UPDATE 3-Franklin Resources inflows fail to impress

Wed May 2, 2012 5:31pm EDT

* Net inflows $5.6 bln vs outflows of $15.6 bln in prior qtr

* Taxable global/international funds gain $500 mln

* Analyst: investors looking for more

* Shares close 3.3 pct lower

By Ross Kerber

May 2 (Reuters) - Inflows resumed at asset manager Franklin Resources Inc during its fiscal second quarter, but failed to impress investors who were looking for the company to bring in more cash.

Shares in the San Mateo, California-based company closed 3.3 percent lower in trading on Wednesday, underperforming the Dow Jones index of U.S. asset managers that fell 1.2 percent.

The company reported a flat quarterly profit after expenses rose, and said net inflows of investor cash totaled $5.6 billion in the fiscal second quarter, ended March 31.

"Expectations were pretty high coming in to the quarter," said Sandler O'Neill analyst Michael Kim, who was looking for Franklin to report an inflow of around $9 billion, in line with the $8.4 billion inflow it reported in the same quarter in 2011.

The difference was a main reason for the share decline, Kim told Reuters.

Franklin had reported outflows of $15.6 billion in the quarter ended Dec. 31, its first quarter of outflows since 2009. Industry specialists closely follow the figure as a measure of an asset managers' ability to bring new cash into funds.

Nomura Securities analyst Glenn Schorr, called the results "good but not great" in a note to investors and said investors were likely to be disappointed in the flows figure and other factors, such as rising expenses.

During the quarter, operating expenses rose 6 percent from a year ago to $1.2 billion, while operating revenue rose 3 percent to $1.8 billion.

Speaking on conference call with analysts, Franklin Resources Chief Executive Greg Johnson stressed the positive parts of the flow figure. For long-term funds, flows were positive across all investment objectives for the first time in nearly three years, he said.

Franklin Resources has well known funds that invest overseas, and some outflows in the fiscal first quarter stemmed from investor concerns about slowing growth abroad. This held back top funds like the company's Templeton Global Bond Fund.

Franklin Resources did not break out flows for that fund. But for the category of taxable global/international funds, it reported net inflows of $500 million in the second quarter, compared with net outflows of $4 billion in the first quarter.

On the call, Johnson said the Global Bond Fund was still a best-seller but said it may not record the large inflows it has taken in during past quarters. Foreign investors who have favored the fund have been quicker to withdraw money during rocky periods than U.S. investors, he said, though they might also return money more quickly.

Assets under management were $725.7 billion at March 31, up from $670.3 billion at Dec. 31 and $703.5 billion at March 31, 2011. Market appreciation in the latest quarter was $50.9 billion.

For the three months ended March 31, Franklin Resources reported net income of $503.2 million, or $2.32 per share, compared with $503.1 million, or $2.25 per share, a year earlier.

Analysts on average had expected $2.22 a share, according to Thomson Reuters I/B/E/S.

Franklin Resources shares ended Wednesday trading down $4.19 at $121.74. The shares have been among the industry's strongest over the past year.

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