Franklin Profit Falls 9.6% as Stock Decline Cuts Assets

Franklin Profit Falls 9.6% as Global Stock Drop Cuts Assets
Headquarters of Franklin Resources Inc., parent company of money management unit Franklin Templeton. Photographer: Noah Berger/Bloomberg

Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, beat analysts’ estimates after gathering money into its funds amid sagging global markets.

Net income for the three months ended June 30 fell to $455.3 million, or $2.12 a share, from $503.3 million, or $2.26, a year earlier, the San Mateo, California-based company said today in a statement. Eight analysts surveyed by Bloomberg expected profit averaging $2 a share.

Franklin got $4.8 billion in deposits in the quarter, as clients put money into fixed-income funds while withdrawing cash from equity funds. Chief Executive Officer Gregory Johnson has urged investors to put more money into stock funds, arguing that in the coming years equities are likely to deliver better returns than they did in the past decade.

“Given the weak macro environment, this was a better-than-expected performance on earnings and flows,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in a telephone interview. He has a buy recommendation on the stock.

Franklin rose 2.8 percent to close at $115.39 in New York. The shares have gained 20 percent this year, compared with an increase of about 7.7 percent for the 20-member Standard & Poor’s index of custody banks and asset managers.

Client Deposits

Franklin’s deposits fell from $5.6 billion in the prior quarter and $21.7 billion in the year-earlier period. Johnson, in pre-recorded remarks posted on the firm’s website, said investors remain skittish about equities.

The plunge in stocks during the financial crisis “left a lasting impression on many investors and trillions of dollars are sitting in low-yielding savings instruments,” he said.

Franklin drew $5.5 billion into its fixed-income funds during the quarter, as investors pulled $1.1 billion from stock funds. In the year ended June 30, the firm’s equity assets dropped 10 percent to $278.6 billion as bond assets rose 5.4 percent to $319.5 billion.

Performance at the company’s flagship fund, the $60 billion Templeton Global Bond Fund, bounced back this year after it trailed 91 percent of rivals in 2011, according to data compiled by Bloomberg. The fund, managed by Michael Hasenstab, gained 7.6 percent through July 26, better than 85 percent of peers. Over five years, the fund topped 92 percent of rivals.

Flagship Fund

Templeton Global Bond attracted $17.6 billion in 2010 and $13.4 billion in 2011, ranking among the industry’s best-selling funds, according to Chicago-based Morningstar Inc. In the last two months of 2011, the fund suffered withdrawals after performance slumped when Hasenstab’s currency bets failed to pay off. Investors added $193 million to the fund in the first six months of 2012.

The MSCI ACWI Index of global stocks fell 8.7 percent in the 12 months ended June 30. More than 70 percent of Franklin’s equity money is in global and international funds, the company reported.

Investors withdrew $42.6 billion from funds that buy U.S. stocks in the first half of 2012, Morningstar data show. They added $25.2 billion to international equity funds.

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