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Franklin Resources (NYSE:BEN)

Q4 2012 Earnings Call

October 25, 2012 4:30 pm ET

Executives

Gregory Eugene Johnson - Chief Executive Officer, President, and Director

Kenneth Allan Lewis - Chief Financial Officer, Principal Accounting officer and Executive Vice President

Analysts

Matthew Kelley - Morgan Stanley, Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Neil Stratton

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Greggory Warren - Morningstar Inc., Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Operator

Good afternoon, and welcome to Franklin Resources Earnings Conference Call for the Quarter Ended September 30, 2012. My name is John, and I'll be your operator for today's call. Please note that the financial results to be discussed in this conference are preliminary.

Statements made in this conference call regarding Franklin Resources Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future risks -- from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including are the risk factors in the MD&A sections of Franklin's most recent Form 10-Q filing. [Operator Instructions] Now I'd like to turn the call over to Mr. Greg Johnson. Mr. Johnson, you may begin.

Gregory Eugene Johnson

Thank you, and good afternoon, everyone. Ken Lewis and I are glad you could join us again today. This morning, we reported fourth quarter results capping off another solid year for the company despite the various challenges that have been faced with the global financial markets. Most importantly, our relative investment performance generally improved from strong to stronger, and head into our new fiscal year on an optimistic note. We also continue to execute on our strategic initiatives, including expanding our alternative capabilities and positioning the company for further international growth.

Now we'll open it up for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Matt Kelley from Morgan Stanley.

Matthew Kelley - Morgan Stanley, Research Division

So guys, I was hoping you could just talk a little bit about the CCAB fund range and what you're seeing going on there. Any substantial kind of one-time dynamics or is it more consumer sentiment shifting both in the third quarter, the calendar third quarter, and what you're seeing so far in the fourth quarter?

Gregory Eugene Johnson

Okay, I'll take a crack at that. I think the real difference between the CCAB flows and the U.S. flows, U.S. flows tend to be a bit more stable because of the munis. And you've seen how municipal bonds have gone from outflows last year to probably $5 billion or so in inflows this year and continue to be very strong. Also the Franklin Income Fund, another one that's turned around significantly in the Hybrid category and had very significant inflows. The CCAB range had a much heavier reliance on the Global Bond Fund. I think the primary difference with the Global Bond Fund in the CCAB range is that a lot of that is driven by gatekeepers. And as we've said on prior calls, once the gatekeeper decides to lighten up, then you have an effective redemptions over a longer period. And even over a year, based on the volatility that fund had back in last September, just rebalancing can cause fairly heavy redemptions even in a period when that asset class is doing very well. So I think that's the real difference when you look at flows. Hopefully, most of that rebalancing is done. But our sense is that you had a lot of first-time buyers with global bonds and maybe some of the gatekeepers, based on the volatility that, that fund went through back in last September, they probably allocated less than they had before. And that would have an unusual and lingering effect on redemptions, and I think that's what we've seen. The other one, just Asian Growth Fund, which is a big driver, intends to move fairly quickly one way or another, it had still had net outflows for the quarter. And nothing really to call out there other than I just think it's just that lack of confidence overall and certainly even maybe a bit more negative in Europe than what we're seeing here in the U.S.

Matthew Kelley - Morgan Stanley, Research Division

Okay. And then if I can ask another one on the institutional side. Obviously, the global equity institutional inflows that you saw, pretty good results given what we've heard from some of your peers. I'd be curious to get your thoughts on what institutions are asking you for at this point, and how K2 kind of works into your thinking there as well?

Gregory Eugene Johnson

I think the institutional flows have been steady, and they've been right around the 2 areas that, again, we've been talking about in the past, the global equity as well as fixed income. And global equity, especially Templeton, has really had a tremendous turnaround in performance. Now we're seeing that flow through to the 1-, 3- and 5-year periods as well. So I think that, that should bode well for future wins. And we had some nice additions to existing, some big sovereign wealth accounts that we've had for a while where we had an addition. And then we had a big win in Canada with for -- with our Bissett group in Canadian equities that had an effect on the current flows. What was the second part of the question? I'm sorry.

Matthew Kelley - Morgan Stanley, Research Division

Sorry. It was on K2, and how it fits into your institutional thinking?

