Despite outflows, large fund firms see large hike in profits

Invesco Ltd., Franklin Resources Inc. and Janus Capital Group Inc., reported higher profits for the three months through December, as the stock-market rally boosted assets, offsetting client withdrawals at most firms. Net income rose 58 percent at Atlanta-based Invesco, 41 percent at Franklin, based in San Mateo, California, and 78 percent at Denver-based Janus. Clients added $3.2 billion to Franklin's funds, while withdrawing money from Invesco following the firm's June purchase of Morgan Stanley's mutual-funds business. Janus had its sixth straight quarter of net redemptions. Asset managers benefitted from recovering stock markets, which boosted the average value of the Standard & Poor's 500 Index by 11 percent last quarter compared with a year earlier. While that gain lifted fees at all managers, Franklin was the only one of the five firms that have reported earnings this week to see net deposits, a sign U.S. asset managers remain too dependent on domestic equities, said Geoff Bobroff, a fund consultant based in East Greenwich, Rhode Island. “They are having a difficult time attracting new investors,” Bobroff said in an interview, adding companies also suffered as bond prices fell in the quarter. “Bonds have lost their position as the darlings,” he said. Mutual fund investors in the U.S. have been reluctant to return to the stock market after losses from the financial crisis. Investors pulled $75.6 billion from domestic stock mutual funds last year, according to data from Chicago-based Morningstar Inc., even as U.S. stocks returned 15 percent. The S&P 500 last month had its best December since 1991. Pimco, Vanguard Franklin attracted $21.1 billion in mutual-fund deposits last year, more than all but two companies, Morningstar data show. Pacific Investment Management Co., based in Newport Beach, California, had $63.9 billion in deposits, and Valley Forge, Pennsylvania-based Vanguard Group Inc. received $54.3 billion. Pimco's top-performing $240 billion Total Return Fund doubled in size since 2007, becoming the world's largest mutual fund. “We did not benefit like some of our great competitors did in the fixed-income flows, and it was a disappointment,” Laurence Fink, chief executive officer of BlackRock Inc., said earlier this week. BlackRock, the world's largest money manager, said Jan. 25 that fourth-quarter net income more than doubled to $657 million, driven by its 2009 acquisition of Barclays Global Investors. Clients pulled a net $14.8 billion in the quarter. Templeton Fund Franklin's net deposits were reduced by a $12 billion redemption from one institutional client, the firm had previously announced. Net income for the period ended Dec. 31 rose to $501.2 million, or $2.23 a share, from $355.6 million, or $1.54, a year earlier, the company said today. Franklin runs the Templeton Global Bond Fund managed by Michael Hasenstab, named fixed-income manager of the year for 2010 by Morningstar. The $46.2 billion fund attracted $17.6 billion in 2010, third-best among mutual funds, according to Morningstar. It returned 11 percent annualized over the past five years, better than 98 percent of rivals, according to data compiled by Bloomberg. “This company should see some benefit as investors re-risk and move back into equities,” Jason Weyeneth, an analyst with Sterne, Agee & Leach Inc., said in a telephone interview before the earnings were released. He has a buy rating on the stock. Invesco Franklin rose $1.35, or 1.1 percent, to $121.69 by 1:33 p.m. in New York Stock Exchange Composite trading. Invesco rose 4.4 percent to $24.82 and Janus gained 1 percent to $13.13. Invesco, owner of the Invesco, Van Kampen and PowerShares funds, said fourth-quarter profit increased to $175.2 million, or 37 cents a share, from $110.9 million, or 25 cents, a year earlier. Clients pulled out $17 billion in the quarter, including an $18.6 billion withdrawal from an index-based product by a single institutional client in Asia. The firm's equity products had $24.2 billion in redemptions. Invesco last year acquired Morgan Stanley's mutual-fund business for $1.37 billion, adding $114.6 billion in client assets. The firm aims to cut fund expenses by $78 million over two years by combining some of its funds with others acquired in the Morgan Stanley deal, the company said in November. It has proposed folding 69 funds into 43 others. Legg Mason, Janus Legg Mason Inc., the Baltimore-based money manager, said yesterday that clients pulled $16.7 billion from funds including those managed by Bill Miller's unit, Legg Mason Capital Management. Net income in the quarter increased 37 percent to $61.6 million. Janus, which has about 90 percent of its assets in equities, saw $4.8 billion in withdrawals last quarter. Its Intech quantitative investment unit lost $2.6 billion to withdrawals, bringing net redemptions at the unit to $10.5 billion for the year. Net income rose to $65.9 million, or 36 cents a share, from $37 million, or 20 cents, a year earlier, Janus said today. Earnings included 10 cents a share from the sale of structured investment vehicle securities, and 2 cents a share from an insurance recovery. --Bloomberg News--