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Baltimore-based Legg Mason Inc. (LM - Analyst Report) reported a dip in its assets under management (AUM) as of May 31, 2013, compared with the prior month, reflecting a reduction in foreign exchange AUM. Preliminary month-end AUM came in at $654.3 billion, down 0.2% from April-end. Equity and liquidity AUM were up in the month under review, though Fixed Income AUM declined.

Legg Mason’s equity AUM as of May-end rose 2.1% from the prior month to $166.2 billion, while fixed income AUM decreased 2.3% compared with the prior month to $362.8 billion.

The fall in fixed income AUM, partially offset by increased equity AUM resulted in a long-term AUM of $529.0 billion, reflecting a 1.0% decrease against the prior month. Liquid assets, which are convertible into cash, surged about 3.3% to $125.3 billion.

Among other investment managers, Invesco Ltd. (IVZ - Analyst Report) announced a 0.4% rise in its preliminary month-end AUM for May 2013, which stood at $751.8 billion. Another firm - Franklin Resources Inc. (BEN - Analyst Report) - declared preliminary AUM of $847.5 billion by its subsidiaries for the month of May 2013, reflecting a marginal dip of 0.1% over the prior month.

We believe 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. Moreover, a significant rebound in equity markets in the coming quarters would act as a catalyst.

However, in the near term, asset outflows will remain a significant headwind. Yet, owing to the restructuring initiatives and cost-cutting measures, we expect operating efficiencies to improve for Legg Mason and dividend payments to continue to inspire investors’ confidence in the stock.

Currently, Legg Mason holds a Zacks Rank #3 (Hold). Some better performing asset managers include Virtus Investment Partners, Inc. (VRTS - Snapshot Report) with a Zacks Rank #1 (Strong Buy).

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