply an inflation-adjusted model
to forecast spot price. We first
calculate historical real commodity
prices given their historical inflation
rates, and forecast real commodity
price targets given the
macroeconomic outlook, then add
back the inflation expectation to get
the final target spot price. For roll
yield, we estimate historical roll yield
for each commodity and take the
long-term average for our forecasts.
Currency
We base our long-term foreign
exchange assumptions on equal-
weighting forecasts from three well-
documented theories: purchasing
power parity, interest-rate differential
and real interest-rate parity.
Purchasing Power Parity
Exchange rates should change to
create equilibrium ensuring that the
same set of goods will cost the same
if purchased with two different
currencies. Inputs include OECD
purchasing power parity and IMF
calculations.
Interest-Rate Differential
Currencies in countries with high
interest rates tend to appreciate
relative to currencies in countries with
lower interest rates. We use our own
forecast short-term cash rates for
given countries as inputs.
Real Interest-Rate Parity
Real interest-rate differential between
two countries drives the long-term
exchange rate between them. We use
our own forecasts for long-term
inflation for given countries.
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 17
Risks of Assumptions for Risk Premia and Other AlternativesRisk premia strategy (and sub-strategy) historic composite returns are simulated based on third party data sourced from Bloomberg that we aggregate using a proprietary methodology. We divide the various strategies by type, rank them through a quantitative and qualitative process, and weight them by risk. Because these composites are determined based on our own assessments and calculations, these composites represent our own views and analysis and may vary from the methodologies and conclusions of others. Although we believe the composite data is accurate and reasonable, we cannot guarantee it, nor can we guarantee that implementation of any of the specific strategies would attain the performance or target of any composite mentioned in this paper. Actual performance of a specific strategy may differ substantially from the composite performance shown. All composite data is hypothetical and for illustrative purposes only. It does not represent the results of any actual portfolio or index. We created the composite data with the benefit of hindsight and knowledge of factors that could have positively affected the results. We have presented all composite and index data gross of fees and expenses. Fees and expenses would lower a managed portfolio’s returns.
Actual returns may differ from the expected returns if our efficiency assumptions or multi-factor models deviate from reality. For example, we have assumed a decreasing Sharpe ratio trend over the long term. Actual returns may not match expected returns if the Sharpe ratio instead increases or remains constant over the next seven years.
Risks of Assumptions for Economic ForecastsThe forward cash rate may deviate from the expected cash rate if the yield curve deviates substantially from the one that we applied in the model. Unforeseen macroeconomic shocks, changing government policies or major changes in the term structure would also cause the actual cash rate to differ from the expected cash rate.
Alternatives
We base our long-term forecasts for
alternatives on efficiency and
illiquidity premium assumptions. We
consider the historical trend of the
Sharpe ratio on risk premia and
hedge funds. We base all historical
data related to the risk premia
strategies on data from third parties
and do not represent the actual
performance of any portfolio or index.
Using the forward-looking Sharpe
ratio, cash rate and historical risk, we
construct our long-term risk premia
return expectations.
To determine our expectation for
private equity, we assumed an
illiquidity premium of 200 basis points,
which is generally in line with the
average of a sample of institutional
private market forecast assumptions.
For our hedge fund return
expectation, we combined our
efficiency assumption and multi-factor
models to forecast long run returns
that determine a seven-year CME for
hedge funds.
Economic Forecasts
We collected GDP and inflation rates
from multiple sources, including the
World Bank, OECD, IMF and other
third parties. Our portfolio managers
also make their own forecasts. Our
final forecasts comprise all the
external and internal forecasts. To
determine the short-term (three-
month) cash rate, we build out a
forward rate model and use the
Taylor rule based cash forecast
model. We include the current
government bond yield curve, current
inflation and GDP, long-term GDP
and inflation expectations as inputs.
