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3 Investment Management Stocks to Gain From Asset Inflows
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The Zacks Investment Management industry has been benefiting from the significant rise in equity market volatility and higher client activity witnessed amid the coronavirus outbreak. While markets have normalized to an extent of late, client activity remains decent, which has resulted in overall inflows.
While near-zero interest rates and increasing expenditure on technology upgrades are hampering profitability to some extent, investment managers’ revenue growth is expected to continue in the near term on rising assets under management (AUM) balances. Thus, some of the industry players like The Blackstone Group Inc. (BX - Free Report) , Affiliated Managers Group, Inc. (AMG - Free Report) and Lazard Ltd (LAZ - Free Report) are set to gain from the developments.
About the Industry
The Zacks Investment Management industry consists of companies that manage securities and funds for clients to meet specified investment goals. These companies earn by charging service fees or commissions. Investment managers are also called asset managers as they manage hedge funds, mutual funds, private equity, venture capital and other financial investments for third parties. By appointing an investment manager for one’s assets, investors get more diversification options than they would have if they managed their assets by themselves. Investment managers invest their clients’ assets in different asset classes, depending on their needs and risk-taking abilities. The diversification, which investors get by appointing asset managers for managing the assets, helps in reducing the impact of volatility and ensures steady returns over time.
3 Investment Management Industry Trends to Keep an Eye on
Decent Inflows to Continue to Aid AUM Growth: In 2020 and the first three months of this year, there was a significant rise in equity market volatility and solid client activity, owing to the coronavirus-induced uncertainty, which aided AUM growth. While markets began to normalize in the second quarter of this year, overall client activity still remained decent. Moreover, while some industry players have been witnessing asset outflows, the majority have seen solid inflows in the past few months on growing investor optimism. Thus, driven by rising inflows, growth in AUM is expected to continue in the near term. Asset managers’ top line is thus expected to improve, supported by higher performance fees and investment advisory fees, which constitute the majority of their revenues.
Low Interest Rates, Shift in Preferences Likely to Continue to Hurt Margins: Given the continued need for low-cost investment strategies, the demand for passive investing is expected to continue to increase, similar to the past few years. Because of this, margins of asset managers might remain under pressure. The continued low interest-rate environment along with almost no chance of a rate hike anytime soon is expected to further hamper margin growth to an extent in the near term. Yet, the rise in industry consolidation witnessed from the beginning of 2020 amid the pandemic is likely to offer some support to investment managers’ profits.
Rising Technology Costs are Concerning: The tightening of regulations to increase transparency has led to a rise in compliance costs for investment managers. Also, as wealth managers are constantly trying to upgrade technology to keep up with the evolving customer needs, technology costs are expected to continue to rise. These will likely lead to an increase in overall expenses.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Management industry is a 44-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #62, which places it at the top 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of bright earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have confidence in this group’s bottom-line growth potential. The industry’s current-year earnings estimates have been revised 23% upward since August 2020-end.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Investment Management industry has outperformed the S&P 500 composite as well as its sector over the past two years.
Stocks in the industry have collectively gained 74.1% over this period. The Zacks Finance sector has rallied 30.5%, while the Zacks S&P 500 composite has grown 58.8% over the same period.
Two-Year Price Performance
Industry's Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TB), which is commonly used for valuing finance companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TB of 3.15X. This compares with the highest level of 3.95X, the lowest level of 1.94X and median of 3.21X over the past five years. Additionally, the industry is trading at a significant discount when compared with the market at large, as the trailing 12-month P/TB for the S&P 500 composite is 18.10X, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a low P/TB ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TB ratio with that of its broader sector seems more meaningful. When we compare the group’s P/TB ratio with the broader Finance sector, it seems that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 4.66X for the same period is above the Zacks Investment Management industry’s ratio, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
3 Investment Management Stocks Worth Betting On
Blackstone: This New York, NY-based Zacks Rank #2 (Buy) firm has a superior position in the alternative investments space. The company’s diversified products and revenue mix have been aiding AUM growth. As of Jun 30, 2021, Blackstone had total AUM worth $684.03 billion.
