Franklin Resources shares (NYSE: BEN) fell 12.6% on August 21, while the S&P500 index gained 0.42%. In contrast, Franklin Resources’ rival State Street (NYSE: STT) posted a nearly zero percent gain on August 21. The stock price fell after the company announced that it had replaced the co-CIO (chief investment officer) of its Western Asset Management unit and closed the $2 billion fund amid an investigation into its conduct by the Securities and Exchange Commission.

Against the current financial backdrop, BEN stock has barely changed, rising from $20 in early January 2021 to around $20 now, while the S&P 500 has risen by about 50% over that roughly 3-year period. Overall, BEN stock performance has been lackluster compared to the index. The stock’s returns were 39% in 2021, -18% in 2022, and 17% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that BEN lagged behind the S&P in 2023. In fact consistently beats the S&P 500 – in good times and bad – has been difficult for individual stocks in recent years; for heavyweights in the financial sector such as JPM, V and MA and even for megacap stars GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ Portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride as shown by the HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BEN experience a similar situation as in 2023 and perform worse than the S&P in the next 12 months – or will there be a sharp jump?

Franklin Resources’ valuation largely depends on assets under management (AuM), as the company generates nearly 80% of its revenue from investment management fees. Notably, the company recorded an average of $1.63 trillion in assets under management last quarter. So, despite the share price decline, the average analyst value of $23 is about 18% above the current market price of $20.

Franklin Resources’ revenues increased 41% from $5.57 billion in 2020 to $7.85 billion in 2023, driven by a significant increase in investment management fees due to a 68% increase in assets under management. Notably, the increase in assets under management was 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. The company has a strong client base and has seen steady growth in assets under management in the recent past. Overall, Franklin Resources is expected to continue its growth momentum in the coming years.

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