THE HEDGEYE EDGE
Franklin Resources' (BEN) performance across its complex of funds is starting to improve. The company's Top 100 funds up almost 1 full star rating, according to Morningstar.
A full one notch increase in star ratings have historically improved flows within a 6-month time period. In addition, the important Templeton Global Bond product has regained its 5 star threshold. This is the biggest strategy at the firm with over $120 billion in assets under management.
INTERMEDIATE TERM (TREND)
Correlations are also starting to break apart and sector divergence is the highest its been since 2009, thus active managers have the opportunity to outperform once again. S&P correlations breaking down have historically boosted active returns and flows. In addition, Emerging Markets rebounded from a Bear Market in 2016 and have started strong in 2017. This trend could really help both the global Templeton equity and bond franchise.
LONG TERM (TAIL)
There are lots of outs with a Franklin long position. The company is the best resourced asset manager and sports the biggest cash position in the group with ~$12 per share in net cash. With ~$2 billion in annual cash flow to boot, the company can participate in transformational M&A, maintain its buyback, and boost dividends. In 2006, the company repatriated $2 billion in earnings from overseas, which may be an option once again. This would be beneficial to shareholders if the tax window opens up.
Also, we ran the proposed synergies on a Franklin/Invesco (IVZ) deal which would be +9% accretive to Franklin on a $40 per share proposed deal for IVZ. See below for the potential behind a BEN/IVZ deal.
ONE-YEAR TRAILING CHART
