BEN - Frankiln Resources Inc.

[Haasje]

yes, just Google the title

[LowIQinvestor]

 

Can anyone paraphrase this article? I see that it mentions BEN---Thanks

 

A Bullish Forecast for Asset Managers’ Shares

BlackRock, T. Rowe Price, and other money managers may rebound in 2016. Time to reconsider their stocks

http://www.barrons.com/articles/bullish-on-asset-managers-shares-1450511088?mod=yahoobarrons&ru=yahoo

 

You know that you can access Barron's articles (as well as WSJ) through Google backdoor, yes?

Did not know that! Thanks and Happy Holidays!

[JayGatsby]

I had a small holding in one of their ETF funds (TRF: Templeton Russia) that liquidated in Q4. It was a small fund that wouldn't impact performance at all, but I'm not sure how many other funds are in a similar bucket. The drop in assets from Q2 to Q3 was pretty precipitous and likely continued into Q4.

[LowIQinvestor]

I had a small holding in one of their ETF funds (TRF: Templeton Russia) that liquidated in Q4. It was a small fund that wouldn't impact performance at all, but I'm not sure how many other funds are in a similar bucket. The drop in assets from Q2 to Q3 was pretty precipitous and likely continued into Q4.

 

Most of the drop in AUM in the 4th Quarter (quarter ending Sept 30th) was from the decline in the general stock market.

Of course I would like to see AUM growing...they may in 2016. But at about an 8 PE (ex cash) expectations are insanely low for BEN. I find it hard to believe that all of BEN's businesses are in perpetual decline.

 

Any sort of stabilization in AUM and this stock goes materially higher.

 

Happy Holidays!

 

 

[JayGatsby]

Most of the drop in AUM in the 4th Quarter (quarter ending Sept 30th) was from the decline in the general stock market.

Of course I would like to see AUM growing...they may in 2016. But at about an 8 PE (ex cash) expectations are insanely low for BEN. I find it hard to believe that all of BEN's businesses are in perpetual decline.

From June 30 to September 30 the S&P went from 2063 to 1920; a decline of 7%. During this period Ben's AUM's equity under management declined by 13%. I guess it's hard to say how much of this is strategy specific.  41% of their AUM was equities, 41% was fixed income and the rest was cash or hybrid.

 

Makes sense that they'd see some stabilization this quarter with a rebound in the S&P. 

[Tim Eriksen]

Most of the drop in AUM in the 4th Quarter (quarter ending Sept 30th) was from the decline in the general stock market.

Of course I would like to see AUM growing...they may in 2016. But at about an 8 PE (ex cash) expectations are insanely low for BEN. I find it hard to believe that all of BEN's businesses are in perpetual decline.

From June 30 to September 30 the S&P went from 2063 to 1920; a decline of 7%. During this period Ben's AUM's equity under management declined by 13%. I guess it's hard to say how much of this is strategy specific.  41% of their AUM was equities, 41% was fixed income and the rest was cash or hybrid.

 

Makes sense that they'd see some stabilization this quarter with a rebound in the S&P.

 

Only 1/3 of their equity investments was US (thus an S&P comparison is inappropriate IMO). 2/3 was global/international with a heavy component in emerging markets.  EEM fell 17% during that quarter. It was still a bad quarter, but not as bad when compared to similar benchmarks.

[mcliu]

Are Franklin's funds better products (better performance after fees?) than their ETF counterparts?

If not, wouldn't they slowly lose AUM over time to Vanguard/BlackRock, etc?

[Ulrich]

From June 30 to September 30 the S&P went from 2063 to 1920; a decline of 7%. During this period Ben's AUM's equity under management declined by 13%. I guess it's hard to say how much of this is strategy specific.  41% of their AUM was equities, 41% was fixed income and the rest was cash or hybrid.

 

Makes sense that they'd see some stabilization this quarter with a rebound in the S&P.

 

Not only was the market down, the dollar is going strong too. I think that the users in this board are far away from the typical fund buyer.

 

In Germany a lot of life insurance today is coupled with funds. A big german life insurance company is Nuernberger and i see one ETF and a couple of Franklin Templeton funds as options on their website. In Germany there are more life insurance contracts than people and minimum a third of the contracts of some leading life insurers have a fund involved.

 

I don t know the arrangement of the insurance company and the fund company- but there has to be some kind of win-win situation  for both sides (let me guess? more money for both) ;) . I know a lot of teachers (they earn above average in Germany) and they have some funds and just put more and more money in and they never look if the index performed better or worser. They don t think about these kind of things. The bank or financial advisor sold them a fund and they stuff money in... that s it.

 

So i think the AUM are more sticky than the market thinks.

 

Don't underestimate sales teams, provisions and brand name in things like financial. I bet over 90% of the people in Germany don t even know how to spell ETF ;) (in the US or Canada it may be an other situation).

 

[RadMan24]

I think these guys have staked a lot on the energy sector, including the debt of some high cost producers. I'm not very familiar with the details but mention it to bring it to the attention of folks that are buying.

 

This is true. Rex Energy is an example.