Gregory Eugene Johnson

Yes. I think it's a little early for us to figure out exactly because I think we have to understand where the best opportunities will be. And I think our feeling at this stage, is it's an excellent fund of funds business. We think we can take that and hopefully help distribute that with our relationships around the rest of the globe on the institutional side and possibly introduce it to our high net worth base through fiduciary. And then from there, it's really how we build out whether it's an outsourced CIO model. Build out some more solutions capabilities for institutional clients. I think that, that remains to be seen as we get a better understanding of the skill sets and how the 2 fit.

Matthew Kelley - Morgan Stanley, Research Division

Okay. If I can just ask one quick follow-up, and then I'll jump back in. On -- just in terms of the outlook for that overall industry hedge fund of funds, what's your kind of view there? Do you think you can bring K2 on and grow it pretty substantially? Or is it just more of an offering that your clients are asking for, and maybe there's some growth, but the industry has challenges? How do you think about that?

Gregory Eugene Johnson

Well, I think first of all, the attractive part of K2 is that it was an organization that grew in a very difficult contracting market. So obviously, doing something right there. We have seen some fee compression there. We feel like we're comfortable in how we model that out going forward, and feel that it is really another natural area for us. I don't think, relative to our huge asset base, that it's going to have a dramatic impact on us. But obviously, a nice fit into something that a lot of our clients have been asking about. And then I think just on the ability to customize other portfolios with all of our capabilities, it gives us a skill set that we don't really have internally. So I think that's another opportunity there.

Operator

The next question comes from Dan Fannon from Jefferies.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

I guess, Ken, first just in terms of the expenses, it seems like there was some seasonal or kind of year-end push in some of the line items as we think about this past quarter. But maybe if you could just kind of walk us through, kind of thinking about the set up into next year and maybe from a budgeting process, how you're thinking about the P&L and -- or even just the kind of sequential changes that we should think about, quarter-over-quarter?

Kenneth Allan Lewis

Okay, Dan. I think absolutely there's some seasonality in this quarter. And when you look forward to next quarter, I would expect to see a little bit of the margin bump back up a little bit because, I mean, that's typically our pattern. In addition, we are in a somewhat of an upward trajectory in assets under management. So that's going to carry over not only into the next quarter but into the next year. In terms of the budgeting long-term, recognizing that the markets have helped us out in the last couple of months, we're still somewhat cautious about letting go of the expense range too much. So it'll be measured. But I do expect in the next quarter to see the expenses come down a little bit and the revenue up a little bit.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Okay. And then I guess in terms of capital, the slide on Page 21 is helpful. I guess the $6.5 billion post the notes offering, how much of the cash is in the U.S.? And then kind of thinking about how you guys, or the Board is thinking about a potential special dividend at the year end? Any update on that would be helpful.

Kenneth Allan Lewis

Sure. So if you look at our overall cash and investments of maybe around $5.8 billion at the end of the year, roughly about $3.2 billion is outside the U.S. And in addition to that, we have a little over $1 billion that we view as restricted, either because it's part of our banking operations or just through policy. So what you're talking about, the residual there is about $1.5 billion of what you might consider unencumbered U.S. cash. Keeping an eye though, in October -- or, we have refinanced that debt and then we have the K2 acquisition as well. So that's the picture. In terms of the special dividend, that's a decision that the Board will make before the end of the calendar year. But obviously, based on the numbers I just rattled through, I think we have the flexibility to do a special dividend, if they decide to do so.

Operator

The next question comes from Roger Freeman from Barclays.

Roger A. Freeman - Barclays Capital, Research Division

You mentioned, I think in the prepared remarks, you talked a little bit about an equity campaign. It sounds -- that's somewhat similar to maybe what you did a couple of years ago. And I'm just actually curious kind of what stage that's in, and how it does compare or contrast. I think last time it was very focused one on the advisers.

Gregory Eugene Johnson

Right. I think this campaign just takes it a step further and something that is somewhat unique, and I think it's being very well received. We partnered with the university and professor that specializes in this area and really trying to look at the investor behavior, and then try to help the adviser have tools to get people over the hurdle of focusing on short-term events and fear. And I just think it's beyond just the generic kind of piece on buying equities with a mountain chart. It really gives them something to think about and talk about that they haven't had before. So we'll just keep trying to get the investor to do the right thing sooner or later, and this is another way to provide more tools to get investors focused on the longer term opportunity.