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.18
APPENDIX: INDEXES AND PROXIES USED
Asset Class Market Proxy
Equity
Global Equity MSCI All Country World Index TR
Global Developed MSCI Daily TR Gross World Local
US Equity MSCI Daily TR Gross USA Local
Canadian Equity MSCI Daily TR Gross Canada Local
UK Equity MSCI Daily TR Gross UK Local
Europe ex UK Equity MSCI Daily TR Gross Europe ex UK Local
Japanese Equity MSCI Daily TR Gross Japan Local
Pacific ex Japan Equity MSCI Daily TR Gross Pacific ex Japan Local
Australia MSCI Daily TR Gross Australia Local
Global Small Cap MSCI Small Cap All Country World
US Small Cap Russell 2000®
Emerging Markets MSCI Daily TR Gross Emerging Markets EM Local
EM EMEA MSCI Emerging Markets Europe Middle East Africa Local
EM Latin America MSCI Daily TR Gross Emerging Markets EM Latin America Local
EM Asia MSCI Daily TR Gross Emerging Markets EM Asia Local
Specialty Equity
Global Natural Resources
Morningstar Natural Resources Category (12/31/88–8/31/96)
S&P Natural Resources Sector (8/31/96–11/30/02)
S&P Global Natural Resources (11/30/02–Present)
Global Gold MinersDJGI World (ALL)/Gold Mining (12/31/91–9/30/98)
FTSE Gold Mines TR (9/30/98–Present)
US Listed Infrastructure MSCI US Infrastructure Total Return Index (7/29/11–Present)
Global REITs S&P Global REIT
Fixed Income
Global Developed-Market Government Citigroup World Government Bond All
US Government Bloomberg Barclays US Aggregate Government
Canadian GovernmentIMF Canada LT Government Total Return (1/31/75–12/31/84)
Canada Government Bond Index All Maturities (12/31/84–Present)
Europe ex UK Government
World Government Bond Index Europe All (1/31/85–1/31/99)
Citigroup Economic and Monetary Union Government Bond Index All
(1/31/99–Present)
UK Government Citi Government Bond Index UK Local
Japanese Government Citigroup Japan Government Bond Index All
Australian Government Citi Government Bond Index Australia Local
Global Investment-Grade Credit
Bloomberg Barclays US Aggregate Corporate (1/31/90–12/31/96)
Merrill Global Broad Market Corporate (12/31/96–9/29/00)
Bloomberg Barclays Global Aggregate Credit (9/29/00–Present)
Issued in USD Bloomberg Barclays US Aggregate Corporate
Issued in GBP Bloomberg Barclays Aggregate Corporate GBP
Issued in JPY Bloomberg Barclays Aggregate Corporate JPY
Issued in EUR Bloomberg Barclays Aggregate Corporate EUR
Issued in CAD Bloomberg Barclays Aggregate Corporate Canada
Issued in AUD Bloomberg Barclays Aggregate Corporate AUD
Global Corporate High YieldBloomberg Barclays Capital US Corporate High Yield (12/31/25–12/31/00)
Bloomberg Barclays Global High Yield Corporate (12/31/00–Present)
US High-Yield USD Bloomberg Barclays Capital US Corporate High Yield
Pan-European High-Yield in EUR Bloomberg Barclays Pan-European High Yield EUR
Pan-European High-Yield in GBP Bloomberg Barclays Pan-European (Non-Euro) High Yield GBP
Emerging-Market Debt Aggregate (36% EMD Hard Currency, 39% EMD Local, 25% EMD Corporate)
EM Debt–Gov’t (Hard) JP Morgan Emerging Market Bond Index+
EM Debt–Gov’t (Local)JP Morgan Gov’t Bond Index – Emerging Markets Global Diversified
Composite Local
EM Corporate HardBloomberg Barclays Emerging Markets Corporates Total Return Index Value
Unhedged USD
Other Fixed Income
Inflation-Linked Bonds Bloomberg Barclays Global Inflation-Linked Bonds (11/30/97–Present)
US SecuritizedBloomberg Barclays US Securitized: MBS/ABS/CMBS Total Return Index
Value Unhedged USD
US Mortgage-Backed Securities Bloomberg Barclays US MBS Index Total Return Value Unhedged USD
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 19
*Risk premia strategy (and sub-strategy) historic composite returns are simulated based on third-party data we source from Bloomberg and aggregate using a proprietary methodology. See “Risks of Assumptions for Risk Premia and Other Alternatives” on page 17 for important information about risk premia composite calculation methodology.
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.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
Important data provider notices and terms available at www.franklintempletondatasources.com.
Asset Class Market Proxy
Fixed Income (cont’d.)
Commodities
Oil (57% WTI + 43% Brent Oil)
Precious MetalGSCI Precious Metals Total Return (1/31/73–1/31/91)
Bloomberg Precious Metals Sub-Index Total Return (2/1/91–Present)
GoldS&P GSCI Gold Index (2/28/78–1/31/91)
Bloomberg Gold Sub-Index Total Return (2/1/91–Present)
Agriculture Bloomberg Agriculture Sub-Index Total Return
Alternatives
US Private EquityFT Solutions Proprietary Monthly Adjusted – Cambridge Associates
US Private Equity Index (1/31/86–6/30/16)
Risk Premia*
HFRI Fund of Fund Composite (12/31/89–11/30/97)
HFRX Global Hedge Fund Index (12/31/97–12/31/09)
FTS Systematic Beta Enhanced Composite (1/29/10–Present)
Hedge Fund HFRI Fund Weighted Composite Index
Cash
USD Encorr 90-Day T-Bill (12/31/74–1/31/97)
JPM Cash Index USD 3-Month (1/31/97–Present)
CAD Canada DEX 90-Day Bill (1/31/75–1/97)
JPM CAD Cash Index 3-Month (2/97–Present)
EUR
IMF Germany Deposit Rate (De-Annualized) (to 12/31/95)
Germany Cash Indexes – Libor Return 3-Month (1/31/96–1/31/99)
JPM Cash Index Euro Currency 3-Month (2/28/99–Present)
GBP JPM Cash Index GBP 3-Month
JPY JPM Cash Index JPY 3-Month
AUD Bloomberg AusBond Bank Index (3/31/87–1/31/97)
JP Morgan 3-Month AUD Cash Index (1/31/97–Present)
2017 Long-Term Capital Market Expectations For Financial Professional Use Only. Not For Public Distribution.20
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of
principal.
