Franklin Resources: active manager needs to prove its worth

It should be a good time to be a stock picker. Almost half of actively managed funds beat their benchmarks last year, according to Morningstar. That compares with 2018 when less than a third of funds did so.

But beating the passive index rivals is one thing. Making money from it is another. Results from Franklin Resources — parent of Franklin Templeton — underscore this.

By almost all measures, the final three months of 2022 were ones to forget for Franklin. The 75-year-old active management firm, best known for its stock and bond mutual fund products, reported a 12 per cent slide in revenue to $2bn for the period — its fiscal first quarter. Its operating margin collapsed from more than 25 per cent to under 10 per cent. At BlackRock, the figure was almost 36 per cent.

Nevertheless, Franklin shares are up 12 per cent over the past six months and trade at almost 13 times forward earnings, compared with its five-year average of under 10 times. A push into alternative asset management has fostered some excitement. This segment now accounts for almost a fifth of Franklin’s assets under management.

It needs the help. AUM, at $1.38tn, are down 12 per cent compared with the year-before period — but up 7 per cent compared with the previous quarter. But, even here, the figure was flattered by the completion of the acquisition of alternative credit special Alcentra. Overall, the company suffered $10.9bn in net outflows during the quarter. That comes on top of eight consecutive years of outflows that totalled $236bn. 

Notably, Franklin still trades at a discount to mid-tier rivals such as T Rowe Price, which also has plenty of active managers. Beating the peers, not the benchmark, is the hallmark of a good fund manager.

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