Roger A. Freeman - Barclays Capital, Research Division

And the second question's just on the bank, some of the bank restructuring that you're doing, there were some costs on that. What are you doing? And is this Dodd-Frank-related or Basel?

Kenneth Allan Lewis

Yes. So we were looking at our depository entities, and I think we mentioned on previous calls, we were looking to restructure that. But we kind of ran into some roadblocks on that. Still looking for options there to basically lessen the regulatory burden, if you will. But it's really, it's not so much financial. It won't have so much of a financial impact than a business impact on specifically our high net worth operation.

Operator

Our next question comes from Jeff Hopson from Stifel.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

It appears that equity flows in Europe in September were positive and particularly flowing into emerging market equities and global equities. Did you see any of that from your end?

Gregory Eugene Johnson

Yes. I think we, like most, we definitely have seen an improvement September, October, in those flows. But I, in particular, haven't seen what the emerging markets or global equities look like specifically.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then follow-up. On the global fixed income, just to kind of make sure we get what has happened there. So do you feel like you have been taken off some platforms by the gatekeepers or just a lower allocation that's rolling through that eventually will kind of correct itself I guess?

Gregory Eugene Johnson

I mean, what I've been told -- and it's really more about a lower allocation, that it's a relatively new asset class for a lot of retail investors. And that kind of volatility, I think, they just felt like they wanted to reduce the exposure in some of the large financial firms' platforms. The growth sales are still our top-selling fund in the CCAB range. So I think that's an important point that obviously still very attractive in a lot of distribution channels. It's just that getting that reallocation in some of the really big banks that, as I said, had that lingering effect on redemptions. But you went from a period where you were bottom decile for a little bit, quickly back to now we're top decile for the 1 year. So, I mean, that's a big change.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Sure. And in the U.S., those funds have done so well. Could there be some potentially negative reaction because they're up so much, and people take gains or step aside? It's hard to say, but any thoughts on how the global fixed category will do in the U.S. from here?

Gregory Eugene Johnson

Yes. I mean, I think all of those are valid points when you have the kind of macroenvironment and the negative press everyday talking about a lot of the risks that are out there, anytime you have a rebound. And that's certainly I think part of the problem with equities right now, as soon as we get back to certain levels in the market, it increases redemptions instead of increasing net flows. And that's something we haven't seen in the past. And I think global bonds, we have seen those snap back, I mean, even quarter-over-quarter in the U.S., it had plus $300 million of net inflows compared to $300 million in outflows last quarter. So we are seeing a snapback because that's more individual sales with advisers versus gatekeepers. So we're still very optimistic and look at, the penetration as still very low relative to the asset base here in the U.S.

Operator

The next question comes from Ken Worthington from JPMorgan.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Maybe to follow up to -- from a question earlier about K2. Just why did you settle on K2? It seems like they have been underperforming. They have a number of plants that have either fired them or they're on watch in Massachusetts, Chicago, Florida, cautious comments from some pension plans in California. So why was this one the right one for Franklin?

Gregory Eugene Johnson

Well, I think we've looked at many of them. And I think part of it is that it's the right kind of structure for -- where it wasn't founders selling out. It was a private equity situation with debt. So the key people are still very much engaged and have equity performance shares. So nothing changes from the client perspective on that. I think that's very important. This is a group that's grown in a period where others have contracted. Yes, I mean, there's some short-term performance, but that's not an issue. They're not in any more lists than anyone else with big public plans. I mean the whole industry has been put somewhat on watch as groups go to smaller and more custom. And we looked at that exposure, and it's not a big exposure from concentration of assets with any one given client. So we got comfortable on all of those issues and felt like the people there were the right cultural fit. It's a business we've wanted to be in, and just felt like that to us was the most important part of it.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

And is this a growth business anymore? I know that was sort of asked, but it seems like if we look at the big fund of funds, it's like 18 of the 20 biggest ones are in redemption right now. And it seems like the industry has changed. So I know you think you can do some things with the business, but does the nature of the business change? Is what we're seeing just temporary for the industry?

