Franklin Operating Profit Falls on Equities Withdrawals
Franklin Resources Inc. (BEN), manager of the Franklin and Templeton mutual funds, reported declines in fiscal fourth-quarter revenue and operating income as redemptions from stock mutual funds hurt fees.
Revenue for the three months ended Sept. 30 decreased 1.1 percent to $1.8 billion and operating income declined 9.5 percent to $622.7 million, the San Mateo, California-based company said today in a statement. The shares fell as much as 2.8 percent.
Fees for managing investments decreased 4.2 percent to $1.1 billion as investors pulled $2.3 billion from Franklin’s international and domestic stock 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.
Revenue was “below expectations mostly due to modest performance fees,” Daniel Fannon, an analyst at Jefferies & Co., said in a research note. “With the exception of hybrid funds, flows were weaker than expected across the board.”
Franklin fell 1.8 percent to $126.15 at 11:18 a.m. in New York. The shares advanced 34 percent this year through yesterday’s close, compared with an increase of 18 percent for the 20-member Standard & Poor’s index of custody banks and asset managers.
Firmwide, clients added $2.9 billion as bond funds added new money. Net income increased 18 percent to $492.1 million, or $2.31 a share, from $416 million, or $1.88, a year earlier. Franklin’s non-operating income for the quarter included a gain of $64.1 million related to investments in its funds compared with a loss of $116.5 million a year earlier.
“Although the flow environment remains challenging, when I look across the company, I’m encouraged by the fact that we continue to have success attracting flows in asset classes that are in favor,” Johnson said in recorded remarks posted on the firm’s website.
Investors withdrew $82.6 billion from U.S. mutual funds that buy domestic stocks this year through September, while adding $18.6 billion to international equity funds, according to data compiled by Chicago-based Morningstar Inc. (MORN)
BlackRock Inc. (BLK), the world’s largest asset manager, said clients redeemed a net $55 billion in the third quarter, even with deposits of $20.5 billion into equity exchange-traded funds. BlackRock said an institutional investor pulled more than $72 billion from a fixed-income portfolio after the firm declined to rebid for the business at lower fees. Assets rose 3.2 percent during the three months to $3.67 trillion, the company said last week, fueled by market gains of $134 billion.
T. Rowe Price Group Inc. (TROW) said yesterday third-quarter earnings rose 33 percent as global stock markets rallied and investors made net deposits of $4.3 billion. Assets rose 6 percent to $574.4 billion during the quarter as market appreciation added $28.4 billion.
At Franklin, assets under management increased 6.1 percent to $749.9 billion as a result of market appreciation. The Standard & Poor’s 500 Index, a benchmark for U.S. stocks, gained 5.8 percent last quarter and global stocks, as measured by the MSCI AC World Index, rose 6.2 percent. More than 70 percent of Franklin’s equity money is in global and international funds.
The company’s flagship fund, the $63 billion Templeton Global Bond Fund (TPINX), 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 13 percent this year through Oct. 23, better than 88 percent of peers. Over five years, the fund topped 94 percent of rivals.
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