By Sam Mamudi
Second-quarter financial results at asset-management firms
suggest they are steadily putting the tough times behind them,
according to Wall Street analysts. And the recovery should extend
into months ahead.
The financial crisis pushed the stocks of many fund firms to
all-time lows, as market values plummeted and investors pulled
their cash. But since the broader U.S. stock market bottomed in
March 2009, the sector has been making a slow recovery, though
shares of most firms are still well below their pre-crash
levels.
The 13 publicly traded fund managers covered by Keefe Bruyette
& Woods increased revenue by an average 18% in the second
quarter compared with the year-ago period, while on average
earnings per share rose 43%. Average assets under management over
the quarter were 22% higher.
Total revenue edged up 1% from the first quarter, but earnings
per share were down 5% and average assets under management fell
1%.
Analysts at Credit Suisse, meanwhile, noted that long-term
mutual funds at the 11 fund firms they cover saw organic growth of
assets, a metric that strips out changes in market prices, of 0.3%
in the second quarter. During the same period, the Standard &
Poor's 500 stock index fell 12%.
Fund company stock prices are mostly below their late-April
prices, mirroring the broader market fall. But analysts were
surprised by how well fund firms have performed.
Only one fund company covered by KBW, Federated Investors Inc.
(FII), reported a year-over-year fall in revenue and earnings per
share. AllianceBernstein Holding LP's (AB) revenue slipped but
earnings rose, while Legg Mason Inc.'s (LM) revenue rose as its
earnings per share fell.
"We thought organic growth held up well given the sell-off in
equity markets in the second quarter and heightened volatility,"
KBW analysts wrote in a note released Tuesday. "Strong fixed income
flows and improving demand from institutions helped support flow
trends, a trend we expect to carry over into the third
quarter."
Credit Suisse analysts said in a note that they believe the
strong second-quarter inflows at Franklin Resources Inc. (BEN) and
T. Rowe Price Group Inc. (TROW) will continue. The two firms saw
net inflows as a percentage of assets of 3.6% and 1.2%,
respectively, during the second quarter.
"The positive momentum at AllianceBernstein, Affiliated Managers
Group (AMG), Janus Capital Group Inc. (JNS) and Legg Mason could
[also] continue," the Credit Suisse analysts wrote.
All four firms reported lower net outflows during the quarter
than in the first quarter.
Analysts at Keefe, Bruyette & Woods said stock market
volatility will likely keep investors jumpy during the third
quarter, but they added, "At current valuations we think there are
attractive investment opportunities."
The analysts named Franklin, Affiliated and Invesco Ltd. (IVZ)
as their top picks.
At Credit Suisse, analysts noted the improved market performance
this quarter as a sign of better times. As of midday Wednesday, the
S&P 500 was up more than 6% in the third quarter, and many
asset manager stocks have risen even more. Franklin was up 17%,
Invesco had risen more than 12%, AMG and Janus were both up about
14% and T. Rowe had risen 6.6%. AllianceBernstein, however, was
down 1%, while Legg was down 0.4%.
With a rising market helping to grow assets at firms, Credit
Suisse analysts said, "Our estimates and consensus are conservative
with market assumptions well below third-quarter market
appreciation levels."
They added that AllianceBernstein, AMG, BlackRock Inc. (BLK) and
Legg Mason have the best performance fee potential for the third
quarter.
-By Sam Mamudi; 415-439-6400; AskNewswires@dowjones.com