We purchased shares of Franklin Resources (BEN) because we were impressed with its history of strong organic growth. While this growth has moderated a bit since we entered our position last year, we’re not worried in the least bit. We like the fact that Franklin is an industry-leading blue-chip asset management firm and we are impressed that it has transformed itself from a primarily muni bond shop into a world-class global asset manager over the last 20 years. We are also impressed with its liquid position and the fact that the founding family (the Johnson Family) still owns 34% of the company’s outstanding stock.

While Franklin has not been immune to the volatile capital markets, we expect it to have much less volatility in its AUMs than stock managers like Janus (JNS). Franklin has a balanced mix of fixed income assets and equity assets, as well as North American assets and Global assets. Franklin also has active relationships with more than 130,000 financial advisors in the U.S., the largest has been in place for more than 25 years. The firm has more than 900 institutional client relationships as well. While Franklin’s recent record of net organic growth has declined since we bought it, at least its 54bp of organic growth in the most recent period exceeded a number of other comparably sized asset managers.

Franklin has beaten consensus analyst estimates in five out of the last six quarters, including its most recent quarter of Q3 2012. Despite the fact that it saw revenue headwinds which caused its EPS to decline by more than 6% versus the comparable period, it still beat consensus estimates by $0.08 per share (4%). Franklin generated $3.9B in net new fund flows and its total assets under management declined by 2.54% which we found to be better than many of its peers. This is even more impressive considering it manages more than 50% of its AUMs in non-US strategies. Franklin even had positive organic growth of 35bp ($1.3B of net fund flows) in its international strategies.

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