K2 - An Alternative for Navigating Volatile Markets


As investors, financial markets have been kind to us in recent years. We've seen steady growth in most economies, and positive fundamentals can still be found in many markets. But this could all change in the months and years ahead – markets are seeing increased volatility, populist governments are taking power and a trade war is brewing between the United States and China.

The full impact of these issues is currently unknown, so what might help to position your investments for unpredictable financial market?

When an investment falls in value, it can take a large rise in the share price to overcome the initial loss. If a stock, for example, loses just 1%, it only needs to appreciate by 1.01% to recover all the value it has lost. That doesn't sound like much, but a loss of 20% will require a much higher return of 25%. And a 50% loss - the kind seen during the 2008 to 2009 recession - requires an eye-watering 100% just to get back to even.

One of the key aspects of the Franklin K2 Alternative Strategies Fund is that is that it has a record of helping manage the risk during those periods when stocks are falling in value. During the MSCI World Index's ten worst trading days since the fund was launched in September 2014, the fund only participated in a little over a quarter of the benchmark's decline.

See How the Fund Performed During Major Market Events1:

  • Franklin K2 Alternative Strategies Fund A (acc) USD
  • MSCI World Index

Past performance is not an indicator or a guarantee of future performance.

Financial markets are always changing. You may benefit from an investment strategy that can react quickly when the facts on the ground change. The Franklin K2 Alternative Strategies Fund invests in a number of different hedge strategies, which we explain in greater detail below. Using a number of different approaches helps us adjust the fund's strategy to take advantage of opportunities, manage risks, and generally create what we believe is the right investment mix for the prevalent financial-market conditions.

This flexibility gives investors exposure to four distinct hedge strategies:

Long Short Equity

Makes long and short investments in common stocks and indices*

Relative Value

Intended to profit from pricing inefficiencies.

Event Driven

Invests in securities of companies undergoing corporate events.

Global Macro

Focuses on macroeconomic opportunities.

Adopting to changing market conditions:

Strong Financial Market

Companies actively participate in relative value and long/short opportunities.

Global Financial Downturn

Companies may become cash conscious, resulting in fewer mergers and acquisitions and event driven opportunities.

Market Recovery

As markets stabilize, event-driven opportunities often re-emerge.

Hypothetical investment scenario only. For illustrative purposes only. Actual allocations may vary.

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* Long/short equity is an investing strategy that takes long positions in stocks that are expected to appreciate and short positions in stocks that are expected to decline. A long/short equity strategy seeks to minimize market exposure, while profiting from stock gains in the long positions, along with price declines in the short positions.

Investing some of your money in hedge fund strategies may help reduce risk and increase return potential. Hedge-strategy managers can manage both opportunities and risk, which has historically led to a better balance of risk and return than a broad range of global equity and bond markets.

20-Year Period Ending 30 September 20182

  • Hedge Fund
  • Equity
  • Fixed Income

Past performance is not an indicator or a guarantee of future performance.

For illustrative purposes only; not representative of any Franklin Templeton or K2 Fund performance or portfolio composition.

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Franklin K2 Liquid Alternative Funds provides you with a different source of return by investing in a variety of hedge fund managers, whose hedge strategies we package in a familiar mutual-fund format. Hedge strategies have the potential to reduce the impact of volatility on your investments. And that means you may be able to keep more of your money when stock and bond prices are declining.

Get Started with Franklin K2 Liquid Alternative Funds

Work with your financial advisor to fully capture the potential of new sources of return through hedged strategies. Together you can decide how best to incorporate these strategies into your portfolio.

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K2 Advisors* - A Trusted, Experienced Investment Partner

Franklin K2 Alternative Strategies Fund is advised by K2 Advisors, an organization with 24 years' experience in hedge fund investing. Over its history, K2 has grown into one of the largest advisors of multi-manager portfolios, offering a range of alternative solutions to its client base.

  • $11.8 billion in assets under management (AUM)
  • Investments in approximately 90 managers across the full spectrum of hedge fund strategies
  • A pioneer in obtaining transparent holdings information from hedge strategies
  • 39 investment professionals worldwide
  • The ability to assist clients in all aspects of hedge fund investing
  • A global presence with personnel in the United States, the United Kingdom, Japan, Australia, and Hong Kong

* As of 1/8/2018


  1. Source: MSCI as of 30/09/2018. The benchmark provided for additional performance and risk comparisons are for informational purposes only; the fund manager does not intend for the portfolio to track them. MSCI World Index is provided as an equity benchmark for risk statistics comparison. © 2018 Morningstar, Inc. All rights reserved. The information contained herein:
    (1) is proprietary to Morningstar;
    (2) may not be copied or distributed; and
    (3) is not warranted to be accurate, complete or timely.
    Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
  2. Source: FactSet, Barclays, HFR, and MSCI. For the 20-year period ended 30 September 2018. Important data provider notices and terms available at www.franklintempletondatasources.com. Measures the respective HFR Benchmark Index's average rolling three-year volatilities and betas (compared against the MSCI World Index). Volatility is defined as standard deviation of monthly returns. Beta is a measure of the magnitude of the respective HFR Benchmark Index's past price fluctuations in relation to the ups and downs of the overall market (in these examples, the MSCI World Index). The overall market is assigned a beta of 1.00, so a benchmark with a beta of 1.20 when being compared to the overall market would have seen its price rise or fall by 12% when the overall market rose or fell by 10%. Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. Unlike most asset class indexes, HFR Index returns reflect any fees and expenses. HFR Benchmark Index beta and volatility are for illustrative purposes only and are not representative of the funds' beta and volatility.


Franklin K2 Alternative Strategies Fund

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 may also be affected by currency fluctuations. Currency fluctuations may affect the value of overseas investments. The Fund seeks to achieve its targeted investment objective by allocating its assets across multiple “alternative” strategies and by investing in a wide range of assets. Such assets and investment instruments have historically been subject to price movements due to such factors as general stock market volatility, sudden changes in interest rates, or fluctuations in commodity prices. The Fund will seek to limit volatility using hedged strategies. As a result, the performance of the Fund can fluctuate moderately over time. Credit risk: the risk of loss arising from default that may occur if an issuer fails to make principal or interest payments when due. This risk is higher if the Fund holds low-rated, non-investment-grade securities. Currency risk: the risk of loss arising from exchange-rate fluctuations or due to exchange control regulations. Derivatives risk: the risk of loss in an instrument where a small change in the value of the underlying investment may have a larger impact on the value of such instrument. Derivatives may involve additional liquidity, credit and counterparty risks. Liquidity risk: the risk that arises when adverse market conditions affect the ability to sell assets when necessary. Reduced liquidity may have a negative impact on the price of the assets. Operational risk: the risk of losses resulting from errors or failures arising from the people, systems, service providers or processes upon which the Fund depends. Targeted return risk: there is no guarantee that the Fund will achieve its targeted objective. The Fund seeks to achieve its returns over a full market cycle to achieve a positive return. Capital invested in the Fund may decline in value. For full details of all of the risks applicable to this Fund, please refer to the “Risk Considerations” section of the Fund in the current prospectus of Franklin Templeton Investment Funds.

Other significant risks include: credit risk, derivatives risk, liquidity risk, operational risk, targeted return risk. For full details of all of the risks applicable to this Fund, please refer to the “Risk Considerations” section of the Fund in the current prospectus of Franklin Templeton Investment Funds.

- Franklin K2 Alternative Strategies Fund, Franklin K2 Long Short Credit Fund - Sub-funds of the Luxembourg-domiciled SICAV Franklin Templeton Investment Funds

Important Information