With nearly $600 billion in Assets under management (AUM), Franklin Resources (NYSE: BEN) is the 29th largest asset manager in the world. Retail investors in Franklin mutual funds account for 69% of assets under management.
Franklin Resources is also sensitive to American investors' (73% of new sales) portfolio allocation decisions. With management fees accounting for 58% of Franklin's revenue, international exposure directly impacts Franklin's operating revenue. A higher equity/international mix increases Franklin's management fee revenue, while a shift towards fixed-income decreases it, because Franklin charges customers higher management fees on international and equity funds than domestic and fixed income ones.
Franklin manages international and domestic equity, bond, and hybrid mutual funds for over 22 million retail, institutional, and high-net worth clients. Strong equity markets, acquisitions, and net fund inflows have helped the asset manager triple Assets Under Management (AUM), which is the total money Franklin invests for all its customers, since 2002.
Franklin offers mutual funds with 12b-1 fees, which are sales commissions directed to the advisor, in order to promote the selling of its funds to retail customers. Franklin essentially distributes the sales charge to the advisor that sold it, and profits mainly from the management fee.
In 2009, BEN generated a net income of $896.8 million on revenues of $4.19 billion. This represents a 43.5% decrease in net income and a 30.5% decrease in operating revenues from 2008, when the company earned $1.59 billion on $6.03 billion in revenues.
The company's foreign investments as a percent of Assets under management (AUM) is 59%. This international exposure almost triples industry peer, T. Rowe Price Group (TROW), whose AUM consist of 20% international positions. This exposure will benefit Franklin more than competitors when foreign assets appreciation is higher than domestic ones, but the opposite is true if the U.S. is stronger than international markets. A strong U.S. dollar and better relative Gross Domestic Product growth compared to the world are typically bullish for U.S. positions.
Franklin Resources competes directly with traditional mutual fund companies like Eaton Vance (EV), T. Rowe Price Group (TROW), and Janus Capital Group (JNS). The company competes not only for customers, but also, for investment managers. A manager with a good track record of outperformance will cost more, but at the same time, outperformance leads to larger relative increases in Assets under management (AUM). Performance is a key to obtaining new investors and keeping existing ones, especially when a fund has a large retail investor class that is more likely to switch between mutual funds. Asset managers also compete for access to financial advisors, because they make investment decisions for their clients. Franklin offers share classes with a 12b-1 fee, or sales commission, to entice advisors to sell its funds.
Franklin Resources also competes with close end funds and Exchange Traded Funds for assets. Companies like Barclays (BCS) offer ETFs that give investors more tax management options and lower management fees on average.