K2 HEDGE FUND STRATEGY OUTLOOK - Q2 2021 - Franklin ...
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K2
HEDGE FUND
STRATEGY
OUTLOOK
Q2 2021Q2 2021 Outlook: Summary
With a broad-based reopening coming Strategy Highlights
closer into focus, investors are Long/Short US equity markets have been wavering due to record-high valuations
planning for the next stage in the cycle. Equity— combined with sharply rising interest rates, and we believe international
We believe geographical, asset class International equities have continued to be overlooked. They offer attractive dispersion
and sector rotations will be key to and alpha opportunities and have been trading at a compelling valuation
driving returns over the next 12 months. discount to US markets.
We expect hedge fund managers Global Managers may benefit from a heterogenous opportunity set as country-
who shift to securities that have lagged Macro level differences in policy mix and economic recovery may help establish
in recent years while hedging out new macro trends.
broader market risks or shorting
Insurance- ILS entered 2021 with a favorable pricing environment. Catastrophe bond
overvalued names will be more likely to
Linked (cat bond) new issuance is expected to be very active over the remainder
generate high-quality returns. Securities (ILS) of the spring, and the cat bond spread has remained elevated versus
corporate high yield.
Strategy Outlook
Long/Short Equity While rising interest rates have triggered a rotation from growth into value, we expect
our managers to capitalize on the increased dispersion. Rising inflation expectations
should also favor long/short equity investors relative to other longer duration assets.
Relative Value Overweight outlook for volatility arbitrage and convertible arbitrage strategies driven
by inefficiencies in pricing among various asset classes. Underweight outlook for fixed
income arbitrage based on depressed volatility due to excess central bank liquidity.
Event Driven Spreads have slightly widened but remain tight relative to historical averages. Increases
in hostile activity and CEO confidence should be beneficial for the strategy. An attractive
opportunity set remains in the more complex merger situations as well as special
situations equity, credit, and special-purpose acquisition companies (SPACs).
Credit Long/short credit managers are increasingly focused on event-driven situations given
low yields and tight spreads. Uncertainty in structured credit may lead to high levels of
dispersion at the instrument, market, and manager level.
Global Macro Managers remain focused on the macro trends accelerated by last year’s events and
resulting accommodative policy mix that has continued into this year. Differences in
economic recoveries between regions may provide opportunities for macro strategies.
Commodities Inflation concerns, a weaker US dollar, tighter fundamentals, and positive roll yields
are shining a brighter light on commodities. Winners and losers will likely emerge,
increasing dispersion and favoring relative value strategies. We are overweight
agricultural commodities on seasonal factors.
Insurance-Linked January 1 renewal rates were positive but not as strong as expected given capital flows
Securities (ILS) into the space. We see a strong pipeline for cat bond issuance and likely positive pricing
for June 1 reinsurance renewals following the large first-quarter US winter storm event.
This outlook is provided to you for informational purposes and is not intended for redistribution. It shall not constitute an offer to sell or a solicitation of an offer to buy
an interest in any investment product or fund. This outlook discusses strategies that are available through a variety of structures such as separate accounts, mutual
funds and private funds. Not all structures are available for all strategies shown. Interests or shares of an investment fund are offered only through the fund’s offering
documents, such as a Prospectus or Confidential Private Offering Memorandum.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
2 Hedge Fund Strategy Outlook—Q2 2021Macro Themes We Are Discussing
Going into the second quarter of 2021 there are additional If real yields move higher at the same time as inflation normalizes,
indications that the worst of the global COVID-19 health crisis is this would suggest nominal yields are still too low (and yield
behind us. Multiple vaccines are available and being administered curves too flat). Some macro hedge fund managers expect this
across the globe, hospitalization rates are plateauing or declining, to play out and have benefited from the recent decline in
and businesses are slowly reopening. Now what? Where does a government bond prices. Furthermore, some long/short credit
hedge fund or long-only fund manager allocate assets to both managers are seeing a relative value opportunity that should
avoid areas of risk and capture returns in a post-pandemic world? persist as rates move higher. Those corporate credits with
We discuss these and other questions below. a strong balance sheet should prosper while those with less than
stellar credit fundamentals may lag in the recovery or decline
Are equity and corporate debt valuations getting stretched?
in value.
