EUR 850.00 For Business Accounts Only

Morningstar | Increased Equity and Credit Market Volatility Will Affect Franklin's Near- to Medium-Term Results

A confluence of several issues--poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel--has made it increasingly difficult for asset managers running predominantly active portfolios to generate organic growth, leaving them more dependent on market gains to drive assets under management levels higher. While we continue to believe there will be room for active management, which is hard to do in an environment where an overwhelming majority of the flows are going into index funds and exchange-traded funds, we believe the advantage when it comes to getting placement on platforms will go to asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees.With $649.9 billion in total AUM at the end of December 2018, Franklin Resources has the size and scale necessary to be competitive in the industry. It also has well-known brands--Franklin, Templeton, and Mutual Shares--and a fairly diverse product mix, with 41% of managed assets dedicated to equity strategies, 19% in hybrid funds, and 39% in fixed income. While product distribution is weighted toward retail investors (73% of AUM), the firm has historically maintained strong relationships with financial advisors. Franklin is also one of the more global U.S.-based asset managers, with half of its total AUM invested in global/international strategies and one third of its managed assets sourced from clients domiciled outside the United States.During the past 5 (10) fiscal years, Franklin's organic growth rate averaged negative 5.1% (negative 0.9%) with a standard deviation of 2.6% (6.3%); this was worse than other active managers, which generated negative 1.4% (negative 0.7%) average annual organic growth with a standard deviation of 0.9% (1.3%). As we expect the headwinds for the asset managers to be stiffer as we move forward, we envision Franklin generating negative 2%-4% average annual organic AUM growth, with only slightly better levels of revenue growth and lower operating margins on average during fiscal 2019-23.