[LowIQinvestor]

 

Michael Hasenstab- Mgr of Templeton Global Bond (one of their largest funds with $60B in AUM?): Comments on Emerging Markets, Interest rates, deflation fears etc..

 

http://www.bloomberg.com/news/articles/2015-12-21/templeton-s-hasenstab-says-global-deflation-fears-unwarranted--iifhzo46

 

 

[LowIQinvestor]

Are Franklin's funds better products (better performance after fees?) than their ETF counterparts?

If not, wouldn't they slowly lose AUM over time to Vanguard/BlackRock, etc?

 

Here is performance info on one of their largest funds:

http://performance.morningstar.com/fund/performance-return.action?t=TPINX&region=usa&culture=en_US

 

Click on "expanded view" to get a 10 year chart.

 

This stock is dirt cheap :)

[LowIQinvestor]

Franklin Templeton Jumps Into ‘Smart Beta’ ETF Pool

http://blogs.barrons.com/focusonfunds/2016/01/05/franklin-templeton-jumps-into-smart-beta-etf-pool/?mod=yahoobarrons&ru=yahoo

 

Mixed emotions on this one...

[Ulrich]

I think Franklin Resources is a long term buy (i builded a start position and will wait and buy more after the next earnings call).

 

They have 10 billion in equity ex goodwill. The cash may not be in the US, but it is there. They have a great credit rating and an world known brand name and distribution.

 

The business exists under hard competition. But i think competition is nothing new for them.

 

A lot of the competitors have headwinds in the moment too. So the outcome for a company with top credit rating and a lot of cash is favorable. The management is good in doing the best for the shareholders. High stock price = special dividend, low stock price =big buyback.

 

At 20 billion market cap and 10billion cash (i think the real estate is worth more than 500 million) they are at an P/E of 5. Even if this is a stagnant or even slow sinking ship, the outcome with an good capital management could be very good.

 

I think the company has now a lot against it. In Germany newspapers often publish interviews with Mobius and the Bond Guy and Franklin Templeton is seen as Emerging Market experts. Emerging Markets are out of fashion, but long term this trend will turn again.

 

I think Ben has a good chance to grow it s business long term. There will be so much wealth in China, India and co to manage. The cake will be big and Franklin Templeton has a big brandname, the sales team and the cash (to make good aquisitions).

 

[LowIQinvestor]

I think Franklin Resources is a long term buy (i builded a start position and will wait and buy more after the next earnings call).

 

They have 10 billion in equity ex goodwill. The cash may not be in the US, but it is there. They have a great credit rating and an world known brand name and distribution.

 

The business exists under hard competition. But i think competition is nothing new for them.

 

A lot of the competitors have headwinds in the moment too. So the outcome for a company with top credit rating and a lot of cash is favorable. The management is good in doing the best for the shareholders. High stock price = special dividend, low stock price =big buyback.

 

At 20 billion market cap and 10billion cash (i think the real estate is worth more than 500 million) they are at an P/E of 5. Even if this is a stagnant or even slow sinking ship, the outcome with an good capital management could be very good.

 

I think the company has now a lot against it. In Germany newspapers often publish interviews with Mobius and the Bond Guy and Franklin Templeton is seen as Emerging Market experts. Emerging Markets are out of fashion, but long term this trend will turn again.

 

I think Ben has a good chance to grow it s business long term. There will be so much wealth in China, India and co to manage. The cake will be big and Franklin Templeton has a big brandname, the sales team and the cash (to make good aquisitions).

 

 

I agree---

With 50% of the market cap in net cash, it reminds me of  some quote I heard once: " Low Risk, High Uncertainty"

 

Mgmt understands the industry headwinds and are prudent capital allocators. I have no doubt they are buying back aggressively at these prices.It is trading at the lowest valuation since the bottom of 2008!

 

Annual Report is out: Good Read

https://materials.proxyvote.com/Approved/354613/20151221/AR_268182/

[intothebreach]

LowIQinvestor,

 

First off, thanks for starting this thread as it is what got me interesting in BEN.

 

A very small suggestion, if you don't mind: if it is still possible to do so, it may be a good idea to correct the typo in the title of the thread in case someone searches for it (although the individual posts would probably still come up).

[Libs]

I think the bulls here are overlooking the impact of the upcoming DOL ruling. It's likely to be brutal on financial advisors and high fee mutual fund companies.

 

At the very least the ruling will demand much greater disclosure of fees - both the advisors' and the MF's. I think this will turn the trickle of outflows into a flood at BEN.

 

Picture an advisor sitting down with a client and having them sign a contract outlining fees over the next 5 years. The advisor will cut his fees say from 1% to .75%, and then turn to the cost of the underlying investments and hack those too.

 

All the stuff Buffett has been complaining about, in my opinion, is going to take hold in a major way. The DOL is forcing it all into the light.

 

I also think people will throw in the towel on bond funds at some point. Their two biggest funds - Franklin Income and Templeton Global Bond - have returned basically nothing for 3 years now.

 

In short, I see margins dropping as they cut fees, and I see AUM shrinking as well. it could be a lethal combination.