The short answer is “it depends.” Certain sectors in the equity
and investment-grade debt markets are priced for a strong Which equity and corporate fixed income sectors would
recovery. This is evident in the above-average sector-level benefit most from a global economic reopening? Which
forward price/earnings and price/sales ratios, tight credit spreads areas might lag?
in corporate bonds, and other valuation indicators. Other sectors If the market is in a “rotation cycle,” long positions that may
have not participated in recent market gains but seem to offer offer return potential include stocks or bonds in the materials,
better forward-looking value opportunities. Additionally, some industrials, financial, and energy sectors. While individual
sectors have historically benefited from an uptick in inflation while corporate fundamentals must be analyzed within these broader
others have underperformed in inflationary environments. In this groups, many fund managers and analysts find the landscape
type of market environment, one typically sees substantial sector ripe for ideas. On the flipside, individual equity or debt
and asset class rotations as investors shift allocation tilts. investments in the technology, healthcare, and consumer
staples sectors could be fairly valued given the recent popularity
Active managers nimble enough to adapt to this new regime
of the work-from-home theme.
should be able to generate responsible returns. Hedge fund
managers able to shift to the cheaper, cyclically focused, inflation- Hedge fund managers able to go long and short equities or
friendly companies while hedging out market risks using short corporate debt feel the gap in sector relative values has begun to
positions in over-owned and overvalued securities should benefit, close. Being long the securities that have lagged broader markets
in our view. over the past few years while hedging out market risks using
securities that are relatively overvalued should be a source of
Are bond yields too low given the prospects for strong gross
low-volatility returns.
domestic product (GDP) growth, potential shifts in monetary
policy, or a possible overshoot of inflation targets? The answers to these and other questions will be crucial for
Consensus among strategists, economists, and fund managers investors and fund managers looking to maintain recent
seems to be building around the idea that real and nominal performance gains and capture responsible returns going forward.
yields have seen their cyclical lows. The thinking is that the From our vantage point, we sense the equity, bond, currency,
economic slowdown caused by the pandemic was efficiently and commodity markets began a regime shift during the fourth
priced into lower global sovereign bond yields during 2020 but quarter of 2020. Many of the geographical, asset class, and
that governmental stimulus programs will lead to a robust sector rotations associated with this regime shift can be beneficial
economic recovery and higher real yields. to actively managed portfolios.
The above reflects the opinions of the K2 Investment & Research Management (IRM) group as of March 15, 2021 and may not reflect the views of other
groups within K2 or Franklin Templeton. 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.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
Hedge Fund Strategy Outlook—Q2 2021 3Q2 2021 Outlook: Strategy Highlights
Long/Short Equity—International Global Macro
As the end of the COVID-19 pandemic appears to be in sight, As the economic recovery from last year’s doldrums has
investors have been bullish on the reopening of global continued, macro trends have started to take hold. The Citigroup
economies. We believe that international equity markets (MSCI Economic Surprise Index, which tracks economic data
EAFE Index) will benefit more than the US market (MSCI US relative to forecasts, has recently indicated strong macro
Index) due to their larger exposure to overlooked cyclical outperformance compared to the expectations of many
companies. International cyclical equities are poised to benefit economists. An environment in which such trends persist may
from secular trends in addition to recently rising US interest rates support managers and strategies that are principally focused
(which have hurt technology and other high-growth sectors that on such factors.
have outperformed over the last several years) along with the
possibility of higher US corporate taxes. Even a potential third- Exhibit 2: Citigroup Economic Surprise Index
wave lockdown and bumpy vaccine rollouts, as demonstrated by January 1, 2009 through March 15, 2021.
