WRAPUP 4-Fund managers gain on strong results, outlook

Thu Jan 27, 2011 5:30pm EST

* Fund companies report stronger quarterly income

* Beat Wall Street estimates

* Inflows slowed but well positioned for future

* Shares trade higher (Adds results of Federated Investors; updates share prices)

By Svea Herbst-Bayliss and Ross Kerber

BOSTON, Jan 27 (Reuters) - Rallying stock markets helped three large publicly traded U.S. mutual fund companies report higher quarterly profits on Thursday and raised hopes that new money will soon flow into fund portfolios

Shares of Invesco Ltd (IVZ.N) closed up 4.5 percent, while Franklin Resources' (BEN.N) shares rose 2 percent and Janus Capital Group (JNS.N) traded 1.1 percent higher. Federated Investors (FII.N), which reported after the market closed, gained 2.9 percent.

"The results at all of these companies were good and it seems that people are banking that they will be able to deliver strong flows numbers in the months ahead especially with Invesco and Franklin well-positioned with their equity funds," said Jason Weyeneth, an analyst at Sterne Agee.

Inflows into stock and bond funds slowed dramatically at Franklin, Invesco and Federated. Janus faced more outflows. But analysts had expected even sharper declines at these companies.

When compared with rival Legg Mason Inc (LM.N), which reported widening outflows, analysts said these numbers were encouraging. [ID:nN25284612]

The analysts said they feel more reassured that investors are shifting to equity funds and away from bond funds, which were preferred during the financial crisis.

Investors added almost $3 billion to U.S. equity funds in the four weeks ended Jan. 19, after months of outflows, data from mutual fund industry group Investment Company Institute show.

"We remain positive because we feel the whole fund industry will go through this re-risking period, where people move back into equities," said John Miller, who owns the stocks as a portfolio manager at Ariel Investments in Chicago. "People just underestimate how much operating leverage these companies have."

At Franklin and Invesco, the sharp swings in flows were related largely to single clients moving money out, analysts said.

Atlanta-based Invesco said earnings, excluding certain items, rose 60 percent to $209.3 million, or 44 cents per share, in the fourth quarter. Analysts were expecting 40 cents a share, according to Thomson Reuters I/B/E/S.

Franklin, which manages the popular Franklin Income Fund and Templeton Global Bond Fund, reported a 41 percent increase in net income to $501.2 million, or $2.23 per share, in its fiscal first quarter, ended Dec. 31, handily beating Wall Street's $1.91 per share estimate.

Federated Investors, the third-largest manager of U.S. money market funds, saw its fourth quarter net income fall 11 percent to $46.4 million, or 45 cents per share, in the fourth quarter from $51.9 million, or 51 cents per share a year earlier. Analysts had expected 43 cents per share.

At Denver-based Janus, net income climbed 78 percent to $65.9 million, or 36 cents a share.

While the outlook for equity funds is positive, executives and analysts warned that improvements might be slow.

So far in January, "people are starting to move cautiously into equities and U.S. equities in particular," Invesco Chief Executive Martin Flanagan said on a conference call. "It's not a big run towards them yet."

Janus Capital meanwhile is feeling the brunt of investors' change in tastes as the company's quantitative Intech unit still suffered withdrawals. Investors pulled out $4.8 billion, nearly twice as much as in the previous quarter.

CEO Richard Weil said, "the investing community has become disenchanted with quantitative and mathematical strategies over the last year or so, and that simply has to heal. That's taking some time." (Additional reporting by Aaron Pressman; Editing by Lisa Von Ahn, Bernard Orr)

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