Franklin Resources, Inc. (NYSE:BEN) earnings per share surprised on the upside. They came out at $2.69 versus consensus estimate of $2.50 and Barclays PLC (NYSE:BCS) (LON:BARC)’s estimate of $2.37. The spread between revenues and expenses accounted for roughly $0.10 of the upside surprise, while the balance was due to non-operating items.
One of the main drivers of Franklin Resources, Inc. (NYSE:BEN) performance has been flows into its Global Bond funds. Since the 2008 financial crisis, Franklin’s asset mix has changed from equities to fixed income as investors increased demand for bonds. Assets in Franklin’s global bond funds have more than quadrupled to $227 billion as low interest rates in the U.S. have pushed investors to search for yields internationally. Meanwhile, equity assets have had a decreasing share in the firm declining from 56 percent five years ago to 39 percent currently. Barclays PLC (NYSE:BCS) (LON:BARC) analysts are concerned about the sustainability of this trend as investors have become more concerned about international bonds given the recent sovereign debt crisis in Europe and the fears of a fixed income bubble.
Overall, Barclays analysts view the stock favorably as demand for products such as the Global Bond fund, shall continue. They note that the Global Bond fund is flexible and able to adjust positioning shall market conditions become adverse. The fund has also low duration and exposure to currencies, which reduces its sensitivity to higher U.S. rates. Also, Franklin Resources, Inc. (NYSE:BEN) has a strong equity brand and should be able to capture asset flows once they materialize, in Barclays PLC (NYSE:BCS) (LON:BARC)’ view. Franklin is attempting to attract retail investors back into equities by emphasizing their performance potential over the next decade. U.S. retail investors have not responded well to this effort and remain skittish of investing in equities. Denver-based Lipper notes that Franklin’s equity funds outperformed 57 percent of peers in the past five years.
Other asset managers, like Legg Mason and Janus, have suffered from domestic equity share shrinkage and redemptions. Janus has 82 percent of its assets in equity products, including its existing signature domestic growth funds while Legg Mason, Inc. (NYSE:LM) is trying to reverse redemptions in its lineup.
Compared to other fund managers, like BlackRock, Inc. (NYSE:BLK), Franklin Resources, Inc. (NYSE:BEN) is making more revenues outside the United States. Almost 48 percent of Franklin Resources, Inc. (NYSE:BEN)’s sales were made outside the U.S. while only 31 percent of Blackrock’s sales came from outside the U.S.