various countries’ responses to AstraZeneca’s vaccine, can lead 300
to asymmetric responses to the reopening trade, enabling
250
dispersion and alpha generation across the different geographies
and sectors. 200
Exhibit 1: International Companies Are Trading at a Significant 150
Discount to US Peers
January 1998 to February 2021 100
International to US Price/BookValue
0.90 50
0
0.80
-50
0.70
-100
0.60
-150
0.50
-200
Jan-09 May-11 Sep-13 Jan-16 May-18 Sep-20
Feb-21
0.40
Source: Citigroup, Bloomberg. Important data provide notices and terms available at
0.30 www.franklintempletondatasources.com. Indexes are unmanaged and one cannot invest in
them. They do not include fees, expenses or sales charges. Past performance is not an
indicator or a guarantee of future results.
0.20
0.10
0.00
Jan-98 Mar-01 May-04 Jul-07 Sep-10 Nov-13 Jan-17 Mar-20
Feb-21
Source: Bloomberg. Important data provide notices and terms available at
www.franklintempletondatasources.com. Indexes are unmanaged and one cannot invest in
them. They do not include fees, expenses or sales charges. Past performance is not an
indicator or a guarantee of future results.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
Hedge Fund Strategy Outlook—Q2 2021 4Q2 2021 Outlook: Strategy Highlights
Insurance-Linked Securities Cat Bond Market Spread v. High Yield BB Spread
Although cat bond spreads have slightly tightened in the first April 2014 to February 2021
quarter following inflows, they remain attractively priced versus 9%
corporate high yield (HY). The large US winter storm that
8%
primarily impacted Texas is likely to be a record event for the
industry. This may support higher June 1 reinsurance pricing 7%
following higher January 1 pricing. In addition, a healthy spring
6%
cat bond pipeline is expected to provide additional trading
opportunities in the second quarter. 5%
4%
3%
2%
1%
0%
Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Oct-18 Jul-19 Apr-20 Jan-21
Feb-21
Cat Bond Market Spread ML BB HY Option-Adjusted Spread
Source: Citigroup, Bloomberg. Important data provide notices and terms available at
www.franklintempletondatasources.com. Indexes are unmanaged and one cannot invest in
them. They do not include fees, expenses or sales charges. Past performance is not an
indicator or a guarantee of future results.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
5 Hedge Fund Strategy Outlook—Q2 2021Q2 2021 Outlook by Strategy
Long/Short Alpha opportunities for long/short equity managers should persist as the COVID-19
Equity recovery begins in earnest, presenting idiosyncratic opportunities. Modest inflation
expectations should also impact certain sectors differently than others. Equities may also
experience higher volatility due to interest-rate moves as recently experienced in
February and March, which resulted in sharp declines and equally sharp rallies in stocks.
Relative Value Relative value strategies should continue to benefit from greater dispersion in pricing of
various instruments. For example, a great disconnect exists between volatility markets in
different asset classes and geographies; US equity volatility has remained at historically
high levels while fixed income volatility has been low. We expect certain strategies, such
as convertible arbitrage and volatility arbitrage, to benefit from these dislocations and
eventual convergence of such disparate pricing. In the converts space, specifically,
robust new issuance and special situations provide additional avenues to generate
alpha. In fixed income arbitrage, the opportunity set is somewhat constrained by excess
liquidity provided by the central banks to traditional fixed income markets, which
dampens volatility.
Event Driven We are hopeful that the second-half pickup in merger & acquisition (M&A) activity will
persist and continue to offer a robust opportunity set for our managers. Spreads have
drifted slightly wider this year as an abundance of large-capitalization deals were
announced, raising the overall capacity of the merger arbitrage market. Additionally, a
historic surge in SPAC activity has created a secondary opportunity set for mangers to
explore. We are encouraged by the recent pickup in volume of more complex event
situations, including cross-border activity, hostile approaches and leveraged buyouts.