 

 

 

 

 

 

 

 

 

 

 

 

[rogermunibond]

Libs, how is the DOL fiduciary rule going to impact asset managers.  Seems like it is really geared toward brokers and financial advisors.  How much of BEN revenue is financial advisory?

 

For example, I don't think TROW is getting dinged much for this DOL fiduciary rule risk.

[Libs]

Libs, how is the DOL fiduciary rule going to impact asset managers.  Seems like it is really geared toward brokers and financial advisors.  How much of BEN revenue is financial advisory?

 

For example, I don't think TROW is getting dinged much for this DOL fiduciary rule risk.

 

Roger:

 

It is geared toward advisors, but my contention is that advisors will be motivated to lower overall costs. That's something they can control - at BEN's expense. After all, the advisor doesn't care what product he uses, as long as he gets results.

 

AMP and LPLA (advisory firms) are both down 40%+, by the way, and I think this impending ruling is a primary reason.

 

Most of BEN's assets are sold through intermediaries. From the 10-K:

 

<Fund shares are sold primarily through a large network of independent financial intermediaries, including broker/dealers, financial advisers, banks and other third parties.>

 

...all of whom will be affected by this ruling.

 

TROW is also at risk, IMO, but seems to have lower fees and better performance. They also aren't having the same outflow problems as BEN:

 

http://blogs.barrons.com/focusonfunds/2016/02/09/franklin-resources-shed-nearly-36-billion-in-assets-last-month/?mod=yahoobarrons&ru=yahoo

 

 

 

 

 

 

 

[Libs]

<The DOL has proposed a rule that would subject financial professionals that provide advice to retirement clients to a fiduciary duty, which could limit their ability to provide advice about funds for which they receive a fee from the fund or its affiliates. If adopted as proposed, this rule could have an impact on our ability to compensate financial intermediaries who sell our funds to their retirement clients. >

 

Found this in the 10-K also. It refers to retirement funds, but I would expect the ruling to affect all assets sold through the advisor channel. Clients will want this info on all their accounts, not just IRA's.

 

There will be fewer brokers / advisors down the road, which will reduce BEN's distribution reach. IMO.

 

 

 

 

[vinod1]

Libs, how is the DOL fiduciary rule going to impact asset managers.  Seems like it is really geared toward brokers and financial advisors.  How much of BEN revenue is financial advisory?

 

For example, I don't think TROW is getting dinged much for this DOL fiduciary rule risk.

 

Roger:

 

It is geared toward advisors, but my contention is that advisors will be motivated to lower overall costs. That's something they can control - at BEN's expense. After all, the advisor doesn't care what product he uses, as long as he gets results.

 

AMP and LPLA (advisory firms) are both down 40%+, by the way, and I think this impending ruling is a primary reason.

 

Most of BEN's assets are sold through intermediaries. From the 10-K:

 

<Fund shares are sold primarily through a large network of independent financial intermediaries, including broker/dealers, financial advisers, banks and other third parties.>

 

...all of whom will be affected by this ruling.

 

TROW is also at risk, IMO, but seems to have lower fees and better performance. They also aren't having the same outflow problems as BEN:

 

http://blogs.barrons.com/focusonfunds/2016/02/09/franklin-resources-shed-nearly-36-billion-in-assets-last-month/?mod=yahoobarrons&ru=yahoo

 

+1

 

Just look at the fees, sales charges and 12b-1 Fees for these mutual funds. They are outrageous. A financial adviser, I would think would have really hard time to justify the fees for mutual funds from BEN.

 

TROW across the board has lower fees, no sales charges and and no 12b-1 Fees. When bond yields are around 2%, BEN would be hard pressed to maintain such high fees.

 

Vinod

[Libs]

Well the DOL ruling came out. Looks like I was wrong; it seems quite watered down.

 

The things that most worried the industry did not come to pass:

 

1) Proprietary products, private REITS, and annuities can still be sold in IRA's;

2) Advisors don't appear to be legally obligated to recommend the lowest cost products;

3) Rules will be phased in quite gradually ( fully by 1/18)

4) No requirement for 1,5,10 year cost projections to be signed off by clients

 

There will be some sort of contract that needs to be signed for commissioned sales  for (1) above. Doesn't look like that onerous of a thing though.

 

Regarding BEN, I still believe the push toward lower costs will continue unabated, but the DOL isn't really adding to this push.

 

Also - they did not ban options trading in IRA's. Personally glad about that one ;D

 

[Alex.N.B]

Wanted to bump that up - seems like a cheap stock. As mentioned earlier with ~ 50% of the market cap in cash, earnings yield of ~14% + div yield ~2% + buybacks ~2%, we are looking at an expected return of ~ 18% for a business with a strong brand, good management/capital allocation, and buying at a time when everyone thinks active management is dead... could be a good long-term holding.

[no_free_lunch]

It is cheap but then the business is in decline.  It looks like book value was $30 / sh back in 07, now it's about $20 / sh.  There have been a few special dividends but not enough to account for this, I assume they have been buying competitors to counter balance declining AUM.  I could see active management coming into vogue again but it seems like a gamble, the etf trend has been going on for decades.  Maybe if it get's back down to $30 I'll look again.