INVESTING IN DIGITAL TRANSFORMATION

Technology is rapidly changing businesses, processes and our everyday lives. Are you capturing these exciting opportunities from the digital revolution?

DIGITAL TRANSFORMATION TODAY

Technology is fueling disruptive innovation, streamlining outdated processes, and creating new possibilities.

Over the past few decades, the way we live has already been altered by new developments.

TRANSPORT

THEN

Street hailing for cabs by the side of the road requires luck and patience

NOW

Ride sharing apps are faster and more convenient

RETAIL

THEN

Shoppers had to visit brick and mortar shops to purchase goods

NOW

Shop online at your convenience and stores deliver to you

ENTERTAINMENT

THEN

To watch a movie at home required a visit to a video store

NOW

Stream your movies in 4K on your mobile or smart TV

The forces of digital change will continue to drive the creation of new solutions for consumers and ripe opportunities for businesses. While new technologies have already changed our world, the pace of innovation is continuing to accelerate. The coming decades will feature even more growth in digital technologies, tools, and services.

WHAT’S NEXT IN DIGITAL TRANSFORMATION?

Today’s progressively sophisticated technology and software also allow companies to provide products and services that seemed impossible even 10 years ago. We believe the transition to technology-on-demand will be integrated into day-to-day life in the years ahead.

ARTIFICIAL INTELLIGENCE

From speech recognition to machine learning, nearly all applications and devices will feature some AI ability. In 2021, worldwide spend is projected to reach $57.6 billion1.

Examples: Google, Facebook2

CLOUD COMPUTING SERVICES

Cost-effective access to data, servers, and programs will make businesses more effective. This subsector is forecasted to more than triple in size by 20213.

Examples: Amazon, Microsoft2

INTERNET OF THINGS

Smart devices, homes, and factories will increasingly connect to the Internet to communicate with users and each other. By 2020, there will be 200 billion connected devices4.

Examples: Twilio, Analog Instruments2

E-COMMERCE

Entrenched but still growing, e-commerce connects buyers and sellers, no matter how far apart. Ecommerce is growing over five times as fast as retail5.

Examples: Alibaba, MasterCard2

WHY INVEST IN TECHNOLOGY?

The global economy is strengthening, consumer and enterprise spending on IT are robust and sector valuations are currently at a premium to the market. Technology firms are also seeing better growth, strong business models, and improving capital returns due to tax reforms, all of which point to a positive sector outlook.

Reasons to Invest

1. Many Tech Firms Have Become Very Profitable

Today’s technology sector has more established companies providing solid profits and paying dividends to shareholders. In fact, the average EPS for the tech sector (represented by S&P 500 Information Technology Index) is more than double its long-term average.

Earnings-Per-Share S&P 500 Information Technology Index6

20-Year Peroid Ended 31 March 2019
  • U.S. Recession7

2. Valuations Remain Reasonable

Compared to historical average, technology stocks have been trading at a very competitive level with good upside potential. We continue to see a solid environment for technology companies to generate both revenue and strong earnings growth relative to most other sectors going forward.

Price-to-Earnings Ratio S&P 500 Information Technology Index8

20-Year Peroid Ended 31 March 2019
  • U.S. Recession7

3. Cash-rich Technology Firms Are Less Dependent on Debt

High quality technology companies have historically held up better than other sectors during rising interest rates due to their high cash balances, which can be used to service debt, pay for research and development, and fund growth internally.

S&P 500 Sectors - Debt-to-Market Cap Ratio9

As of 31 March 2019

HEALTH CARE
9%

CONSUMER DISCRETIONARY
4%

ENERGY
12%

CONSUMER STAPLES
14%

INDUSTRIALS
18%

MATERIALS
18%

FINANCIALS
78%

REAL ESTATE
30%

COMMUNICATION SERVICES
0%

WHY FRANKLIN TECHNOLOGY FUND?

1. Notable Achievements10,11,12

5 STARS

Morningstar Rating 97% of the time since July 2016

DOUBLED

Fund AUM has more than doubled since 2017

AWARDED

Best fund over 10 Years in Equity Sector IT Thomson Reuters Lipper Award 2018

2. Investment Themes

The Fund invests in high quality, undervalued, emerging leaders in line with the most attractive, multi-year technology themes around digital transformation.

These companies serve users in an always-on digital environment, across different facets of life.

Examples of such companies include2:

Transport: Proterra, Tula Tech
Career: Microsoft/ LinkedIn
Business: Salesforce, Workday
E-commerce: Amazon, Alibaba
Entertainment: Amazon, Google
Financial: Intuit, Paypal
Education: 2U
Social: Facebook, Tencent
Devices: Apple


Conversely, we are underweight in sub-sectors that are facing pressures from cloud computing and Software-as-a-Service.

OVERWEIGHTS13

  • Cloud Computing Services
  • Application Software as Service
  • Internet e-Commerce & Advertising
  • Internet of things
  • Financial IT Services & Digital Payments
  • Semiconductor Capital Equipment

UNDERWEIGHTS13

  • Enterprise IT Hardware
  • Telecom Equipment
  • Consumer Electronics
  • Legacy IT Services
  • Legacy Systems Software

3. Investment Team14

Headquartered in Silicon Valley, the team is in the thick of the world’s most successful technology companies.

“We believe it is incredibly valuable to have our technology team located in Silicon Valley. Not only do we have direct access to the leading public technology companies, but also to the leading private companies in a region where the majority of the world’s venture capital is deployed. This access can help us see investment opportunities and technology driven disruption before the broader markets.”

Jonathan Curtis
Portfolio Manager, Franklin Equity Group

Jonathan Curtis

  • Years With Firm: 10
  • Years Of Experience: 15

John Scandalios

  • Years With Firm: 22
  • Years Of Experience: 29

James Cross

  • Years With Firm: 20
  • Years Of Experience: 21

Our senior management team is supported by 14 professional research analysts with an average of 14 years of experience in the following industries:

  • Capital Goods
  • Commercial/ Business Services
  • Automotive
  • Consumer Electronics
  • Logistics
  • Financial/Bank IT Services
  • Industrial Tech
  • Robotics
  • Machinery
  • Instruments
  • Internet
  • Enterprise Software
  • IT Services
  • Semiconductor Equipment
  • Media, Cable, Broadcasting
  • Media Technology Devices
  • Online Travel Agencies
  • Telecom Services
  • Communication Equipment

NEXT STEPS

For more information:

Fund Factsheet

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Franklin Technology Fund Details

FUND DETAILS

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