The company’s robust fund-raising ability is expected to continue to support profitability. Also, growth in revenues is expected to continue in the upcoming quarters on the back of promising performance of Blackstone’s funds. The $1.4-billion deal to acquire Sphera will help it provide ESG-focused investment opportunities.
Over the past six months, shares of Blackstone have gained 62.1%. Over the past 60 days, the Zacks Consensus Estimate for its 2021 and 2022 earnings has been revised upward by 4.8% and 8.9%, respectively, to $3.72 and $4.27 per share.
Affiliated Managers: Headquartered in Massachusetts, Affiliated Managers has equity investments in a large group of investment management firms or affiliates. The affiliates manage more than 500 investment products across each major product category — global, international and emerging markets equities, domestic equities, alternative and fixed-income products.
As of Jun 30, 2021, this Zacks Rank #2 company had total AUM of $755.7 billion. It is expected to continue generating meaningful growth through new investments. Its successful partnerships and focus on strengthening the retail market operations will likely keep aiding profits. The deal to acquire a majority stake in Parnassus Investments along with the buyouts of minority stakes in OCP Asia and Boston Common Asset Management are steps in this direction.
Affiliated Managers’ stock has gained 12.9% over the past six months. The Zacks Consensus Estimate for its 2021 earnings has been raised by 2.5% over the past 60 days to $16.92 per share. Likewise, earnings estimates for 2022 have been revised upward by 7.5% to $19.66.
Price and Consensus: AMG
Lazard: Based in Hamilton, Bermuda, Lazard is one of the world’s major financial advisory and asset management firms. It is specialized in offering solutions for complex financial and strategic challenges of a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals.
As of Jun 30, 2021, the Zacks Rank #2 company had AUM of $277 billion. Its stable Asset Management business offers long-term revenue visibility and has been driving earnings. Its cost-management initiatives remain impressive and are expected to keep supporting the bottom line.
Over the past six months, shares of the company have gained 14.800%. Over the past 60 days, the Zacks Consensus Estimate for its 2021 and 2022 earnings has been revised upward by 10% and 4.1%, respectively, to $4.64 and $4.83 per share.
Price and Consensus: LAZ
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3 Investment Management Stocks to Gain From Asset Inflows
The Zacks Investment Management industry has been benefiting from the significant rise in equity market volatility and higher client activity witnessed amid the coronavirus outbreak. While markets have normalized to an extent of late, client activity remains decent, which has resulted in overall inflows.
While near-zero interest rates and increasing expenditure on technology upgrades are hampering profitability to some extent, investment managers’ revenue growth is expected to continue in the near term on rising assets under management (AUM) balances. Thus, some of the industry players like The Blackstone Group Inc. (BX - Free Report) , Affiliated Managers Group, Inc. (AMG - Free Report) and Lazard Ltd (LAZ - Free Report) are set to gain from the developments.
About the Industry
The Zacks Investment Management industry consists of companies that manage securities and funds for clients to meet specified investment goals. These companies earn by charging service fees or commissions. Investment managers are also called asset managers as they manage hedge funds, mutual funds, private equity, venture capital and other financial investments for third parties. By appointing an investment manager for one’s assets, investors get more diversification options than they would have if they managed their assets by themselves. Investment managers invest their clients’ assets in different asset classes, depending on their needs and risk-taking abilities. The diversification, which investors get by appointing asset managers for managing the assets, helps in reducing the impact of volatility and ensures steady returns over time.
3 Investment Management Industry Trends to Keep an Eye on
Decent Inflows to Continue to Aid AUM Growth: In 2020 and the first three months of this year, there was a significant rise in equity market volatility and solid client activity, owing to the coronavirus-induced uncertainty, which aided AUM growth. While markets began to normalize in the second quarter of this year, overall client activity still remained decent. Moreover, while some industry players have been witnessing asset outflows, the majority have seen solid inflows in the past few months on growing investor optimism. Thus, driven by rising inflows, growth in AUM is expected to continue in the near term. Asset managers’ top line is thus expected to improve, supported by higher performance fees and investment advisory fees, which constitute the majority of their revenues.
