WDR Waddell and Reed Financial

Shares of asset management firm Waddell & Reed Financial Inc. fell 14% in heavy trading Tuesday after the investment firm announced the retirement of Michael L. Avery, president and co-portfolio manager of its largest mutual fund, the Ivy Asset Strategy Fund.

The move is the latest setback for the fund, whose assets under management hit $36 billion at its peak two years ago but has since dropped to $15 billion, according to Morningstar. Ivy Asset Strategy was a strong performer in the years immediately following the financial crisis, bringing in large investor flows, but in recent years it has taken heavy losses from bets on gold and Chinese stocks, among others.

Waddell shares tumbled $3.65 to $22.85, putting them within a dollar and change of their 52-week low. The shares have lost more than a third of their value since the asset-management industry was hit by a post-Thanksgiving selloff that was punctuated by news that Third Avenue Management LLC, a unit of Affiliated Managers Group Inc., had halted redemptions at a fund that had made large investments in low-rated, hard-to-sell securities.

The decline is the latest signs of the problems facing smaller asset managers that specialize in active investing as investors migrate to larger firms that offer low-cost funds tracking market indexes.

Firms like Waddell & Reed that specialized in high-yielding funds invested in risky securities have suffered more than most as market turmoil and the Federal Reserve's first interest rate increase in nine years spurred investors to move into safer asset classes.

Other asset managers were hit hard Tuesday on a day in which the Dow industrials slumped as much as 300 points and the KBW Nasdaq Banks index of large commercial lenders declined more than 3%. BlackRock Inc., the largest U.S. asset manager, fell 4%, while AllianceBernstein Holdings LP dropped 4.6% and Legg Mason Inc. slid 6% and T. Rowe Price Group Inc. slipped 3%.

Affiliated Managers shares fell 7.2% to $122.68 after the firm, also called AMG, reported a 12% decline in net income for 2015.

Waddell on Tuesday also posted a decline in fourth-quarter earnings and set plans to cut expenses. Trading volume Tuesday was triple the daily average.

"Heightened market volatility has been a consistent theme throughout 2015, challenging performance and causing anxiety with investors," said Chief Executive Hank Herrmann. "In addition to market challenges, we have had to manage increased redemption pressure and weaker sales in some of our key strategies due in part to underperformance in these funds."

The Ivy Asset Strategy Fund managed about $10 billion in 2009, then grew quickly under Mr. Avery, whose high-risk and high-return strategy developed a strong following among individual investors hungry for yield. The fund returned 24% in 2013 thanks to Mr. Avery's large, concentrated bets but has lagged behind since then, losing 5% in 2014 and 8.4% last year, according to Morningstar.

Write to Matt Wirz at matthieu.wirz@wsj.com and Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

February 02, 2016 15:55 ET (20:55 GMT)

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