It stands to reason that as the stock market rises, so too could the revenues and profits of those publicly traded investment firms that manage mutual funds and the like for average Americans and 401(k) plan participants.
But does it stand to reason that those firms would be good investments themselves? A rising tide lifts all boats, right? But the real answer is yes in the case of some, and no for most others.
The reason this: Assets under management are rising at some, but not all firms. Money is flowing into some of these firms, but not all. Margins are being squeezed almost everywhere. And many investment firms -- where investors were hoping for better quarterly results -- are taking it on the chin.
Still, there are some firms worth looking at.
Consider, Zacks Equity Research this week upgraded its recommendation on T. Rowe Price Group (TROW)
Another firm to consider is Invesco (IVZ),
Many analysts are also fairly bullish on BlackRock (BLK),
Analysts seem to like Franklin Resources (BEN),
For the record, one asset management that stands out in Zacks' universe of publicly traded investment firms is Calamos Asset Management (CLMS),
Bearish to neutral
Those asset managers aside, analysts are mostly neutral to bearish on other asset management firms that have not witnessed as significant inflows as T. Rowe Price Group.
For instance, AllianceBernstein Holding L.P. (AB)
But despite that, AllianceBernstein's profits fell 38.9% from the year-earlier quarter. Now truth be told, Wall Street was expecting much worse. AllianceBernstein reported adjusted net income of 29 cents per share and Wall Street's mean estimate was 23 cents per share.
Still, the stock is trading fairly close to the average target price of $14.28 of the 11 analysts who track AllianceBernstein. For the record, Zacks Equity Research has AllianceBernstein listed as a hold for the near term and a neutral for the long term.
And Janus Capital Group (JNS)
Janus, for the record, is trading about $1 below the average target price of $8.38, hardly a bargain.
Diamonds in the rough
And then are the diamonds in the rough such as Legg Mason (LM) ,
And those quarterly results suggest, at least according to Zacks, "Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing market demography."
In the near term, assets outflows will remain a significant headwind, according to Zacks. But with the restructuring initiatives and the cost-cutting measures, Zacks expects "operating efficiencies to improve, and dividend payments to continue to inspire investors' confidence in the stock."
Others, however, don't share that opinion. "We continue to take a more measured view of Legg Mason's turnaround efforts, believing it will take years for the firm to overcome the damage done during the financial crisis," Morningstar's Warren in a recent report. For the record, Wall Street analysts have a consensus target price of $30.07, and you might consider buying at $18 according to Morningstar.
So what happens to asset managers from here on in? Well, a rising market won't lift all boats, so you best consider carefully the boat you choose to ride. A leaky boat will sink whether the tide is ebbing or flowing.