Low Interest Rates, Shift in Preferences Likely to Continue to Hurt Margins: Given the continued need for low-cost investment strategies, the demand for passive investing is expected to continue to increase, similar to the past few years. Because of this, margins of asset managers might remain under pressure. The continued low interest-rate environment along with almost no chance of a rate hike anytime soon is expected to further hamper margin growth to an extent in the near term. Yet, the rise in industry consolidation witnessed from the beginning of 2020 amid the pandemic is likely to offer some support to investment managers’ profits.
Rising Technology Costs are Concerning: The tightening of regulations to increase transparency has led to a rise in compliance costs for investment managers. Also, as wealth managers are constantly trying to upgrade technology to keep up with the evolving customer needs, technology costs are expected to continue to rise. These will likely lead to an increase in overall expenses.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Management industry is a 44-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #62, which places it at the top 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of bright earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have confidence in this group’s bottom-line growth potential. The industry’s current-year earnings estimates have been revised 23% upward since August 2020-end.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Investment Management industry has outperformed the S&P 500 composite as well as its sector over the past two years.
Stocks in the industry have collectively gained 74.1% over this period. The Zacks Finance sector has rallied 30.5%, while the Zacks S&P 500 composite has grown 58.8% over the same period.
Two-Year Price Performance
Industry's Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TB), which is commonly used for valuing finance companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TB of 3.15X. This compares with the highest level of 3.95X, the lowest level of 1.94X and median of 3.21X over the past five years. Additionally, the industry is trading at a significant discount when compared with the market at large, as the trailing 12-month P/TB for the S&P 500 composite is 18.10X, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a low P/TB ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TB ratio with that of its broader sector seems more meaningful. When we compare the group’s P/TB ratio with the broader Finance sector, it seems that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 4.66X for the same period is above the Zacks Investment Management industry’s ratio, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
3 Investment Management Stocks Worth Betting On
Blackstone: This New York, NY-based Zacks Rank #2 (Buy) firm has a superior position in the alternative investments space. The company’s diversified products and revenue mix have been aiding AUM growth. As of Jun 30, 2021, Blackstone had total AUM worth $684.03 billion.
The company’s robust fund-raising ability is expected to continue to support profitability. Also, growth in revenues is expected to continue in the upcoming quarters on the back of promising performance of Blackstone’s funds. The $1.4-billion deal to acquire Sphera will help it provide ESG-focused investment opportunities.
Over the past six months, shares of Blackstone have gained 62.1%. Over the past 60 days, the Zacks Consensus Estimate for its 2021 and 2022 earnings has been revised upward by 4.8% and 8.9%, respectively, to $3.72 and $4.27 per share.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BX
Affiliated Managers: Headquartered in Massachusetts, Affiliated Managers has equity investments in a large group of investment management firms or affiliates. The affiliates manage more than 500 investment products across each major product category — global, international and emerging markets equities, domestic equities, alternative and fixed-income products.
As of Jun 30, 2021, this Zacks Rank #2 company had total AUM of $755.7 billion. It is expected to continue generating meaningful growth through new investments. Its successful partnerships and focus on strengthening the retail market operations will likely keep aiding profits. The deal to acquire a majority stake in Parnassus Investments along with the buyouts of minority stakes in OCP Asia and Boston Common Asset Management are steps in this direction.
Affiliated Managers’ stock has gained 12.9% over the past six months. The Zacks Consensus Estimate for its 2021 earnings has been raised by 2.5% over the past 60 days to $16.92 per share. Likewise, earnings estimates for 2022 have been revised upward by 7.5% to $19.66.
Price and Consensus: AMG
Lazard: Based in Hamilton, Bermuda, Lazard is one of the world’s major financial advisory and asset management firms. It is specialized in offering solutions for complex financial and strategic challenges of a diverse set of clients around the world, including corporations, governments, institutions, partnerships and individuals.
As of Jun 30, 2021, the Zacks Rank #2 company had AUM of $277 billion. Its stable Asset Management business offers long-term revenue visibility and has been driving earnings. Its cost-management initiatives remain impressive and are expected to keep supporting the bottom line.
Over the past six months, shares of the company have gained 14.800%. Over the past 60 days, the Zacks Consensus Estimate for its 2021 and 2022 earnings has been revised upward by 10% and 4.1%, respectively, to $4.64 and $4.83 per share.
Price and Consensus: LAZ