Franklin's July AUM Improves - Analyst Blog

Franklin Resources Inc. (BEN) reported preliminary month-end assets under management (AUM) of $602.9 billion by the company's subsidiaries for the month of July, up 5.7% from $570.5 billion as of June 30, 2010. Assets under management improved 25.0% from $482.4 billion on a year-over-year basis.

 

At the end of the month, total equity assets were $253.5 billion, up 7.4% sequentially from $236.1 billion and 10.8% from $228.8 billion on a year-over-year basis. Total fixed income assets were $236.4 billion, up 4.4% from $226.5 billion as of June 30, 2010, and 53.1% from $154.4 billion as of July 31, 2009.

 

Franklin recorded $106.5 billion in hybrid assets compared with $101.6 billion as of June 30, 2010 and $91.5 billion as of July 31, 2009. Cash management funds as reported were $6.5 billion, up from $6.3 billion in June 2010 but down from $7.7 billion in July 2009.

 

Franklin offers a wide range of investment products under equity, hybrid, fixed-income and cash management funds. Revenues depend principally on the level and relative mix of AUM.

 

During the first half of 2010, the recovery phase of global economic recession was visible. With a continuous upswing in market conditions, Franklin’s AUM and fee revenues improved steadily.

 

As of June 30, 2010, Franklin reported AUM of $570.5 million, up 26.4% on a year-over-year basis, primarily due to positive net new flows of $62.7 billion and market appreciation of $59.3 billion. The improvement took place in both equity and fixed-income products due to higher sales and lower redemptions on a year-over-year basis.

 

For the period ended June 2010, Franklin’s closest competitor BlackRock Inc. (BLK) reported AUM of $3.15 trillion, which more than doubled from $1.37 trillion in the prior-year quarter, substantially surpassing Franklin’s AUM.

 

We believe Franklin's global footprint is favorable from a strategic perspective, since its AUM is well diversified. This coupled with a strong balance sheet and ongoing cost control efforts undertaken by management will cushion the company. Franklin is not immune to the volatile economic environment either; its revenues and AUM bear witness to its vulnerability. However, earnings for second half of fiscal year 2010 are expected to improve as the environment for asset managers is gradually recovering with new demand from recuperating markets.

 

Franklin shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation. Considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock as well.