K2 HEDGE FUND STRATEGY OUTLOOK - Q4 2021 - Franklin ...
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K2
HEDGE FUND
STRATEGY
OUTLOOK
Q4 2021Q4 2021 Outlook: Summary
As we move into the fourth quarter Strategy Highlights
(Q4), markets are in a tug-of-war Long/Short Managers engage companies directly on refinancing transactions. An
involving various good news versus bad Credit accommodative primary market allows the issuer to push out maturities,
news debates. COVID-19 cases are lower the cost of capital, and streamline the capital structure.
declining, but central banks are
Commodities Tightening supplies and increased demand following further reopening
considering tightening monetary policy. of the economy has led to multi-year highs across a variety
Earnings growth is strong, but year- commodity markets.
over-year comparisons will become
Event Driven Record volumes of activity and greater dispersion of outcomes because
tougher. Employment statistics are
of regulatory and monetary uncertainties are favoring managers who
improving, but supply chain constraints
can produce alpha through security selection and trading.
persist. These debates and others lead
us to believe that certain hedge fund
strategies will outperform in a
potentially choppy environment.
Strategy Outlook
Long/Short Equity We worry that many unpredictable macro factors will continue to challenge managers
as earnings are not reliably driving stock prices. Moreover, relatively high net and gross
exposures of most long/short managers leave them vulnerable to market disruptions.
Relative Value Mixed outlook for relative value strategies—fewer trading opportunities in fixed
income due to volatility and dispersion remaining depressed, but certain strategies such
as convertible arbitrage benefit from busy new issuance and corporate activity.
Event Driven Positive outlook due to continued strong pipeline of events combined with more
attractive spreads and greater diversity of outcomes due to increased regulatory and
geopolitical uncertainty.
Credit Spreads remain near historic tights, which favors trading-oriented strategies such as
long/short credit at the expense of more directional ones such as distressed and
direct lending. Pricing in structured credit remains inefficient, and managers expect
dispersion to persist in certain sectors.
Global Macro Managers continue to focus on the outlook for inflation and its implications for monetary
and fiscal policy changes, especially in the United States. As policy decisions begin
to be implemented, the opportunity set may become increasingly attractive for thematic
macro strategies.
Commodities A continued tight supply and demand environment will likely lead to relative value
trading opportunities. Despite renewed institutional interest, commodity managers have
remained disciplined in accepting investments and are managing capacity closely.
Insurance-Linked Initial January 1 pricing indications appear strong following Hurricane Ida and the
Securities (ILS) European flooding in Q3. Despite tightening over the course of the year, cat bond pricing
remains attractive on an absolute basis and relative to high yield instruments.
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—Q4 2021Macro Themes We Are Discussing
Global equity markets edged down during 2021’s third quarter Will strong corporate earnings continue to boost
(Q3). Early in the period, strong corporate earnings in several equity valuations?
parts of the world, full US regulatory approval for a COVID-19 Much discussion over the past 12 months has focused on the risk
vaccine, and the Chinese central bank’s liquidity-boosting of above-average equity market valuations being reduced by the
measures aided markets. However, many investors were also convergence of the strong year-over-year earnings growth trend.
pricing in the potential for the US Federal Reserve (Fed) to begin Clearly earnings (and revenue) growth has been exceptional, and
tapering stimulus. Late in Q3, persistent inflation, more hawkish this has helped to reduce valuation concerns. That said, many of
central bank messaging and a continued regulatory crackdown in our hedge fund managers are monitoring 2022 earnings growth
China all dampened investor sentiment. estimates as the comparisons to 2021 earnings becomes tougher
and growth rates slow. With a reduction in Fed asset purchases,
Going forward, our hedge fund managers and the K2 Investment
possibly higher interest rates, and pressure from raw material and
Committee are discussing some key themes that we believe will
wage inflation, the potential for reduced profit margins and
drive market sentiment and performance in the coming quarters.
earnings growth rates may lead to a wider gap between the
Is inflation transitory? performance of those companies with low debt and efficient
The gradual reopening of economies has created increased production processes versus those less well positioned.
