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Baltimore-based Legg Mason Inc. (LM - Analyst Report) reported a sequential rise in its assets under management (AUM) as of May 31, 2014. The figure came in at $686.1 billion, up 1.9% from the earlier month.

Notably, effective Apr 1, 2014, some of the client assets earlier reported as AUM have been reclassified as Assets Under Advisement (AUA). Consequent to this, $12.2 billion of AUA in May and $12.4 billion of AUA in April have been excluded.

The rise in AUM mainly resulted from fixed income and liquidity inflows, which was, however, partially offset by equity outflows. Notably, May AUM also included around $5.0 billion pertaining to the acquisition of QS Investors completed on May 31, 2014.     

Legg Mason’s equity AUM as of May-end climbed 3.3% over the prior month to $190.3 billion. Moreover, fixed income AUM rose 1.6% to $364.0 billion.

The rise in fixed income as well as equity AUM resulted in long-term AUM of $554.3 billion, marking a 2.2% increase from the prior month. Liquid assets, convertible into cash, also inched up 0.8% to $131.8 billion.

Among other investment managers, Franklin Resources Inc. (BEN - Analyst Report) reported preliminary AUM of $908.3 billion by its subsidiaries for May 2014, recording an increase of 1.4% from $895.4 billion as of Apr 2014. Again, Invesco Ltd. (IVZ - Analyst Report) reported a preliminary month-end AUM of $790.1 billion for May 2014, marking a 1.4% rise from $779.4 billion at the end of Apr 2014.

Our Viewpoint

Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and ability to leverage the changing market demography. Moreover, given its robust liquidity position and smart client-centric strategies, we believe that the company will be able to continue its strategic acquisitions.

However, regulatory restrictions, low interest-rate environment and sluggish economic growth could mar AUM improvement.

Currently, Legg Mason carries a Zacks Rank #3 (Hold). A better-ranked asset manager is Cohen & Steers Inc. (CNS - Snapshot Report). It carries a Zacks Rank #1 (Strong Buy).

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