Franklin Profit Gains 17% as Global Stock Rally Lifts Assets

Jan 30, 2014 4:15 pm ET

(Updates with closing share price in fifth paragraph.)

Jan. 30 (Bloomberg) -- Franklin Resources Inc., manager of the Franklin and Templeton mutual funds, said fiscal first- quarter profit climbed 17 percent as rising global stock markets boosted assets under management.

Net income for the three months ended Dec. 31 increased to $603.8 million, or 96 cents a share, from $516.1 million, or 81 cents, a year earlier, the San Mateo, California-based company said today in a statement. Analysts had expected earnings of 93 cents a share, according to the average of 10 estimates in a Bloomberg survey.

Franklin, like other asset managers, benefited from a rally that lifted the MSCI All Country World Index 24 percent, including reinvested dividends, in 2013. Chief Executive Officer Greg Johnson, in a marketing campaign called “2020 Vision,” has been urging investors to add more money to stock funds, arguing that equities will have better returns than bonds over the next decade if markets revert to historical means.

“To the extent that people are moving up the risk curve and coming back to equities, the trend bodes well for Franklin,” Michael Kim, an analyst with Sandler O’Neill & Partners LP, said in a telephone interview before results were released. Kim rates the shares a “buy.”

Franklin rose 0.3 percent to close at $52.78 in New York. The stock gained 15 percent in the past 12 months, compared with a 25 percent rally in the 20-member Standard & Poor’s index of asset managers and custody banks.

Client Deposits

Franklin attracted $3.5 billion to its equity products in the quarter and $3.2 billion to hybrid vehicles that buy a mix of stocks and bonds. The combined $6.7 billion total was the most for the two asset classes in a quarter since 2007, Johnson said in a recorded comments today. Investors pulled $6.7 billion from Franklin’s bond products.

Equity funds industrywide attracted $219 billion in deposits last year, according to Chicago-based Morningstar Inc. Two-thirds went into global or international funds, a Franklin specialty. Seventy-one percent of the firm’s $365.7 billion in equity assets were global or international as of Dec. 31.

Asset Growth

Franklin’s stock assets grew 21 percent last year, while its bond holdings rose 2.1 percent, as investors worldwide pulled money from fixed-income funds after Federal Reserve Chairman Ben S. Bernanke in May hinted the U.S. central bank might begin scaling back its asset-buying program.

Franklin’s best-known fund, manager Michael Hasenstab’s $71 billion Templeton Global Bond Fund, experienced the change in investor sentiment. The fund had redemptions of $1.2 billion in the second half of 2013 after winning $5 billion in the first six months of the year, Morningstar estimates show.

The company’s largest fund, the $86.5 billion Franklin Income Fund, which invests in a mix of stocks and bonds, got $3.5 billion in deposits in the second half of the year, according to Morningstar.

BlackRock Inc., the world’s biggest asset manager, said earlier this month that fourth-quarter profit rose 22 percent as investors put money into the New York-based firm’s funds, boosting client assets and fees for managing them. Shares of T. Rowe Price Group Inc. gained the most in more than two years on Jan. 28 after the Baltimore-based firm said quarterly profit jumped 24 percent.

Franklin in June named Gregory Johnson, 52, chairman of the board after the retirement of his father, Charles Johnson. Yale University in September received a pledge of $250 million, the largest gift in the New Haven, Connecticut, school’s 312-year history, from Charles Johnson to build two new colleges.

--Editors: Josh Friedman, Christian Baumgaertel