A Turnaround for the Franklin International Growth Fund

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Performance evaluation of the Franklin International Growth Fund

The Franklin International Growth Fund – Class A (FNGAX) has emerged as an above-average performer in YTD 2016 until August 19, 2016, among the 12 funds chosen for this review. For the three-year period, the fund is the third best in its peer group. We have graphed its performance against two ETFs: the iShares MSCI ACWI ex U.S. ETF (ACWX) and the iShares MSCI EAFE ETF (EFA).

Let’s look at what has contributed to the fund’s above-average performance in 2016 YTD.

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Contribution to returns

Industrials have been the biggest positive contributors to the fund’s returns in YTD 2016 until August 19. The Weir Group, DSV, and GEA Group have been the chief contributors from the sector. However, a very sizable negative contribution from Noble Group ensured that the sectors couldn’t show their full potential.

Tech stocks, which had contributed negatively until our last review, have turned a corner and have become sizable positive contributors. ARM Holdings (ARMH) is primarily responsible for the great showing by the sector with Mercadolibre (MELI) making a good contribution as well. The sector did have some negative contributors, though. Yaskawa Electric and Check Point Software Technologies (CHKP) hurt the sector.

Though the consumer discretionary sector has been a positive contributor this year due to stocks like Vipshop Holdings (VIPS) and TAL Education Group (XRS), it has been held back by substantial negative contributions from ITV, Luxottica Group (LUX), and Delphi Automotive PLC (DLPH).

The uptick in energy prices has helped Amec Foster Wheeler (AMFW), the sole holding from the energy sector, post gains.

Investor takeaways

FNGAX is very concentrated in terms of its number of holdings. Thus, investors looking for broader exposure need to look for other options. Also, it’s heavily concentrated towards developed nations, making it of little use for investors looking for some emerging market exposure. However, it has a different portfolio composition compared to its peers with industrials in focus instead of tech and financial stocks.

From the average year it was having, the fund has turned a corner and is having a good year now. It’ll be interesting to see if it can maintain this trend.

Let’s now move on to the Harding Loevner International Equity Portfolio – Investor Class (HLMNX).

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