With greater complexity comes perception of greater risk and correspondingly wider
spreads, which experienced event-driven investors can exploit. Other types of event-
driven investing, including opportunities in credit and special situations, are similarly
more complex, with potential for greater differentiation between individual instruments
and managers.
Understanding the Pendulum Graphic
Strongly Strongly
Underweight Overweight
Underweight Overweight
Neutral
Arrows represent any change since the last quarter-end.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
Hedge Fund Strategy Outlook—Q2 2021 6Q2 2021 Outlook by Strategy
Credit We wrote last quarter about investors being willing to look through to the other side
of the COVID-19 crisis and price in a return-to-normal scenario. That optimism has been
rewarded as the headwind from higher rates has been outweighed by an improving
macroeconomic picture. Of course, the flip side of the equation is price. Spreads have
compressed dramatically since the panic in March 2020 and are approaching post-global
financial crisis tights. Investors will be wondering if their long portfolios are priced to
perfection, and active managers are increasingly focusing on events to capture alpha as
a result. In long/short credit, managers point to an improved outlook for M&A as
supportive of this event-driven approach. In addition, the upside to tight spreads is an
opportunity to generate gains on the short side. The rebound in structured credit has
continued, but areas facing potential secular headwinds like commercial mortgage-
backed securities and aviation require skilled fundamental analysis in identifying the
stronger structures and collateral from less attractive instruments. In distressed,
defaults have undershot the consensus of mid-2020, especially considering the massive
amount of dry powder in the strategy yet to be deployed. Direct lending managers
have remained focused on their existing portfolios and are likely to amend and extend
maturities for stressed borrowers.
Global Macro Market focus has started to shift to the potential long-term effects of a highly
accommodative policy mix in the face of a recovering global economy. This may benefit
strategies focused on these macro trends in the months ahead. Discretionary managers,
for example, are increasingly focused on opportunities that may arise from potential
regime shifts, including those related to inflationary pressures. Emerging market
specialists are starting to emphasize idiosyncratic country-level opportunities as these
new trends develop, but the specter of rising interest rates may dampen tailwinds in
those regions. Systematic strategies have recently enjoyed markets with fewer extreme
exogenous shocks and have upside potential going forward if some of these macro
trends prove sustainable.
Commodities Hedged commodity strategies have continued their positive performance in the first
quarter. We note that these hedged strategies generally made money in both recent
negative and positive commodity markets. Positive sentiment can be driven by a weaker
dollar, rising inflation concerns, and tighter supply and demand. While we do not support
the commodity super cycle narrative, positive roll yields have also generated more
interest in the space. We remain positive on agriculture as we enter a key seasonal risk
period with the South American harvest and US spring planting that may favor
wider dispersion.
Insurance- ILS entered 2021 with a favorable pricing environment despite the positive rate of
Linked change not reaching initial heightened expectations. This was primarily driven by capital
Securities inflows supported by public companies, private equity, and ILS investors. We find
pricing in the cat bond market attractive even though spreads tightened in the first
quarter. Cat bond new issuance is expected to be very active over the remainder of
the spring, and spreads have remained elevated versus corporate high yield. The large
first-quarter winter storm event may provide additional support for higher June 1
reinsurance pricing.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
7 Hedge Fund Strategy Outlook—Q2 2021Outlook Trend for Strategies and Sub-Strategies Sub-Strategies Ranked
by Z-Score
Strategies Q1 2021 Q2 2021 Changes
Long/Short Equity — Rankings (Top Down) Z-Score
Long/Short Equity —
Agriculture 1.4
Equity Market Neutral Private Transactions 1.2
Activist — Europe 0.9
Europe — Volatility Arbitrage 0.9
Asia — Catastrophe Bonds 0.8
Technology Discretionary 0.7
Healthcare — Asia 0.7
Relative Value — Insurance Loss Warranties 0.6
