Fund Description

The fund seeks long-term capital growth by investing at least 80% of its net assets in equity securities of small and medium-sized companies, within the market capitalization ranges of the Russell 2500™ Index for small-sized companies and Russell Midcap® Index for medium-sized companies, at the time of purchase.

Strategy Statement

"We use a fundamental, bottom-up approach to investing in small and mid-cap companies that are leaders or emerging leaders in their industry and that meet our criteria of growth, quality and valuation."

Management

John Scandalios, CFA

John Scandalios, CFA®

  • Joined Franklin Templeton in 1995
  • Managed Fund Since 2016
Michael McCarthy, CFA

Michael McCarthy, CFA®

  • Joined Franklin Templeton in 1992
  • Managed Fund Since 1993

INVESTMENT PHILOSOPHY, STRATEGY AND APPROACH

Investment Philosophy

The Franklin Equity Group philosophy holds that companies with the potential for long-term sustainable growth can provide significant opportunities for investors. Market participants can have a short-term perspective and may under appreciate the potential for value created by sustainable growth. We believe that we have the potential to deliver superior risk-adjusted returns by identifying companies with potential for sustainable growth which we believe is not reflected in current prices.

Investment Process

Within a collaborative environment, our team utilizes fundamental, bottom-up research to focus on companies that we believe have sustainable growth characteristics—meeting our criteria of Growth, Quality and Valuation.

Our analysis includes an assessment of any material Environmental, Social and Governance (ESG) factors on the long-term risk and return profile of a company.

Growth

  • Focus on companies with potential to produce sustainable earnings and cash flow growth
  • Evaluate the long-term market opportunity and competitive structure of the industry seeking to identify target leaders and emerging leaders

Quality

  • Seek companies with strong and improving competitive positions in attractive markets
  • Identify experienced and talented management teams as well as financial strength reflected in the capital structure, gross and operating margins, free cash flow generation, and returns on capital

Valuation

  • Consider a range of potential outcomes based on an assessment of multiple scenarios
  • Evaluate whether, in our view, security prices fully reflect the balance of the sustainable growth opportunities relative to the business and financial risks

Rating

Overall Morningstar Rating As of 08/31/2019

Rating Category: Mid-Cap Growth

Morningstar
The fund's overall Morningstar Rating measures risk-adjusted returns and is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) rating metrics.

Historical Morningstar Rating As of 08/31/2019

Years Ratings Funds
in category
3
3 Stars
538
5
2 Stars
487
10
2 Stars
372

Morningstar Style Box As of07/31/2019

Strategy, Benefits, Results

Strategy

We use fundamental bottom-up research to find small- to mid-sized growth companies that are leaders or emerging leaders in their industry and that meet our criteria of:

  • Growth. Our team focuses on companies with the potential to produce sustainable earnings and cash-flow growth.
  • Quality. We seek high-quality companies with strong management teams and financial strength.
  • Valuation. We assess whether the growth opportunity is already reflected in the stock price.

Benefits

  • Small-mid strategy gives managers the flexibility to hold onto small, emerging businesses as they mature into successful mid-cap enterprises.
  • Tenured and experienced portfolio management team.
  • Distinct research structure. Investment professionals organized into collaborative sector teams.

Selling The Fund

  1. Point out the tenure and experience of the fund’s management team.

  2. Explain the benefit of the small-mid approach—flexibility to continue investing in successful companies as they grow larger.

  3. Discuss the fund’s emphasis on small- to mid-sized companies that are leaders or emerging leaders in their industry.