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Analyst Blog

Franklin Resources Inc. declared preliminary assets under management (AUM) of $683.5 billion by its subsidiaries for the end of May 2012. The company’s results witnessed a decline of 5.9% from $726.4 billion as of April 30, 2012 and a decrease of 7.1% from $735.8 billion as of May 31, 2011.

Month-end total equity assets came in at $268 billion, down 9.5% from the prior month and 15.3% on a year-over-year basis. Of the total equity assets, roughly 71% were from international sources, while the remaining 29% were from the U.S.

Total fixed income assets were $309.7 billion, down 3.3% from $320.3 billion as of April 30, 2012, and increasing 4.5% from $296.4 billion as of May 31, 2011. Overall, tax-free assets accounted for only 26% of the fixed income assets, while the rest 74% were taxable.

Franklin recorded $99.6 billion in hybrid assets, down 4.0% from $103.8 billion as of April 30, 2012 and 14.4% from $116.4 billion as of May 31, 2011. Cash management funds, as reported, were $6.2 billion, in line with the prior month but down from $6.6 billion as of May 2011.

On a quarterly basis, as of March 31, 2012, total AUM was $725.7 billion, up from $670.3 billion as of December 31, 2011, attributable to market appreciation of $50.9 billion and net new inflows of $5.6 billion. Moreover, AUM increased 3% on a year-over-year basis, mainly due to net new flows of $14.8 billion and $10.9 billion from acquisitions.

Simple monthly average AUM during the quarter climbed 5% sequentially and 3% year over year to $706.9 billion. Net new inflows were $5.6 billion versus outflows of $15.6 billion in the prior quarter and net inflows of $8.4 billion in the prior-year quarter.

Peer Performance

Among Franklin’s peers, Invesco Ltd. also announced a 5.4% fall in its preliminary month-end AUM for the month of May. The company’s AUM for the reported month was $632.1 billion compared with $668.4 billion at the end of April 2012.

Invesco’s AUM declined as a result of market depreciation, long-term net outflows and unfavorable foreign exchange worth $7.1 billion. Total long-term outflows were largely driven by Passive outflows from the PowerShares DB and PowerShares QQQ products as well as a Stable Value client termination reported in Active fixed income.

Our Take

Franklin's global footprint is in an exceptionally favorable strategic position owing to its well diversified AUM. The company is also poised to benefit from its strong balance sheet. Further, the company’s acquisitions completed in calendar year 2011 are expected to strengthen its financials. However, the regulatory restrictions and sluggish economic recovery could mar the AUM growth while increasing its costs.

Franklin currently retains its Zacks #3 Rank, which translates into a short-term Hold rating.

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