Convertible Arbitrage Retrocessional 0.6
Volatility Arbitrage — Systematic 0.6
Fixed Income Convertible Arbitrage 0.5
Event Driven — Oil & Products 0.4
Merger Arbitrage — Metals 0.4
Special Situations — Emerging Markets 0.2
Credit — Merger Arbitrage 0.2
Direct Lending Special Situations 0.1
Distressed US Natural Gas 0.0
Long/Short Credit — Technology -0.1
Structured Credit — Activist -0.2
Global Macro — Health Care -0.2
Discretionary —
Structured Credit -0.3
Systematic Long/Short Credit -0.3
Emerging Markets Equity Market Neutral -0.5
Commodities —
Fixed Income -0.8
Oil & Products Direct Lending -1.3
Agriculture Long/Short Equity -1.6
Metals Distressed -1.8
US Natural Gas —
Life Securitization -3.2
Insurance-Linked Securities —
Catastrophe Bonds —
Private Transactions > +1 Strongly Overweight
+0.5 to +1 Overweight
Life Securitization —
-0.5 to +0.5 Neutral
Retrocessional —
-1 to -0.5 Underweight
Industry Loss Warranties < -1 Strongly Underweight
The K2 Investment Research & Management (IRM) Outlook Scores are the opinions of the K2 IRM group as of the date indicated and may not reflect the views of other groups within K2 or Franklin
Templeton. Scores are determined relative to other hedge fund strategies and do not represent an opinion regarding absolute expected future performance or risk of any strategy or substrategy.
Scores are determined by the K2 IRM group based on a variety of factors deemed relevant to the analyst(s) covering the strategy or substrategy and may change from time to time in K2’s sole
discretion. In certain sections of this presentation, outlook scores are rounded to the nearest whole number. These scores are only one of several factors that K2 uses in making investment
recommendations, which may vary based on a client’s specific investment objectives, risk tolerance and other considerations. Therefore, underweightings and overweightings as shown are meant to
indicate K2's view of relative attractiveness of hedge strategies and are not meant to indicate that a particular strategy or sub-strategy should be overweighted or underweighted, respectively, in any
given portfolio. This information contains a general discussion of certain strategies pursued by underlying hedge strategies, which may be allocated across several K2 strategies. This discussion is
not meant to represent a discussion of the overall performance of any K2 strategy. Specific performance information relating to K2 strategies is available from K2.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
Hedge Fund Strategy Outlook—Q2 2021 8Glossary
Alpha Retrocessional
A mathematical value indicating an investment's excess return relative to A type of insurance contract that allows a re-insurer to transfer risks it has
a benchmark. Measures a manager's value added relative to a passive re-insured to another re-insurer.
strategy, independent of the market movement.
Z-score
Correlation A Z-score is a numerical measurement used in statistics of a value’s
The degree of interaction between an investment’s return and that relationship to the mean (average) of a group of values, measured in
of the comparison Index. The correlation coefficient, expressed as a terms of standard deviations from the mean. If a Z-score is 0, it indicates
value between +1 and –1, indicates the strength and direction of the that the data point's score is identical to the mean score.
linear relationship between the investment’s returns and the returns of
the index.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
9 Hedge Fund Strategy Outlook—Q2 2021Notes For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors. 10 Hedge Fund Strategy Outlook—Q2 2021
DISCLOSURE
The K2 Investment Research & Management (IRM) Outlook Scores are the opinions of the K2 IRM group as of the date indicated and
may not reflect the views of other groups within K2 or Franklin Templeton. Scores are determined relative to other hedge fund
strategies and do not represent an opinion regarding absolute expected future performance or risk of any strategy or substrategy.
Scores are determined by the K2 IRM group based on a variety of factors deemed relevant to the analyst(s) covering the strategy or
substrategy and may change from time to time in K2's sole discretion.
These scores are only one of several factors that K2 uses in making investment recommendations, which may vary based on a client's
specific investment objectives, risk tolerance and other considerations. Therefore, a positive or negative score may not indicate that a
particular strategy or substrategy should be overweighted or underweighted, respectively, in any given portfolio.
