The San Francisco Bay Area was holding vigils to commemorate the anniversary of the tragic 1989 earthquake, and the third anniversary of the 1987 Wall Street crash was ticking by. Cataclysmic times breed reflection and conservatism.
Headquartered in a modern seven-story white concrete building just off Mariners Island Boulevard in this bedroom community of San Mateo, Calif. is a company that styles itself as a beacon for investment conservatism. The Franklin Group of mutual funds is the depository of more than $44 billion in assets of cautious folks who don't want financial surprises. U.S. government funds, money-market funds and bond funds are its forte and that's what sells.
"In this volatile market, we've seen our sales decline but our market share grow because we're considered a conservative player," said Greg Johnson, a vice president and third-generation member of company management.
Franklin's redemptions are running at a level equal to 40 percent of its new sales, while the current industry average is 80 percent of new sales. The company's battered high-yield bond fund has suffered high redemptions, but market volatility hasn't been as rough on municipal bond or government securities funds.
"The fact that our funds are sold through brokerage firms helps, since the broker serves as a buffer and sounding board when an investor starts wondering about taking out money," said Johnson, noting the company's assets have grown by $7 billion since the crash.
Franklin's maximum up-front "load" sales charge is 4 percent, all of which goes to the broker. Franklin has a controversial policy of exacting a 4 percent charge on reinvestment of dividends as well.
As readers of this column are aware, I'm not fond of any kind of loads on funds. However, bottom line performance is what counts. Examine the total returns of funds with the effects of any loads factored in so you can make accurate comparisons. If the end result happens to turn out higher than competitors, I won't complain.
Conservatism isn't infallible. As might be expected, the biggest Franklin funds have had modest ups and pronounced downs:
* Giant $10.5 billion-asset Franklin U.S. Government Fund has a 5.05 percent total return for the past 12 months. A number of retirees I've spoken with who depend upon its checks for income are unhappy that it isn't as high in yield as it once was. The fund's annual total return over three years is 8.55 percent; five years 8.16 percent.
* The $3.5 billion-asset Franklin Federal Tax-Free Fund is up a meager 1.03 percent in total return the past 12 months. Over three years, it had annual total return of 8.40 percent; five years 8.38 percent.
* The $1.6 billion-asset Franklin AGE High-Income Fund, like most high-yield funds, has been hammered. It's down 19.67 percent the past 12 months. Over three years, it's down 7.43 percent. Over five years, it has a return of 10.83 percent.
Franklin pumps a lot of money into advertising, which it believes necessary for investor confidence.
"Advertising gives the investor a sense of security, adds credibility to our name and helps the broker selling it," said Johnson, who points out that the company hasn't been pummeled by brokerage firm's own proprietary funds because brokers like to offer variety.