What Caused Franklin Resources Stock To Fall 13% In A Day

Franklin Resources stock (NYSE: BEN) price dropped 12.6% on 21st August, as compared to a 0.42% gain in the S&P500 index. In sharp contrast, Franklin Resources’ peer State Street (NYSE: STT) posted a near-zero gain on 21st August. The stock price fell after the company reported that it had replaced the co-CIO (chief investment officer) of its Western Asset Management unit and closed the $2 billion fund due to a Securities and Exchange Commission (SEC) investigation into his conduct.

Amid the current financial backdrop, BEN stock has seen little change, moving slightly from levels of $20 in early January 2021 to around $20 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. Overall, the performance of BEN stock with respect to the index has been lackluster. Returns for the stock were 39% in 2021, -18% in 2022, and 17% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BEN underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BEN face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Franklin Resources’ valuation is largely dependent on its Assets under Management (AuM), as it derives close to 80% of its revenues from investment management fees. Notably, the company posted an average AuM of $1.63 trillion in the last quarter. Hence, despite the drop in stock price, the $23 average of analysts’ estimates is around 18% above its current market price of $20.

Franklin Resources’ revenues have risen 41% from $5.57 billion in 2020 to $7.85 billion in 2023. This can be attributed to a significant jump in investment management fees due to a 68% rise in the AuM. Markedly, the increase in AuM is partly due to the acquisition of Legg Mason in 2020 and partly due to organic growth.

BEN is one of the world’s largest investment managers, better known as Franklin Templeton. It has a strong client base and has delivered consistent growth in Assets under Management over the recent past. Overall, Franklin Resources is expected to continue its growth momentum in the coming years.

[1] Returns as of 8/22/2024
[2] Cumulative total returns since the end of 2016

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