demand for goods and raw materials. While this is good news,
Will regulatory and tax policy constraints hinder
workers’ lingering COVID-19 concerns are keeping factory
(or rotate) growth?
staffing (and production) at low levels. Thus, the supply of goods
Investors are weighing potential government initiatives involving
is hindered, and price increases are evident for those products
tighter data privacy policies, more aggressive antitrust regulation,
that are available. Adding to these production cuts are the
and higher corporate and personal tax rates. For example, Europe
blockages in the global supply chain as dock workers, truckers
continues to lead the way with internet privacy laws, and US
and shipping containers are in short supply. As a result, the
policymakers are starting to pay more attention to issues
current levels of inflation may hold for longer than was expected a
regarding the appropriate use of personal data. Companies in this
few months ago.
area are adjusting to this new regime and the impact on earnings
Will central banks shift to a less accommodative interest rate could be detrimental.
and liquidity policy?
China has recently reminded the world of its “common prosperity”
Given that inflation is running above central banks’ target levels
initiative, which, among other things, aims to reduce the income
and COVID-19 cases are declining in many parts of the world,
gap, limit the prosperity of technology and finance conglomerates,
central bankers have begun preparing investors for a reduction in
and reform tax rates to benefit the labor class. In the United
monetary stimulus and for future interest rate hikes. This is to be
States, there is talk of tax hikes to help pay for infrastructure
expected at this point in the recovery cycle, and we believe this
projects and ongoing concerns over the outsized influence of the
will be a major influence on markets for the next 12–18 months.
largest US companies. In this environment, those companies able
Real (and nominal) interest rates are near historically low levels, to adapt to (or better compete in) this new policy world stand to
and much excess liquidity has helped the world to stabilize and benefit while others may experience lower margins and slower
recover from the COVID-19 crisis. The disparate impact of this growth rates.
less stimulative policy regime on various asset classes, sectors
In sum, the world may well be in a transition phase as economies,
and companies may increase volatility but will present potential
workers, consumers, governments and central banks adapt to a
opportunities for active managers.
post-COVID-19 world. Oftentimes, change creates opportunities
for those nimble enough to capture the new tailwinds while
hedging out the risks associated with a shifting environment. We
remain vigilant in this regard.
The above reflects the opinions of the K2 Investment Management (IM) group as of October 12, 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—Q4 2021 3Q4 2021 Outlook: Strategy Highlights
Long/Short Credit Commodities
The macro environment has been very supportive of credit The global environment has been a tailwind to the broader
conditions, resulting in tight spreads across the board. We look commodities markets leading to multi-year highs in the Bloomberg
forward to higher levels of dispersion among issuers and Commodity Total Return Index. We look forward to a rich
therefore a better opportunity set for pure credit pickers. In the opportunity set, particularly in the energy sector, as volatility and
meantime, however, managers remain focused on events to prices increase. As the reopening of economies accelerates,
generate performance. In high yield, for example, the primary demand for oil and products will likely increase as both work and
market remains extremely busy. Following a record year for personal travel picks up. Supply across the energy complex is
activity in 2020, this year is on pace for an even greater volume of unlikely to grow fast enough to accommodate the demand growth
deals. Managers often take an active role and work with issuers leading to higher prices across global crude and natural gas
on completing refinancing or recapitalization transactions. markets without factoring in any potential weather shocks as we
An accommodative primary market allows the issuer to push out move closer towards winter. Typically, there is a significant lag
maturities, lower the weighted average cost of capital, and between deciding to increase physical production and the result of
streamline the capital structure—all positives for the overall credit higher supplies. We are seeing the impact of this disconnect
quality of the company. As a result, the entire debt stack often with prices across the energy sector including crude, natural gas,
trades tighter, resulting in gains on existing positions. Even more heating oil and gasoline all at multi-year highs.
directly, managers can extract fees from the transactions and flip
primary market allocations into the secondary market for a gain. Exhibit 2: Baker Hughes US Oil and Gas Rig Count
May 2015—October 2021
Exhibit 1: Annual High Yield Bond New Issue Volume
Rigs
January 1992–October 2021
1200
$ billions
500
1000
450
400 800
350
300 600
250
400
200
150
200
100
50 0
May-15 Aug-16 Nov-17 Feb-19 May-20 Aug-21
Oct-21
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
YTD 2021
Source: Bloomberg. Important data provide notices and terms available at
www.franklintempletondatasources.com.
