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The big stock market rally of the last two years has been driven by massive capital inflows into equities. But a good portion of that volume has come on the back of large institutional players like hedge fund and pension managers that control big blocks of cash.
But now, with the rally entering its third year, many retail investors are finally gaining the nerve to dip back into a market that saw steep losses in the financial crises of 2008 and 2009. That trend comes to light when taking a look at recent mutual fund inflows.
Retail Investors Back in the Game
It kicked off with a very bullish January that saw inflows of $34 billion into equity and fixed-income funds, a very bullish signal that retail investors are looking to get back in the game. Since then, inflows into equity and fixed-income funds have been on a 10-week win streak, more evidence that retail investors are regaining their appetite for risk
That macro-level shift from a large group of investors represents a huge opportunity for money and asset managers, who get paid on both assets under management (AUM) and the actual performance of those assets.
More Fuel in the Tank?
And even though the bull is two years in the making, there is plenty of evidence to support more gains. The S&P500 is on the verge of regaining peak earnings from 2007 while trading at an 18% discount. That means the valuation picture is compelling, with the S&P 500 trading at a relatively cheap 14X forward earnings.
So if retail investors are piling back into a wide basket of assets, it means money managers are well positioned to gain from the trend and increase their assets under management. Let's go ahead and take a look at our top picks in the category.
Top 4 Investment Management Stocks
Blackstone Group LP (BX - Analyst Report) is a private equity firm that specializes in private equity, real estate and debt with a market cap of $8.3 billion. Increased capital inflows and higher asset prices have been a boon for Blackstone, with this Zacks #2 rank stock recently hitting a new multi-year high. But the valuation picture is still in check, with a forward P/E of 12X. Take a look below.
BlackRock, Inc. (BLK - Analyst Report) is one of the largest asset managers in the world and has a market cap of $36 billion. This Zacks #2 rank stock has an average earnings surprise of 11% over the last three quarters and a bullish next-year estimate calling for 15% growth. And with a PEG ratio (PE/Growth) of 1, shares are trading at the traditional benchmark for value. Take a look at shares trading near the 52-week high below.
Invesco Ltd (IVZ - Analyst Report) is an asset manager that specializes in high net-worth and institutional investors with a market cap of $11.7 billion. This Zacks #2 rank stock recently hit a new multi-year high on an average earnings surprise of 8% over the last four quarters. With a bullish growth projection of 17% and compelling valuation, IVZ looks well positioned to benefit from additional capital inflows. Take a look at the chart below.
Ameriprise Financial (AMP - Analyst Report) has been a high flier for the last 6 months, recently topping off at a new multi-year high above $65. The investment services and management company is projected to grow earnings by 14% next year and has a discounted forward P/E of 11X, well below its peer average of 14X. Take a look at the chart below.
The Take Away
The strong equity rally of the last two years is driving capital inflows into investment services and management companies. And with the trend of strong corporate earnings well in play, these companies are well positioned to benefit from more gains.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the new Zacks Momentum Trader Service.