CONTRIBUTORS
Warren Pustam
Portfolio Manager, Research Analyst, Templeton Global Equity Group
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Key takeaways
- The discovery of quality and its intrinsic worth is a highly dynamic process. Sometimes, it may challenge us to consider the potential deficiencies of historical metrics as a reference for the future. At Templeton Global Equity Group (TGEG), a key part of this discovery process is understanding the true value of intangible assets and investments.
- We pay attention to what we believe is a prevalent issue of value misclassification due to potential deficiencies in the accounting for intangibles. Current principles generally treat intangible investments as expenses. This may affect book value, causing companies that invest actively in intangibles to appear overvalued.
- Understanding the long-term value-add of intangible investments is hence a key part of our research, especially in sectors that look expensive by valuation numbers, such as software and digital services. As we seek quality and value in the software sector, we look at how intangible investments may help sustain cash flow generation and customer retention.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Investment strategies which incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in the health care, information technology (IT) and/or technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. There can be no assurance that multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. Active management does not ensure gains or protect against market declines. The investment style may become out of favor, which may have a negative impact on performance.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.