Rising markets draw back investors, boost U.S. fund firms

Tue Apr 30, 2013 12:02pm EDT

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(Reuters) - Major U.S. money managers on Tuesday reported higher quarterly profits that largely beat Wall Street expectations after rising stock markets renewed investor interest in higher-fee equity funds.

Franklin Resources, Invesco and Affiliated Managers Group reported strong customer net inflows with an increasing emphasis on stock funds, which typically carry higher fees and profit margins.

Shares of Invesco jumped 5.4 percent, shares of AMG gained 2 percent and shares of Franklin rose 0.3 percent.

With the Standard & Poor's 500 Index setting records, many investors who sat on the sidelines for the past few years have been jumping back into the stock market. That has buoyed the fund industry, which historically has made more money when stocks are in vogue.

At Invesco, customers added a net $2.4 billion to equity funds, a reversal from the fourth quarter of 2012 when they pulled $3.3 billion. Still, the firm's bond funds attracted $5 billion in the first quarter, up from $3.4 billion in the prior quarter.

That prompted Invesco chief executive Martin Flanagan to tamp down expectations of a huge wave of further flows into equities, which some analysts have described as a "great rotation" from bonds to stocks.

"I would classify it (as the) early stages of the rotation into equities," Flanagan said on a call with analysts. "I would expect people to continue to be cautious throughout the summer."

The company reported net income per share excluding certain items of 52 cents, better than the 47 cents expected by analysts, according to Thomson Reuters I/B/E/S.

At Franklin, the company reported net new flows of $700 million to its global and international equity funds, reversing an outflow of $4.4 billion from the category in the prior quarter ended December 31.

Still, its well-known international taxable bond funds, led by Michael Hasenstab's $70.9 billion Templeton Global Bond Fund, remained the company's most popular products. Net new flows to the category totaled $15.3 billion during the quarter, Franklin said.

Franklin, based in San Mateo, California, reported net income of $2.69 per share for the three months ended March 31, its fiscal second quarter, beating the average analysts' estimate of $2.50 per share.

Affiliated Managers said its customers added a record net inflow of $12 billion in the first quarter. The firm's adjusted net income per share of $2.27 exceeded the average analyst estimate of $2.03.

Amid the generally good results, Legg Mason Inc of Baltimore reported that customers continued to depart from its funds. The firm has yet to regain investor confidence after stumbles during the financial crisis.

Legg Mason reported a net outflow of customer cash during the quarter though at a slower rate than in the past and said its equity-focused ClearBridge unit had its best quarter of customer inflows since 2005.

"Investors are becoming more comfortable, particularly in the equity markets, than they have been," said Legg Mason Chief Executive Joseph Sullivan in an interview. "There's still a lot of cash on the sidelines earning nothing, and that cash becomes impatient at some point," he said.

Overall, the company reported a net outflow of $1.8 billion and said excluding money funds, the $3 billion that left its stock and bond funds was the lowest outflow since 2007.

"Now to be sure less negative is still negative," CEO Sullivan said on a conference call with analysts. "However the improvement in net flows is meaningful and encouraging."

(Reporting By Ross Kerber and Aaron Pressman; Editing by Chris Reese)

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