Gregory Eugene Johnson

Well, I think the business is going through a change where there's some pricing pressure from the traditional model. And I think that, that could continue for a while. But we also feel that certainly, the endowment foundation area, that there's still a huge opportunity for this kind of business. So we're still optimistic about the business. And I think the other important part is, at this stage, you don't -- when a business is contracting and facing those same issues you brought up, that also affects the purchase price and the opportunity and the multiple. And those are all things that get factored into a decision to do something.

Operator

The next question comes from William Katz from Citi.

Neil Stratton

This is actually Neil, filling in for Bill. On the prerecorded call, you mentioned that alternatives and multi-asset are increasing the areas of focus for the firm. And the question is do you have the footprint that you want today? Or should we expect some more acquisitions to get into this area?

Gregory Eugene Johnson

Well, I think we have a pretty broad footprint today. And if you look at the areas we have, whether it's private equity, real estate, tactical asset allocation, we've added 20-some-odd professionals in that area alone and grew $4 billion to $5 billion in assets in a new category for us in the past year, and introduced a lot of new funds. And then the Pelagos piece as well that it brings managed futures into the equation. We feel like we have a pretty robust platform right now. I think the question of what do we need? I think we need to tie this kind of all together. And K2 will come into that equation in how we work that through. But there's nothing right now that we feel like we need to go out and get. I mean, we have real estate. We have real assets, funds that should do well when inflation comes back. And those are the kind of things that we're trying to do. So the other pieces, whether it's taking existing managers and introducing other types of hedge fund-like products, I mean, we'll continue to do that where it makes sense. But I don't think there's anything on the wish list from an asset class that we feel like we have to go out and get.

Neil Stratton

And my second question is you mentioned penetrating China and some other Asian markets. Should we expect any incremental investment spend from here? And would there be any impacts on margins if that was the case?

Gregory Eugene Johnson

Yes, I don't -- I mean, I think we're in those markets. I mean, there's no market that we'd move into in any dramatic way that we're not in that would have an impact on margins. I mean, I think we're just about everywhere we need to be and it's a question, in those markets, do we want to build local asset managers and some capabilities or purchase one? But again there's nothing of any scale or size that I'd put in that category that would move the margin.

Operator

Our next question comes from Michael Kim from Sandler O’Neill.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

First, just to follow up on the capital management front. So if we look at the payouts for share repurchases and dividends through the first 9 months of this year, it looks like they're lagging sort of the trajectory looking back to next year -- or I'm sorry, the trajectory looking back to last year. So how should we be thinking about that dynamic as it relates to returning excess capital to shareholders, just as we get into the final quarter?

Kenneth Allan Lewis

Okay, Michael. So that -- let's see. I don't know if I would necessarily characterize it as lagging the payout ratios lower. We had a couple special dividends in the prior numbers. So that's probably why you're seeing that lower number. As I mentioned earlier, the Board could decide to do that in the fourth quarter, that's an option. And in terms of the share buybacks, a few things to keep in mind is we continue to be opportunistic. The stock was on a pretty good run at the end of the fiscal year. And in addition, we kind of refrained from trading because we were in discussions with K2 and all that. So that kind of limited our trading ability as well. So those are not trends that you would think would carry forward.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Okay. That's helpfulAnd then, can you maybe touch on Fiduciary Trust. It's been a while since you guys talked about that part of the business. So just maybe an update on trends that you're seeing across that business. And then more broadly, can you just sort of refresh us on the synergies that you see across the high net worth platform versus the retail and the institutional franchises?

Gregory Eugene Johnson

Sure. I think we've made a lot of progress just with the group in our investment process and really trying to use Franklin and Templeton's capabilities wherever we can. But also having a more consistent process versus an individual process, which is the old model versus the new model. And we're not entirely one process, but we're much, I think, much more consistent in how we approach that. And that took a while to get there, and I think you'll get efficiencies from that. It's a business, we'd like for it to be a bigger business. So when somebody talked about an M&A wish list, certainly that would be one where if the right opportunity is for us that we can continue to build that platform, that makes perfect sense. It is a complementary business to us in the sense that the more we can drive and more leverage the investment management capabilities, and clients certainly in the U.S., the more that, that makes sense. Today, it's not going to again move our needle very much in terms of the bottom line. But a good solid business that I think has made a lot of progress in -- certainly on the investment side.

