Legg Mason March AUM Up Marginally

Baltimore-based Legg Mason Inc. (LM - Analyst Report) experienced a slight rise in its in March 2012 assets under management (AUM) on a sequential basis, driven by growth in liquidity assets. This was preceded by a rise in both February and January 2012 AUM.

Preliminary month-end AUM came in at $643 billion, up 0.8% from the prior month. Compared with the prior month, the company witnessed a growth in liquidity AUM and equity AUM which were partly offset by a fall in fixed income AUM.

Legg Mason’s equity AUM as of March inched up 0.3% from the prior month to $163.4 billion, while fixed income AUM moved down 0.6% to $356.1 billion.

The decrease in fixed income AUM resulted in long-term AUM of $519.5billion, reflecting a 0.3% fall against the prior month. However, liquidity assets, which are convertible into cash, edged up 6.0% to $123.8 billion from $116.8 billion at the end of February 2012.

However, compared with the prior-year quarter, Legg Mason’s AUM reported a 5% decrease from $677.6 billion.

On a quarterly basis, as of December 31, 2011, Legg Mason’s AUM was $627.0 billion, up 2.5% sequentially from $611.8 billion, driven by market appreciation, partially offset by net client outflows of $1.3 billion and dispositions of $1.1 billion.

On a year-over-year basis, AUM was down 7% from $671.8 billion. Fixed income represented 56% of consolidated AUM as of December 31, 2011, while liquidity and equity represented 19% and 25%, respectively.

During the quarter, fixed income outflows at Legg Mason were approximately $7.1 billion and equity outflows were $4.9 billion. However, liquidity inflows were $10.7 billion. Average AUM was $622 billion, down 3.3% from $643.3 billion in the prior quarter and 7.5% from $672.4 billion in the year-ago quarter.

Peer Performance

One of Legg Mason’s peers – Invesco Ltd. (IVZ - Analyst Report) – also reported a 0.8% rise in its preliminary month-end AUM for March 2012. The company’s AUM for the reported month was $672.8 billion compared with $667.6 billion at the end of February 2012.

Invesco’s March AUM was mainly rewarded from favorable market returns and enhanced long-term net inflows. However, foreign exchange led to a $0.9 billion decline in the AUM during the month under review.

Another peer – Franklin Resources Inc. (BEN - Analyst Report) – declared preliminary assets under management (AUM) of $725.7 billion by its subsidiaries, as of March 2012, reflecting a slight fall from $727.4 billion as of February 2012 and an increase of 3.2% from $703.5 billion as of March 2011.

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 demographics in the market. However, in the near term, assets outflows will remain a significant headwind. Yet, with restructuring initiatives and cost-cutting measures, we expect operating leverage to improve, and dividend payments to continue inspiring investors’ confidence in the stock.

The shares of Legg Mason currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we have a long-term Neutral recommendation on the stock.