Source: JPMorgan. Important data provide notices and terms available at
www.franklintempletondatasources.com.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
Hedge Fund Strategy Outlook—Q4 2021 4Q4 2021 Outlook: Strategy Highlights
Event Driven Average Gross Merger Arbitrage Spread
Corporate activity is on pace to exceed all-time records across January 4, 2021–October 4, 2021
mergers and acquisition (M&A), leveraged buyouts (LBOs) , Spread
activist campaigns, buybacks and other types of events. What 9.00%
makes the strategy particularly attractive today, however, is the
8.00%
increased dispersion of outcomes given greater risks associated
with them. Greater regulatory involvement in the United States 7.00%
and abroad, increased fundamental uncertainties due to changing
6.00%
monetary policies, and more active shareholder and management
activism. These risks have translated to wider spreads and 5.00%
greater potential upside for managers who can produce alpha
4.00%
through security selection and trading.
3.00%
2.00%
1.00%
0.00%
Jan-21 Apr-21 Jul-21 Oct-21
Source: Citi Event Driven, weekly M&A Arb and SPAC Commentary Reports.
Gross spreads weighted by market cap in a universe of approximately 60 deals >$1.0bn
in value. Important data provide notices and terms available at
www.franklintempletondatasources.com.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
5 Hedge Fund Strategy Outlook—Q4 2021Q4 2021 Outlook by Strategy
Long/Short While equity markets have gained momentum this year, long/short equity performance
Equity has been disappointing, and we anticipate the strategy to remain challenging. The
difference between the markets’ trajectory and companies’ fundamentals persist as
various participants react to a combination of elevated valuations, monetary and fiscal
policies, and geopolitical risks. Most managers continue to have conviction in their long
investments, and many have re-underwritten their underperforming long positions to
maintain comfort in their elevated gross and net exposures. Once the markets become
more fundamentally driven (as opposed to macro driven), we believe long/short equity
managers are poised to outperform their benchmarks. This outperformance should come
from both the longs and the shorts. Shorts are positioned to do well in a potentially rising
rate environment while providing protection in volatile markets.
Relative Value Our outlook for relative value strategies remains mixed. While intermediate-term
uncertainty is increasing, for now central banks have been very successful in depressing
volatility and dispersion across many asset classes due to high policy transparency and
excess liquidity. That is particularly relevant for interest rate trading strategies, leading to
our neutral rating for fixed income arbitrage. Bright spots remain in convertible arbitrage
where a busy corporate activity calendar and greater dispersion in credit quality are
expected to persist and continue to offer improved opportunities. Our outlook for the
alpha environment in volatility trading strategies is similarly favorable. Volatility markets
across many asset classes remain inefficient and increasing policy uncertainty may
translate into better trading opportunities in the coming quarters.
Event Driven Record-setting pace of activity continues across M&A, LBO transactions, activist
campaigns and other types of corporate events. If confidence and valuations remain
high, and liquidity plentiful, it is reasonable to expect continued strong levels of activity
going forward. What makes the strategy more attractive today, however, is the greater
dispersion of outcomes due to increasing regulatory uncertainty in the United States and
abroad, uneven impact of tightening monetary policy, impact of environmental, social,
and governance (ESG), and greater shareholder engagement with companies and
investors. All these factors can be interpreted as sources of risk for the strategy.
However, investors are now properly compensated for that risk through improved
spreads and potentially greater upside. This environment should be particularly favorable
for experienced managers who can produce significant alpha through selective
participation and trading around these events, as well as by driving their own outcomes,
as is the case with activism.
