BOSTON Top U.S. money managers posted quarterly profits that largely met analysts' expectations on Thursday but failed to satisfy investors who had bet on even bigger increases. Shares across the industry sold off sharply.
Among companies that reported results on Thursday, Invesco Ltd (IVZ.N) led the downward stock action, as its shares closed 6.8 percent lower on the New York Stock Exchange. Shares of Franklin Resources (BEN.N) ended down 3.4 percent and T. Rowe Price Group (TROW.O) stock lost 3.9 percent. Janus Capital Group JNS.N shares dropped 1.9 percent.
The group rebounded from even deeper losses earlier in the day after some long-time investors in the industry jumped in and bought shares.
John Miller, senior vice-president at Ariel Investments in Chicago, which owns shares of T. Rowe, Franklin and Janus, said he was pleased with the results and that his firm bought more shares Thursday afternoon, though he declined to be specific.
The sell-off was prompted in part by investors who expected bigger revenue and profit gains. "Expectations may have gotten ahead of themselves," said Matt Albrecht, an equity analyst at Standard & Poor's.
Although the stock market rose for most of last year, asset managers still oversee far less in their higher-fee equity funds than they did before the credit crisis, Albrecht said. Fund firms continued to post strong inflows from investors in the fourth quarter but mainly into lower-fee bond products.
"The revenue mix hasn't gotten back to where it was a few years ago," he said.
Morningstar analyst Gregg Warren said there had been a belief that, as investors got less risk averse, there would be some more flow into equity funds. "Expectations coming into the quarter were higher than they should have been."
Some investors also attributed the sell-off to fears that the stock market rally may have ended for the foreseeable future due to a weakening economy and tougher regulations coming from Washington, D.C. Lower stock prices would depress earnings for 2010.
"These businesses are so sensitive to asset prices and valuations, they will feel it quickly" if policy changes drive down markets, said Michael Cuggino, president of Permanent Portfolio funds, which own shares in Janus.
Franklin Chief Executive Greg Johnson told analysts the drop in his company's stock was an indication of continued volatility for the industry. "Days still like today remind us that we are not out of the woods yet," he told a conference call.
The managers' results looked better in the fourth quarter of 2009 in part because year-earlier results included write-offs for losses on their own investments. Profits received a one-time boost in the most recent quarter as those investment portfolios recovered somewhat.
Atlanta-based Invesco said net income more than tripled from a year earlier to $110.9 million, or 25 cents a share, but that was 3 cents less than analysts had expected and included about $26 million of gains, or about 6 cents a share, on the firm's own investments.
Baltimore-based T. Rowe said profit jumped six-fold to $153 million, or 57 cents a share. Analysts had expected 55 cents a share. The profit included a gain of $10 million on investments, or almost 4 cents a share. T. Rowe wrote off $80 million in the year-ago period.
Franklin Resources of San Mateo, California, said net income tripled to $355.6 million, or $1.54 a share, better than the $1.41 analysts had expected. The total included about $48 million of investment gains, almost 21 cents a share.
Denver-based Janus said earnings from continuing operations more than quadrupled to $37 million, or 20 cents a share.
All four companies were aided by the stock market's recovery in 2009. The Standard & Poor's 500 Index has risen 32 percent over the past year.
Federated Investors (FII.N), which primarily manages money market funds, reported after the market closed that its net income slipped 4.4 percent to $51.9 million, or 51 cents a share, missing analyst estimates of 53 cents a share.
Federated shares declined 1.8 percent before the results were released.
Net inflows at most firms were steady but showed little sign that investors were growing more attracted to stocks, despite the market's gains.
(Reporting by Aaron Pressman, Svea Herbst and Ross Kerber; Editing by John Wallace and Tim Dobbyn)