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Franklin’s Profit Increases 7.3% as Stock Markets Rally

Feb. 1 (Bloomberg) -- Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, said fiscal first-quarter profit rose 7.3 percent as a rally in global stock markets boosted assets under management.

Net income for the three months ended Dec. 31 climbed to $516.1 million or $2.42 a share, from $480.8 million or $2.20, a year earlier, the San Mateo, California-based company said today in a statement. Earnings beat the $2.38-a-share average estimate of 20 analysts surveyed by Bloomberg.

Chief Executive Officer Gregory Johnson has been urging investors to put more money into stock funds, arguing that equities are likely to deliver better returns than they did in the past decade. Franklin’s stock funds had $6.4 billion in withdrawals during the quarter, which Johnson, in pre-recorded comments on the firm’s website, said reflected “lumpy institutional redemptions.” Investors deposited $6.9 billion into Franklin’s bond funds during the quarter.

“Given the rebound in investor flows we are seeing across the industry in January, I would expect to see a meaningful snap back at Franklin in the current quarter,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in a telephone interview.

Franklin rose 2.1 percent to close at $139.77 in New York. The shares have gained 11 percent this year, the same as the increase for the 20-member Standard and Poor’s index of custody banks and asset managers.

Net Deposits

Stock mutual funds in the U.S. attracted $14.3 billion in net new money in the week ended Jan. 9, the most since at least 2007, according to the Washington-based Investment Company Institute. Both domestic and international equity funds won money in the first two weeks of 2013, ICI data show.

Franklin had $300 million in net deposits in the fourth quarter and $13.6 billion for the year.

Equity-oriented funds accounted for about 39 percent of Franklin’s $782 billion in assets at year-end, and bonds represented about 45 percent. Franklin’s equity assets climbed to $303 billion as of Dec. 31, up 12 percent for the year, as the MSCI All-Country World Index rose 13 percent in 2012. More than 70 percent of the firm’s stock assets are global or international.

Hasenstab’s Fund

The company’s flagship fund, the $67 billion Templeton Global Bond Fund, bounced back last year after trailing 91 percent of rivals in 2011, according to data compiled by Bloomberg. The fund, managed by Michael Hasenstab, gained 16 percent in 2012, better than 90 percent of peers.

Hasenstab’s results were driven by bets on countries such Ireland and Hungary, whose bonds rallied 29 percent and 22 percent, according to Bank of America Merrill Lynch index data. Templeton Global Bond had 9 percent of its money in Irish bonds and 5.8 percent in Hungarian bonds as of Nov. 30, according to a regulatory filing.

Hasenstab’s fund attracted $1.5 billion in deposits in the fourth quarter, data from Chicago-based Morningstar Inc. show. That compares with $355 million in the third quarter. Hasenstab manages more than $175 billion.

Franklin in September agreed to pay about $183 million for a majority stake in K2 Advisors Holdings LLC, a fund-of-hedge-fund manager with $9.3 billion in assets. Starting in 2016, Franklin will acquire the rest of Stamford, Connecticut-based K2 over a period of several years.

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net

To contact the editor responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net

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