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—Q4 2021 6Q4 2021 Outlook by Strategy
Credit The macro environment remains very supportive of credit as global economies continue
the reopening process. Capital markets have been wide open to new issuance since Q3
2020, and issuers have taken advantage to improve their liquidity profiles. Investors
continue to search for yield and are increasingly pushed out on the credit spectrum to hit
return targets. In sum, spreads are tight across the board. In long/short credit, managers
point to high levels of M&A as supportive of an event-driven approach. Shorting has
been challenging, but the flip side of tighter spreads is better entry points for shorts. The
rebound in structured credit has continued, and we expect dispersion in sectors like
commercial mortgage-backed securities (CMBS) and aviation that are more levered to
the reopening process. We maintain a strong underweight in distressed as defaults have
simply not materialized, especially weighed against the massive amount of dry powder in
the strategy yet to be deployed. Direct lending managers remain focused on their
existing portfolios, and borrowers are turning to accommodative capital markets.
Global Macro Markets continue to be heavily influenced by macro developments, especially related to
inflation and the fiscal and monetary policy mix. While shifts in these factors have
contributed to volatility and challenged some managers’ positioning in the last quarter,
increased clarity on policy paths going forward may support medium or long-term
thematic positioning across major markets. Within emerging markets, manager
conviction has been relatively low recently given the headwinds of expected policy
tightening and regulatory pressures in markets like China. However, specialist managers
focused on relative value may continue to find opportunities, for example, between
commodity exporting and importing countries. The potential for policy certainty to help
develop medium- to long-term directional themes and trends may also support
systematic macro strategies.
Commodities While the trading environment has improved, most established long/short commodity
hedge funds have limited to no capacity. We view this positively as today’s commodity
hedge funds have learned from the prior cycle. As we enter a period of tighter supply
and demand, these more capital-disciplined managers are positioned to take advantage
of relative value trading opportunities. Energy markets will likely have the richest
opportunity set as more of the economy reopens spurring increasing demand, which
will need supply to follow. A cold winter could lead to higher levels of volatility and
dispersion within energy, which relative value commodity managers would be best
positioned to benefit.
Insurance- Inflows into catastrophe (cat) bonds continue to support market growth and secondary
Linked trading. Lower-risk strategies have performed well following the Q3 event activity,
Securities including Hurricane Ida, and offer attractive relative valuations to us. We note that as
fewer investors favor higher-risk strategies due to prior performance, lower levels of
competition could lead to a more favorable environment for investors. We believe loss
development from prior years’ events, further insight into the impact of Ida and the July
European flooding, and overall investor demand will be key in determining the final price
increases at the January renewal period.
For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors.
7 Hedge Fund Strategy Outlook—Q4 2021Outlook Trend for Strategies and Sub-Strategies Sub-Strategies Ranked
by Z-Score
Strategies Q3 2021 Q4 2021 Changes
Long/Short Equity — Rankings (Top Down) Z-Score
Long/Short Equity —
Discretionary 1.3
Equity Market Neutral — Europe 1.3
Europe Private Transactions 1.2
Asia Cat Bonds 1.1
Technology Natural Gas 0.9
Healthcare — Agriculture 0.9
Relative Value Oil & Products 0.8
Convertible Arbitrage — Structured Credit 0.6
Volatility Arbitrage — ED—Special Situations 0.6
Fixed Income Emerging Markets 0.5
Event Driven — ED—Merger Arbitrage 0.5
Activist — Volatility Arbitrage 0.3
Merger Arbitrage Long/Short Credit 0.1
Special Situations — Activist 0.1
Credit — Systematic 0.1
Direct Lending Convertible Arbitrage 0.0
Distressed — Metals -0.1
Long/Short Credit ILWs -0.1
Structured Credit Retrocessional -0.1
Global Macro — Technology -0.2
Discretionary —
Asia -0.2
Systematic Healthcare -0.4
Emerging Markets —
Fixed Income -0.5
Commodities —
Direct Lending -1.1
Oil & Products —
Equity Market Neutral -1.3
Agriculture Long Short Equity -1.7
Metals Distressed -2.3
Natural Gas Life Securitization -2.4
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—Q4 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.
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9 Hedge Fund Strategy Outlook—Q4 2021Notes For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors. 10 Hedge Fund Strategy Outlook—Q4 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?
