Franklin Profit Drops 21% as Assets Under Management Decline

  • Underperforming mutual funds continue to experience outflows
  • Bets on energy and emerging-market currencies yet to pay off

Franklin Resources Inc., the investment firm whose biggest mutual funds have suffered outflows amid slumping performance, said fiscal first-quarter profit dropped 21 percent as the selloff in emerging markets and energy stocks and bonds erodes assets. 

Net income for the three months ended Dec. 31 declined to $447.8 million, or 74 cents a share, from $566.4 million, or 91 cents, a year earlier, the company said in a statement Wednesday. 

Franklin, led by Chief Executive Officer Gregory Johnson, 54, has been trimming expenses as clients pull money. Some of the firm’s biggest mutual funds have bets on energy and emerging-market currencies that lost ground in 2015 because of concerns that the global economy is weakening. Assets under management fell to $764 billion as of Dec. 31 from $771 billion three months earlier and $880 billion at the end of 2014.

“A number of their flagship funds have performance and redemption issues, and you are likely to see continuing big outflows,” Michael Kim, an analyst with Sandler O’Neill & Partners in New York, said in an interview before earnings were released.

Franklin shares fell 1.1 percent to $31.88 at 9:47 a.m.

Redemptions Slow

Franklin had redemptions of $20.6 billion in the quarter, down from a record $28 billion in the previous three months. The outflows came in a range of categories, including global equities, global bonds and hybrid funds that buy a mix of stocks and bonds.

“We have a long history of weathering periods like this, and emerging stronger as a firm,” Johnson said in the earnings release.

Michael Hasenstab’s $54.7 billion Templeton Global Bond Fund, which trailed two-thirds of peers last year, had estimated net withdrawals of $4.7 billion in the three months ended Dec. 31, according to data compiled by Bloomberg. Hasenstab said in October that the selloff in emerging-market assets, including Mexico and Malaysia’s currencies, has opened up investment opportunities not seen in decades. The peso has fallen against the dollar in 2016, while the ringgit has climbed.

Oil, Gas

Ed Perks’s $76.4 billion Franklin Income Fund, which lagged behind 78 percent of peers in 2015, had redemptions of $3.7 billion during the quarter. The fund had 11 percent of its assets in oil and gas securities as of year-end, Bloomberg data show. Oil prices plunged in 2015 on fears that China’s slowing economy will depress global demand.

Chief Financial Officer Kenneth Lewis said in October that the company was forecasting a 3 percent to 4 percent drop in expenses, excluding distribution costs, for 2016. In recorded remarks Wednesday, Lewis said the savings likely would be at the upper end of the range and that the company was looking for ways to cut more.

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