"Our focus on ETFs is as a firm, we view ourselves as vehicle agnostic. So, whatever the market is interested in having us deliver our capabilities, we'll deliver it in whatever vehicle they'd like."

Jennifer M. "Jenny" Johnson Franklin Resources, Inc. (dba Franklin Templeton) President, CEO

So said Jenny Johnson, president and CEO of Franklin Resources, Inc. (BEN, dba Franklin Templeton [profile]) last Friday (July 26) on the San Mateo, California-based asset manager's earnings call for its fiscal third quarter results. (Franklin's fiscal Q3 2024 ended on June 30.)

When Brian Bedell, director at Deutsche Bank Securities, asked about Franklin's ETF strategy, he noted that ETFs (of which Franklin now has more than 100) remain a small slice of the firm's business. Indeed, ass of June 30, 2024, Franklin had $1.6466 trillion in AUM (up 0.1 percent quarter-over-quarter and up 15 percent year-over-year); ETFs amounted to $26.9 billion (1.6 percent) of that total.

Adam Spector, executive vice president and head of global distribution at Franklin, pushed by highlighting the firms' continued net inflows in the ETF space. In fiscal Q3 2024, Franklin's ETFs brought in $3.3 billion in net inflows (that's 12.3 percent of their quarter-end ETF AUM).

"That's seven quarters in a row where we've had about a $1 billion or more inflow," Spector said on the call. "That flow is coming from a geographically diverse base where we saw about $900 million coming in from EMEA, and about $0.5 billion coming in from the Americas region."

When Bedell asked about cloning existing products with new mutual funds, Johnson noted that the Franklin team prefers to either convert existing mutual funds into ETFs or launch new ETFs that are slightly different than their non-ETF counterparts. And Spector noted that, for Franklin's "most significant and longest tenured mutual fund," it had "very slight outflows" in fiscal Q3 2024, even as Franklin brought in net inflows into similar products in SMA, cross border fund, and ETF forms.

Johnson also pushed back on one common perception about the ETF and SMA shifts and their impact on profitability. In doing so, she hinted that the shift will actually be a boon to Franklin and other asset managers.

"It's often viewed that ETFs are potentially lower margin, and I think that comes out of the history of it being sort of early on passive," Johnson said on the call. "Honestly, it kind of depnds on the strategy ... And arguably over time, the cost to us will be less with the ETF and the SMA because you don't have the transfer agency and the fund administration costs in the same way that you do with the mutual fund."

"That actually was one of the drivers in our decisions to outsources those things because it allows us as the business shifts to have greater flexibility in the expense supporting the business," Johnson added.

Per Franklin's fiscal Q3 2024 earnings report, which they released earlier that same morning, the fund firm brought in $326.4 million in adjusted net income last quarter, up six percent Q/Q and roughly flat Y/Y. The firm suffered $200 million in net fiscal Q3 2024 outflows, a $2.3-billion net flows drop Q/Q but a $6.9-billion net flows improvement Y/Y. 

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