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considered a complete investment program. Financial Derivative instruments are often used in alternative investment strategies and
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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
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Depending on the structure of the product invested, Alternative Investments may not be required to provide investors with periodic
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asset-based compensation of investment funds in which these Alternative Investments invest.
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Hedge Fund Strategy Outlook—Q4 2021 11IMPORTANT LEGAL INFORMATION This 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 October 12, 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. 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Italy: Issued by Franklin Templeton International Services S.à r.l. – Italian Branch, Corso Italia, 1 – Milan, 20122, Italy. Japan: Issued by Franklin Templeton Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 417, Member of the Investment Trust Association, Japan, the Japan Investment Advisers Association, and Type II Financial Instruments Firms Association. Korea: Issued by Franklin Templeton Investment Trust Management Co., Ltd., 3rd fl., CCMM Building, 12 Youido-Dong, Youngdungpo-Gu, Seoul, Korea 150-968. Luxembourg/Benelux: Issued by Franklin Templeton International Services S.à r.l. – Supervised by the Commission de Surveillance du Secteur Financier - 8A, rue Albert Borschette, L- 1246 Luxembourg. Tel: +352-46 66 67-1 Fax: +352-46 66 76. Malaysia: Issued by Franklin Templeton Asset Management (Malaysia) Sdn. Bhd. & Franklin Templeton GSC Asset Management Sdn. Bhd. This document has not been reviewed by Securities Commission Malaysia. Poland: Issued by Templeton Asset Management (Poland) TFI S.A.; Rondo ONZ 1; 00-124 Warsaw. Romania: Franklin Templeton International Services S.à r.l. Luxembourg, Bucharest Branch, at 78-80 Buzesti Str, Premium Point, 8th Floor, Bucharest 1, 011017, Romania. Registered with Romania Financial Supervisory Authority under no. PJM07.1AFIASMDLUX0037/10 March 2016 and authorized and regulated in Luxembourg by Commission de Surveillance du Secteur Financier. Tel: + 40 21 200 9600. Singapore: Issued by Templeton Asset Management Ltd. Registration No. (UEN) 199205211E and Legg Mason Asset Management Singapore Pte. Limited, Registration Number (UEN) 200007942R. Legg Mason Asset Management Singapore Pte. Limited is an indirect wholly owned subsidiary of Franklin Resources, Inc. 7 Temasek Boulevard, #38-03 Suntec Tower One, 038987, Singapore. Spain: Issued by Franklin Templeton International Services S.à r.l. – Spanish Branch, Professional of the Financial Sector under the Supervision of CNMV, José Ortega y Gasset 29, Madrid, Spain. Tel: +34 91 426 3600, Fax: +34 91 577 1857. South Africa: Issued by Franklin Templeton Investments SA (PTY) Ltd, which is an authorised Financial Services Provider. Tel: +27 (21) 831 7400 Fax: +27 (21) 831 7422. Switzerland: Issued by Franklin Templeton Switzerland Ltd, Stockerstrasse 38, CH-8002 Zurich. UK: Issued by Franklin Templeton Investment Management Limited (FTIML), registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. Tel: +44 (0)20 7073 8500. Authorized and regulated in the United Kingdom by the Financial Conduct Authority. Nordic regions: Issued by Franklin Templeton International Services S.à r.l. Swedish Branch, filial, Nybrokajen 5, SE-111 48, Stockholm, Sweden. Tel: +46 (0)8 545 012 30, nordicinfo@franklintempleton.com, authorised in Luxembourg by the Commission de Surveillance du Secteur Financier to conduct certain financial activities in Denmark, Sweden, Norway, Iceland and 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 Franklin Distributors, LLC, member FINRA/SIPC, 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 Franklin Templeton International Services, S.à r.l. (FTIS) or other sub-distributors, intermediaries, dealers or professional investors that have been engaged by FTIS 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. The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines. For Institutional/Professional Investor and Consultant Use Only—Not for Use with Retail Investors. © 2021 Franklin Templeton. All rights reserved. HFSO_4Q21_1021
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