Operator

Our next question comes from Glenn Schorr from Nomura Securities.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

I guess the question goes on the institutional side. It's a weird year, I think people came in still maybe underweight their equity benchmarks. And then you have lots of reasons to be uncertain about the world. And what do you know? Central banks inflate assets, and equity markets go up a bunch. So just curious what you're seeing as we roll into year end? And what you're expecting in terms of pension allocations? Are they underweight, overweight? Do you think it's possible for them to be actually doing the reverse commute and rebalancing out of equities after what's been a decent year so far?

Gregory Eugene Johnson

I think those are good observations. And, certainly I don't have the answer on what they're thinking about now. Other than, when you have the kind of run-up that it's always a time when you do see rebalancing. But where are you going to rebalance to would be the other question to go into fixed income right now with a heavier allocation. So I think we are in an unusual period and I don't think there'll be a big change, one way or another, on where the overall allocation is this year versus last year.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Got you. Okay, appreciate that. And 2 quick modeling questions, Ken. One, with the wind-down on the auto business, is there much of an impact on the other revenue line going forward? And then better news, with performance so good across the board, how should we be thinking about the comp line going into 2013?

Kenneth Allan Lewis

Okay. So I do think it would be reasonable to expect that less of the other net revenue line that we've seen in the past, it's difficult to say with 100% precision. But I guess if you look back maybe 2 quarters, that's probably a reasonable run rate. Let me just say that thinking about the activity of the Auto loan business in that quarter. In terms of the comp line, yes, I think it's reasonable to expect a little bit of an increase in that line for a couple of reasons. We do have some open RECs. [ph] We'll be careful in filling them, and also they're in -- most of them, or at least more than half of them, are in the low-cost jurisdictions. We did put into effect, or we did approve some merit increases, and that shouldn't have a very significant impact on the line item. It's effective December 1. So for next quarter, it should have on the -- shouldn't be that noticeable. But, I mean, you're probably talking in the neighborhood on a full-year run rate there about 1% to 2% of the comp line. And so -- and then you have the variable aspect of it because as you said, as performance has been good, that should bump up. So I would expect a little bit of upward pressure on the comp line. Like I said earlier, I do expect to see some help from the other lines to offset that.

Operator

Our next question comes from Doug Sipkin from Susquehanna.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Two questions. One, just to follow up on the prior on the expenses. So just for modeling purposes, thinking about G&A and technology, I guess should we sort of be trending back to prior quarters when we think about sort of just the general trajectory of those lines and sort of accounting for the one-off nature in this quarter?

Kenneth Allan Lewis

Yes, exactly. I think that's exactly spot on. You'll see the lower seasonality spending on the IT line, I would expect.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

And then the G&A obviously as well, right?

Gregory Eugene Johnson

In general, I will mention there is -- in terms of pent-up demand, there is a lot of pent-up demand for technology projects. So when that hits, it's hard to say because these things are kind of big projects and take a long time but I think as a general secular trend, we would see a little bit more spending on that line item. But in the next quarter, it should probably drop off a little bit.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Great. And I know the flow trends through -- even the end of October don't bear it out. But any sense of any fatigue on the part of investors for putting more money into bonds? It just seems staggering the amount of money that continues to plow into bonds. So I was just wondering anywhere in the chain, are you picking up any sort of fatigue on the part of investors that may not show up yet but could in a couple of weeks, a month, what have you?

Gregory Eugene Johnson

I'm not. I haven't seen any change there.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

And what -- I mean, what is it going to take -- and I know you guys have been at this for a while and you run campaigns, I mean, what do you think -- is it -- like if you had to sort of create a scenario that would be perfect to get retail investors back into longer dated equity products, what would that scenario be?