Stock prices fluctuate, sometimes rapidly and dramatically,
due to factors affecting individual companies, particular
industries or sectors, or general market conditions. Bond
prices generally move in the opposite direction of interest
rates. Thus, as the prices of bonds in an investment
portfolio adjust to a rise in interest rates, the value of the
portfolio may decline. Special risks are associated with
foreign investing, including currency fluctuations, economic
instability and political developments. Investments in
developing markets involve heightened risks related to the
same factors, in addition to those associated with their
relatively small size, lesser liquidity and lack of established
legal, political, business, and social frameworks to support
securities markets. Such investments could experience
significant price volatility in any given year. Derivatives,
including currency management strategies, involve costs
and can create economic leverage in a portfolio, which
may result in significant volatility and cause the portfolio to
participate in losses (as well as enable gains) on an
amount that exceeds the portfolio’s initial investment.
Because some risk premia strategy signals are built using
historical market events, the risk premia strategies can be
subject to model risk, whereby the strategies perform
differently than the model would expect for various
reasons, including but not limited to market and economic
conditions. In other words, the future performance and
correlations of risk premia strategies may differ, potentially
significantly, from historical performance and correlations.
In addition, because the risk premia composites in this
paper are determined based on FT Solutions’ own
assessments and calculations, these composites represent
solely the views and analyses of FT Solutions and may
vary from the methodologies and conclusions of others.
Although FT Solutions believes that the composite data is
accurate and reasonable, there is no guarantee of such,
that implementation of any of the specific strategies would
attain the performance, or target of any composite
mentioned in this paper. Actual performance of a specific
strategy may differ substantially from the composite
performance shown.
Investing in the natural resources sector involves special
risks, including increased susceptibility to adverse
economic and regulatory developments affecting the
sector—prices of such securities can be volatile,
particularly over the short term. Some strategies, such as
hedge fund and private equity strategies, are available only
to pre-qualified investors, may be speculative and involve a
high degree of risk. An investor could lose all or a
substantial amount of his or her investment in such
strategies. Real estate securities involve special risks,
such as declines in the value of real estate and increased
susceptibility to adverse economic or regulatory
developments affecting the sector.
2017 Long-Term Capital Market ExpectationsFor Financial Professional Use Only. Not For Public Distribution. 21
IMPORTANT LEGAL INFORMATION
This material is intended to be of general interest only and should
not be construed as individual investment advice or a
recommendation or solicitation to buy, sell or hold any security or
to adopt any investment strategy. It does not constitute legal or
tax advice.
The views expressed are those of the investment manager and
the comments, opinions and analyses are rendered as of
publication date and may change without notice. The information
provided in this material is not intended as a complete analysis of
every material fact regarding any country, region or market. All
investments involve risks, including possible loss of
principal.
Data from third party sources may have been used in the
preparation of this material and Franklin Templeton Investments
(“FTI”) has not independently verified, validated or audited such
data. FTI accepts no liability whatsoever for any loss arising from
use of this information and reliance upon the comments opinions
and analyses in the material is at the sole discretion of the user.
Products, services and information may not be available in all
jurisdictions and are offered outside the U.S. by other FTI
affiliates and/or their distributors as local laws and regulation
permits. Please consult your own professional adviser for further
information on availability of products and services in your
jurisdiction.
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the Financial Conduct Authority. Nordic regions: Issued by Franklin
Templeton Investment Management Limited (FTIML), Swedish Branch,
Blasieholmsgatan 5, SE-111 48 Stockholm, Sweden. Phone: +46 (0) 8
545 01230, Fax: +46 (0) 8 545 01239. FTIML is authorised and regulated
in the United Kingdom by the Financial Conduct Authority and is
authorized to conduct certain investment services in Denmark, in
Sweden, in Norway and in Finland. Offshore Americas: In the U.S., this
publication is made available only to financial intermediaries by
Templeton/Franklin Investment Services, 100 Fountain Parkway, St.
Petersburg, Florida 33716. Tel: (800) 239-3894 (USA Toll-Free), (877)
389-0076 (Canada Toll-Free), and Fax: (727) 299-8736. Investments are
not FDIC insured; may lose value; and are not bank guaranteed.
Distribution outside the U.S. may be made by Templeton Global Advisors
Limited or other sub-distributors, intermediaries, dealers or professional
investors that have been engaged by Templeton Global Advisors Limited
to distribute shares of Franklin Templeton funds in certain jurisdictions.
This is not an offer to sell or a solicitation of an offer to purchase
securities in any jurisdiction where it would be illegal to do so.