Individual Investor Contact Us Careers United Kingdom Our Company Products Fund Views Insights Resources Search Home Investor Education A Guide to Hedged Share Classes Share CURRENCY-HEDGED SHARE CLASSES Franklin Templeton Investments offers currency-hedged share classes across a range of funds. These hedged share classes aim to mitigate the effect of a strengthening (or weakening) currency on your investment returns. WHY HAVE SHARE CLASSES WITH DIFFERENT CURRENCIES? The performance of a fund can be reported in different currencies to suit the needs of different investors. For example, a UK investor may find it more convenient to see their returns in sterling than in US dollar or euro. WHY HAVE HEDGED SHARE CLASSES? Investors who choose a different currency to that of the fund‘s investment strategy risk having their investment returns affected by exchange rate movements between the currency of the fund’s investment strategy and the currency of the share class. Currency hedging is a way of minimising the impact of these exchange rate movements – in essence to take away some of the uncertainty of investing by allowing an investor to capture the performance of the underlying assets, without the additional risk of currency fluctuations. Investors should be aware that no hedging strategy will eliminate currency risk entirely and there will be differences because of the costs of hedging, the nature of the instruments used and the level of hedge coverage at any point in time. HOW DOES HEDGING IMPACT PERFORMANCE? Total Return = Fund performance + Currency performance The return an investor will receive is a combination of fund performance and the impact of any currency movements in the share class currency. Hedging simply attempts to remove the “Currency performance” element from the formula. While this removes one element of uncertainty, it’s important to realise that hedging may have positive or negative results, depending on prevailing trends. Generally, for UK investors in an unhedged sterling share class, a strong sterling versus the currency of the fund’s investment strategy will reduce returns, while a weakening sterling will mean better performance. For UK investors in a hedged sterling share class, the opposite is true. HEDGING IN PRACTICE Chart 1 illustrates how hedged and unhedged share classes have performed under recent market conditions. The two share classes illustrated are from the same fund and both priced in sterling; the performance difference between them is a result of currency hedging. The Templeton Global Total Return Bond Fund has an investment strategy based in US dollar. In the periods where the US dollar was strong against sterling (the shaded areas), the hedged share class underperformed the unhedged share class. Where the US dollar was weak against sterling, the hedged share class outperformed the unhedged share class. Chart 1: The Effect of Hedging on Performance Discrete Performance, 12 months June-June Shaded area is strong US dollar v sterling Past performance is not an indicator nor guarantee of future performance The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Performance in sterling, including the reinvested dividends net of basic rate UK tax and net of management fees. Sales charges and other commissions, other taxes and relevant costs to be paid by an investor are not included in the calculations. The W(inc) GBP-H3 share class launched on 31/05/2012. Performance data prior to that date is for the A(inc) GBP-H3 launched on 29/09/2009 which has higher annual charges. SHOULD I INVEST IN A HEDGED SHARE CLASS? Hedged and unhedged share classes exist to give investors flexibility in their investment choices. In the end, which is most appropriate for a particular investor will depend on their individual circumstances or their views on exchange rates. As always, if there’s any doubt about which share class is most appropriate, we recommend contacting a financial adviser. TYPES OF HEDGED SHARE CLASSES Franklin Templeton Investments offers currency hedging to investors in a number of share classes in our funds. These take slightly different approaches, but they all aim to give similar results. TYPE EXPLANATION H1 H1 share classes aim to provide holders in a particular share class currency with a return similar to that of the investment strategy of the fund by hedging out 100% of the currency exposure in the portfolio. H2 H2 share classes aim to provide holders in a particular share class currency with a return similar to that of the investment strategy of the fund by hedging out the main currency exposure in the portfolio. H3 H3 share classes are similar to H1 share classes, but are used when the currency of the investment strategy is different to the base currency of a fund. For example, the Templeton Global Total Return Bond Fund has a US dollar investment strategy, but the fund base currency is sterling. In this instance, the hedged share class aims to provide the equivalent of the USD performance of the fund in sterling. A FINAL THOUGHT ON HEDGING Investing at Franklin Templeton has always been focussed on the long term, and, over the long term, currency movements have tended to cancel each other out. Chart 2 below gives an example of how this has worked with the Templeton Global Total Return Bond Fund. While for any short period of time one or the other will outperform, over the last five years the total return of the two share classes has been fairly similar. Chart 2: Hedged v Unhedged Performance Over Time Cumulative performance 5 years to 30 June 2016 Past performance is not an indicator nor guarantee of future performance The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Performance in sterling, including the reinvested dividends net of basic rate UK tax and net of management fees. Sales charges and other commissions, other taxes and relevant costs to be paid by an investor are not included in the calculations. The W(inc) GBP-H3 share class launched on 31/05/2012. Performance data prior to that date is for the A(inc) GBP-H3 launched on 29/09/2009 which has higher annual charges. HEDGED SHARE CLASSES AT FRANKLIN TEMPLETON INVESTMENTS Below are the sterling hedged share classes designed for UK investors in our Franklin Templeton Funds OEIC. Franklin Templeton offers a large range of hedged and unhedged share classes across a range of funds and currencies. For a complete list, please visit our website. Franklin Templeton Funds (OEIC) FUND NAME SHARE CLASS FUND BASE CURRENCY FUND NUMBER ISIN SEDOL Templeton Global Total Return Bond Fund A(acc)-H3 GBP* 0888 GB00B4XDBZ57 B4XDBZ5 Templeton Global Total Return Bond Fund A(inc)-H3 GBP* 0887 GB00B42B3V09 B42B3V0 Templeton Global Total Return Bond Fund W(acc)-H3 GBP* 0979 GB00BKT0HX25 BKT0HX2 Templeton Global Total Return Bond Fund W(inc)-H3 GBP* 0953 GB00B617LX19 B617LX1 Templeton Global Total Return Bond Fund Z(inc)-H3 GBP* 0952 GB00B3V9V030 B3V9V03 *Templeton Global Total Return Bond Fund has a base currency of sterling and a reference currency of US dollar. The hedged share classes use a strategy intended to reduce the effect of exchange rate movements between the currency of the Fund’s investment strategy and sterling. INVESTOR EDUCATION Main Topics Introduction to Mutual Funds What is an ETF? Behavioural Finance Power of Perseverance When is the best time to invest? Market Volatility Watching From the Sidelines Glossary Templeton Maxims A Guide to Hedged Share Classes MORE ON INVESTING Why volatility is not all bad Learn more Watching from the sidelines may cost you Learn more When is the best time to invest? Learn more Important Information 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 Franklin Templeton Investments’ fund ranges. Nothing in this document should be construed as investment advice. References to indices are made for comparative purposes only and are provided to represent the investment environment existing during the time periods shown. An index is unmanaged and one cannot invest directly in an index. The performance of the index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton fund. Franklin Templeton Investments have exercised professional care and diligence in the collection of information in this document. However, data from third party sources may have been used in its preparation and Franklin Templeton Investments has not independently verified, validated or audited such data. Any research and analysis contained in this document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally. Franklin Templeton Investments 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. Investments entail risks. The value of investments and any income received from them can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator or a guarantee of future performance. Issued by Franklin Templeton Investment Management Limited, Cannon Place, 78 Cannon Street, London EC4N 6HL. Authorised and regulated by the Financial Conduct Authority. Investments entail risks, the value of investments can go down as well as up and investors should be aware they might not get back the full value invested. United Kingdom Individual Investor This website is intended for residents of United Kingdom. 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