Sell Funds, Buy Fund Companies

There are plenty of reasons to get excited about the mutual fund industry these days.

Most equity funds bounced back sharply last year, after getting pounded in 2008. Annualized returns over longer three-, five-, and 10-year periods are still typically spotty, but at least some of 2009's biggest winners can begin trumpeting their trailing-12-month performances again.

The market rally that began in March has also triggered an influx of new capital. The Investment Company Institute recently reported that long-term mutual funds have sported 44 consecutive weeks of net inflow. In other words, more money is coming in as new investments than going out as accountholder redemptions.

With net inflows and buoyant NAVs, the real winners here are the mutual fund companies. They make their money in management fees, as they tie their fate to the growth or declines in assets under management.

Clearly, these are feasting times for most fund families. You don't need to take my word for it, either. Many of the industry's biggest publicly traded names report this week, and analysts are braced for explosive bottom-line growth.

Company	Latest Quarter's EPS (Estimated)	Year-Ago Quarter's EPS
Franklin Resources (NYSE: BEN  )	$1.47	$0.52
T. Rowe Price (Nasdaq: TROW  )	$0.55	$0.09
Janus Capital (NYSE: JNS  )	$0.19	$0.05
Invesco (NYSE: IVZ  )	$0.28	$0.08
Waddell & Reed (NYSE: WDR  )	$0.38	$0.21

Source: Yahoo! Finance.

If Wall Street's targets seem lofty, with many of these companies set to earn several times more than what they did a year ago, keep in mind that rival Legg Mason (NYSE: LM  ) already reported last week -- and it blew analyst estimates away.

As long as the inflows and net asset value gains continue, so should the good times. Companies set to report earnings next week, including U.S. Global Investors (Nasdaq: GROW  ) , are also expected to post a significant year-over-year improvement.

You may own a dog of a mutual fund, but the companies managing the funds are looking like pretty sweet investments at this point.

Check out Rick's 2010 predictions for the mutual fund industry, and then hit the comments box below with your own industry forecasts.