If you’re looking for large-cap mutual fund stocks, look no further than California-based Franklin Resources (NYSE:BEN).
Franklin has approximately $824 billion in assets under management. While its quarterly earnings report doesn’t break out AUM in enough detail to know exactly what percentage is composed of mutual funds, its fiscal 2012 10-K does indicate that mutual funds accounted for 80% of AUM, so I’ll assume it finished the end of March with $659 billion in mutual fund AUM.
The higher the AUM, the more revenue the asset managers can generate. In Q2, Franklin’s AUM increased 14% year-over-year, boosting operating income by 18% to $729.4 million. More importantly, its operating margin increased 190 basis points in the quarter, up to 36.2%. If BEN can keep boosting the operating margin over the next two or three quarters, it will be more profitable than it’s ever been on an operating basis, which makes sense given the economies of scale that are in play.
Franklin is the largest cross-border fund manager in the world (cross-border funds source less than 80% of their assets from investors in any single country). Interestingly, Italy is Franklin Resources’ largest market outside of the U.S. and Canada, with $32.7 billion in AUM. Of that, approximately 77% is retail money. According to Franklin, mutual funds have a 22% penetration rate (mutual fund assets as a percentage of household financial assets) in the U.S. market. Assuming the same penetration rate in Europe and Asia, it has an excellent opportunity to grab a piece of $12 trillion in assets.
If you like your investments large, you can’t get much better than Franklin Resources.