This information contains a general discussion of certain strategies pursued by underlying hedge strategies, which may be allocated
across several K2 strategies. This document is intended to be of general interest only and does not constitute legal or tax advice nor is
it an offer for shares or invitation to apply for shares of any of the funds employing K2 strategies. Nothing in this document should be
construed as investment advice. Specific performance information relating to K2 strategies is available from K2. This presentation
should not be reproduced without the written consent of K2.
Past performance is not an indicator or guarantee of future results.
Certain information contained in this document represents or is based upon forward-looking statements or information, including
descriptions of anticipated market changes and expectations of future activity. K2 believes that such statements and information are
based upon reasonable estimates and assumptions. However, forward-looking statements and information are inherently uncertain and
actual events or results may differ from those projected. Therefore, too much reliance should not be placed on such forward-looking
statements and information.
Professional care and diligence have been exercised in the collection of information in this document. However, data from third party
sources may have been used in its preparation and Franklin Templeton/K2 has not independently verified, validated or audited such
data.
Any research and analysis contained in this document has been procured by Franklin Templeton/K2 Investments for its own purposes
and is provided to you only incidentally. Franklin Templeton/K2 shall not be liable to any user of this document or to any other person or
entity for the inaccuracy of information or any errors or omissions in its contents, regardless of the cause of such inaccuracy, error
or omission.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss or principal. Investments in alternative investment strategies and hedge
funds (collectively, “Alternative Investments”) are complex and speculative investments, entail significant risk and should not be
considered a complete investment program. Financial Derivative instruments are often used in alternative investment strategies and
involve costs and can create economic leverage in the fund's portfolio which may result in significant volatility and cause the fund to
participate in losses (as well as gains) in an amount that significantly exceeds the fund's initial investment. Depending on the product
invested in, an investment in Alternative Investments may provide for only limited liquidity and is suitable only for persons who can
afford to lose the entire amount of their investment. There can be no assurance that the investment strategies employed by K2 or the
managers of the investment entities selected by K2 will be successful.
The identification of attractive investment opportunities is difficult and involves a significant degree of uncertainty. Returns generated
from Alternative Investments may not adequately compensate investors for the business and financial risks assumed. An investment in
Alternative Investments is subject to those market risks common to entities investing in all types of securities, including market volatility.
Also, certain trading techniques employed by Alternative Investments, such as leverage and hedging, may increase the adverse impact
to which an investment portfolio may be subject.
Depending on the structure of the product invested, Alternative Investments may not be required to provide investors with periodic
pricing or valuation and there may be a lack of transparency as to the underlying assets. Investing in Alternative Investments may also
involve tax consequences and a prospective investor should consult with a tax advisor before investing. In addition to direct asset-
based fees and expenses, certain Alternative Investments such as funds of hedge funds incur additional indirect fees, expenses and
asset-based compensation of investment funds in which these Alternative Investments invest.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
Hedge Fund Strategy Outlook—Q2 2021 11IMPORTANT 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 at March XX, 2021 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 (“FT”) has not independently verified, validated or audited such data. FT 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 FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction. The information in this document is provided by K2 Advisors. K2 Advisors is a wholly owned subsidiary of K2 Advisors Holdings, LLC, which is a majority-owned subsidiary of Franklin Templeton Institutional, LLC, which, in turn, is a wholly owned subsidiary of Franklin Resources, Inc. (NYSE: BEN). 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Tel +46 (0)8 545 012 30, nordicinfo@franklintempleton.com, authorised in the Luxembourg by the Commission de Surveillance du Secteur Financier to conduct certain financial activities in Denmark, in Sweden, in Norway, in Iceland and in Finland. Franklin Templeton International Services S.à r.l., Swedish Branch, filial conducts activities under supervision of Finansinspektionen in Sweden / 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. Please visit www.franklinresources.com to be directed to your local Franklin Templeton website. For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors. © 2021 Franklin Templeton. All rights reserved. HFSO_2Q21_0321
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