(Updates shares in fifth paragraph, Federated results in sixth.)
Oct. 24 (Bloomberg) -- Franklin Resources Inc. led money managers suffering client redemptions last quarter as support from the bond market ebbs after a 30-year rally and investors continue to shy away from active stock-picking.
Franklin, manager of the Franklin and Templeton mutual funds, reported withdrawals of $8.5 billion from its fixed- income funds. AllianceBernstein Holding LP said investors pulled a net $4.8 billion, including $2.4 billion from bonds. T. Rowe Price Group Inc. saw redemptions of $7.4 billion as institutional investors moved out of stocks, and Janus Capital Group Inc. had net withdrawals of $4.2 billion, including $4.9 billion from active stock funds.
Money managers such as Franklin, who benefited from a surge of client deposits into bond funds from 2008 to 2012, are starting to see that support fade after bonds fell this year. Federal Reserve Chairman Ben Bernanke in May raised the possibility that the central bank will begin to withdraw its unprecedented economic stimulus, prompting $48.6 billion in redemptions from bond funds during the quarter, according to data from Morningstar Inc.
“Investors are realizing bond fund returns won’t be what they were in the years of declining interest rates,” Geoff Bobroff, a mutual fund consultant based in East Greenwich, Rhode Island, said in a telephone interview. “At the same time, the great transition into stocks appears to be highly overstated.”
Franklin rose 0.4 percent to close at $54.48 in New York trading, and Janus gained 4 percent to $9.54. T. Rowe Price declined 3.1 percent to $75.46 and AllianceBernstein dropped 0.1 percent to $21.15.
Federated Investors Inc. said net income fell 32 percent to $37.7 million, or 36 cents a share, a year after insurance proceeds boosted profit by 11 cents a share. Fee waivers for money-market funds and investor withdrawals from stock and bond funds reduced earnings in the third quarter. The Pittsburgh- based company, which announced results after the close of regular U.S. trading, is the third-biggest manager of U.S. money-market funds.
Franklin experienced net redemptions of $2.7 billion, the first time clients pulled money from the firm since the quarter that ended Dec. 31, 2011. Investor redemptions included $5.4 billion from municipal offerings.
Franklin Chief Executive Officer Greg Johnson blamed the municipal withdrawals on rising interest rates and “negative headlines” about the troubles of Detroit and Puerto Rico. Franklin’s equity funds drew $2.4 billion in deposits and its funds that buy a mix of stocks and bonds attracted $3.2 billion.
Franklin’s net income for the three months ended Sept. 30 increased 3.4 percent to $509 million, or 80 cents per share, from $492.1 million, or 77 cents, a year earlier, the San Mateo, California-based company said today in a statement. Franklin missed the 87-cent average estimate of 13 analysts in a Bloomberg survey.
T. Rowe Price said third-quarter net income rose 9 percent as clients pulled money for the second straight quarter. Net income increased 9 percent to $267.7 million, or $1 a share, from $245.7 million, or 94 cents, a year earlier, the Baltimore- based company said today in a statement.
Investor withdrawals included $6.4 billion taken out by institutions, the company said in the statement. Most of the redemptions came from equity investments, Brian Lewbart, a spokesman, said in an e-mail.
“The institutional marketplace is derisking and changing their investment objectives to a more conservative stance,” CEO James Kennedy said today in an interview.
Janus Capital said today its third-quarter net income rose 30 percent to $32.6 million as markets boosted assets. Clients withdrew a net $4.2 billion for the Denver-based company’s 17th consecutive quarter of redemptions.
The MSCI All Country World Index returned 18 percent in the year ended Sept. 30 and 8.1 percent in the quarter, including reinvested dividends.
Franklin had 40 percent of its $844.7 billion in assets in stocks, the bulk of it in global and international equities, company data show. Bonds represented 43 percent of assets, and hybrid funds with stocks and fixed income accounted for 16 percent.
The $69.4 billion Templeton Global Bond Fund suffered net redemptions of $1.2 billion in the quarter amid a flight from fixed income, estimates from Chicago-based Morningstar. show. The fund managed by Michael Hasenstab, has attracted $3.8 billion in 2013, according to Morningstar. Templeton Global Bond beat 76 percent of peers this year through Oct. 21.
Franklin’s largest fund, the $80.6 billion Franklin Income Fund, won $1.7 billion in the quarter and $4.9 billion this calendar year, according to Morningstar. The fund, which buys stocks and bonds, outperformed 65 percent of rivals in 2013.
Executives from T. Rowe Price, Janus and AllianceBernstein today criticized U.S. lawmakers for roiling financial markets and hurting economic growth when they almost failed to come to agreement earlier this month on raising the country’s debt limit.
“It’s terribly damaging what Washington is doing to this country, internally and externally,” T. Rowe Price’s Kennedy said.
Richard Weil, Janus’s CEO, said “equity markets have remained strong despite what sometime seems like our elected government’s best efforts to undermine the economic recovery.”
Peter Kraus, AllianceBernstein’s CEO, called the run-up to the debt ceiling “harrowing.”
--Editors: Sree Vidya Bhaktavatsalam, Josh Friedman