Gregory Eugene Johnson

Well I mean, you'd want less volatility in the marketplace. You'd probably want some inflation just to create a little bit of uncertainty around fixed income. But you could argue that could hurt us or help. I mean, our asset mix is pretty even between the 2. So I just think the quieter, steadier environment. And to me, when we get past election time when there's so much negativity out there on what's happening. And maybe Europe, things just quiet down, that's my wish list for the next year.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

And then just final question, I mean, obviously a lot of success in the balance category. Are you guys worried at all? Maybe, is there -- is capacity an issue at some point there? Or is it not something really to worry about right now?

Gregory Eugene Johnson

The Hybrid category?

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Yes.

Gregory Eugene Johnson

Yes. I don't -- that fund and its flexibility, there really is no capacity. I think we're at $80 billion in total Hybrid assets there. And it just doesn't appear to be an issue for capacity at this stage.

Operator

Our next question comes from Marc Irizarry from Goldman Sachs.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Greg, just a quick one. When you look at the global institutional equity business and you think about the fees and active versus passive, how do you think when you're sort of going out with there with the good numbers, I mean, is this a threat of a passive in that channel growing? Or is your sort of alpha and differentiation sort of worth being active in that category?

Gregory Eugene Johnson

Well, again, I think that's a good question and certainly I think on that side of the global equity side, you have a little bit less pressure than you do in U.S. equity and large cap. So we haven't seen any increased pressure there. I think there's always pressure on institutional fees. But I think the more institutions use a passive approach, obviously, the more pressure that puts on fees. But that hasn't dramatically changed on the global equity side. But I think it's a continue -- it's a pressure that will continue to be there.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Now where are you also in the ETF business? Is that sort of when you look at to-do list and the product list for you guys, where are you -- what are you thinking in terms of the opportunity for Franklin on the ETF side?

Gregory Eugene Johnson

Well, we did file one. And I think part of it was just to -- as a reaction to some of the potential changes in the money market world and have short duration alternative. Most of our assets are sweep assets that are funds-used. So if somebody required capital or something like that, we certainly wouldn't want to sweep into that account. So to have a short duration ETF available, and for us to get a little bit along the learning curve in how those are going to operate, that's our thinking right now. The passive side, there's going to be a few big winners. And I think the market's kind of shaking that out right now, and you're at a race to the bottom in terms of fees. And that's just not something we want to spend our time on. And obviously, huge market, profitable one, but more operations and low-cost provider versus active management in what we do. I think the question around active ETFs is still an open one. And my personal feeling is that they limit the portfolio management capabilities of what an open-end fund can do, and the market will start to understand that. But we never say never. And we look at ourselves as investment management. The content whatever the pipeline or vehicle, if the market wants that, we're open to doing that. So I think that's the question for us is how do we look at active ETFs and especially in the fixed income world.

Operator

Our next question comes from Greggory Warren from Morningstar.

Greggory Warren - Morningstar Inc., Research Division

I just wanted to go back to this behavior of focused campaign that you guys have launched. You obviously said there was a step-up from the, what was it, the 2020 campaign you had a few years back. I'm just wondering maybe at that point in time when you launched that one, it was -- we were still freshly off the financial crisis. I don't think that this fear of equities, or at least beyond, in this unhappiness with sort of performance on the actively managed side, had really sort of kicked into the system yet. And you look now, I mean, you guys see the same sort of flow data that I do. You look back over the last 4 or 5 years, actively managed funds have just been bleeding assets. And I'm wondering is this money that you think is going to generate flows at this point? Or is this more like a goodwill action to sort of stay in the good graces with the financial advisers, make sure that they know that you're there and that you've got their back? That you're trying to help them generate the business?

Gregory Eugene Johnson

Well, I think part -- it's always a little bit of both. I mean, I don't think we think it's going to suddenly turn the wave around of the flows going from 27 months to negative to positive because we've put out this campaign. I think we're just trying to send -- and like we did, we did something similar with fixed income when equities were selling quite a bit. I think part of what we try to do is partner with the advisers and try to give them tools that help them do their business. And I think that they're somewhat frustrated even with investor sentiment. The survey that we did that said most investors thought the market was down the last 3 individual years, which was not true. So I think there is -- it's more than just a lack of confidence. It's somewhat misinformation, too, out there in the marketplace. And we think is the right thing to do. I mean, I just think the amount of money pouring into long-duration fixed-income funds at this stage is really not healthy for our industry with the risk/reward. And that's the message we're trying to carry.

Greggory Warren - Morningstar Inc., Research Division

Okay, okay. That sounds reasonable at this point. The other question I had, it was directly below this in your prepared remarks this morning. I mean, when you talking about this three-pronged approach, can you give some examples as far as where you're looking to enter in new markets, where are you looking to build scale in existing markets? And I guess, along those same lines, deepening the penetration here and sort of more mature markets, where do you see these real opportunities?

Gregory Eugene Johnson

Well, I don't know. I think, again, each market is in such a different state. And for us, that's example of a new market that we entered on institutional basis and put people there, it was in Malaysia. And we had some early success in that market on the institutional level. Now we're looking at registering local funds there. We're looking at a tree of funds that we now have in our -- that's a whole market, with Islamic investing, and trying to export that capability across border. I think that's interesting. And then the other markets are the traditional big markets. I mean, for us, Italy still had a very strong year despite some of the focus on global bonds, but we managed to cross sell. And I think the demand for us, it's more -- the people that have been selling a lot of the global bonds are looking for other options for us. And we've been very successful with the tactical allocation in Europe, and we hope to do more of that in that market. But there's really no market I'd call out that all of a sudden, for whatever reason, has a big opportunity. I mean, most of this is dependent on world growth and confidence. And that's just a little shaky right now.

Greggory Warren - Morningstar Inc., Research Division

Okay. Well I'm happy with what you guys are doing and where you're projecting. And in fact, to your comments recently about the -- no sense in jumping into the ETF market at this point because the game is going down the path that unless you're already invested, heavily invested, it's just going to be harder to get in.

Gregory Eugene Johnson

Right.

Operator

Our next question comes from Cynthia Meyer from Bank of America Merrill Lynch.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Just maybe a very targeted question on Global Bond. I think on some previous calls, you guys have talked about how the Global Total Return Fund might absorb some of the flows or attract investors who wanted a more corporate bond mix. And it looks like it has grown pretty fast and it is top decile year-to-date. But the flows recently turned negative, too. And I'm just wondering are advisers differentiating among those 2 funds? Or when you see advisers maybe move out of the Global Bond Fund, are they treating that one as a twin and doing the same thing?

Gregory Eugene Johnson

Cynthia, I think that's a good question. And I was a little surprised actually that the quarterly number declined from the prior quarter in that fund. I mean, not by a significant amount on a net basis. It continues to be our #2 seller on a gross basis to the Global Bond Fund. I think the 2 are viewed very closely. And if somebody's uncomfortable with the allocation to global bonds, that probably would affect that fund as well just because the currency is the big play there in terms of risk. So I -- we'd certainly, I can ask our -- I don't have a good answer there on why and how the market's looking at that. I think at first, it grew a lot. There was some capacity constraints and probably having too much concentration in one fund. So that was an easy way to diversify. But it could also be that now that they're looking at it, and looking at how closely it follows the other fund, maybe they are putting it the same category. And we could certainly get more information to you on that.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay, great. And then just for my second question, back to alternatives just briefly. Could you maybe talk about what channels you see the most promise in? Because you talked about institutional and fiduciary, but you're obviously really strong in retail distribution. So should we expect to see you introduce a bunch of alternative-slavered CCABs at some point or '40 Act Fund?

Gregory Eugene Johnson

Well, I think you have to be careful. I mean I think the liquidity of some of these securities or derivatives that are in there, I think, make it traditional '40 Act or in CCAB somewhat challenging. So those are all the things that we'd go slow on trying to figure out the right place. The first step, as I mentioned, was to have sleeves or buckets in our tactical asset allocation funds and having things like managed futures that give us hard asset-type exposure in a '40 Act Fund, it would be the first step in that versus bringing out an entire fund in the one category. So I think that's where the first steps are for us in alternatives. And then determining whether it's a global summit's fund that takes our global bond expertise and introduces that to high net worth clients, institutional clients. That's something that we're doing right now. But again, these are going to be smaller pieces to our business, not really big core ones.

Operator

We have no further questions at this time.

Gregory Eugene Johnson

Okay. Well, thank you, everybody, for participating on the call. And we look forward to speaking next quarter. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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