Legg Mason's August AUM Moves Up

Last week, Baltimore-based Legg Mason Inc. ( LM - Analyst Report ) reported a slight rise in its assets under management (AUM) in August 2012 compared with the prior month, following resurgence from the last two months.

Preliminary month-end AUM came in at $639.2 billion, up 0.5% compared with the last month. Equity AUM and liquidity AUM recorded augmentations, while fixed income AUM remained stable. AUM reported in August includes $1.1 billion redemption from enhanced cash, low fee directive within fixed income.

Legg Mason’s equity AUM as of August 2012 inched up 1.1% from the prior month to $151.2 billion while fixed income AUM remained almost in line with the prior month at $364.8 billion.

The upside in equity AUM resulted in long-term AUM of $516.0 billion, reflecting a 0.3% rise against the prior month. Moreover, liquid assets, which are convertible into cash, ascended 1.6% to $123.2 billion from $121.3 billion at July 2012-end.

Quarterly Performance

On a quarterly basis, as of June 30, 2012, Legg Mason’s AUM was $631.8 billion, down 1.8% sequentially from $643.3 billion, driven by dispositions of $4.6 billion, market depreciation of $4.3 and client outflows of $2.6 billion. Fixed income represented 57% of consolidated AUM as of June 30, 2012, liquidity represented 19% and equity comprised 24%.

During the quarter, fixed income inflows were about $100 million and liquidity inflows were $1.2 billion. However, equity outflows were $3.9 billion. Average AUM was $635.5 billion compared with $670.8 billion in the prior quarter.

Peer Performance

One of Legg Mason’s peers - Invesco Ltd. ( IVZ - Analyst Report ) also reported a 1.5% rise in its preliminary month-end AUM for the month of August. The company’s AUM for the reported month was $669.7 billion compared with $659.5 billion at the end of July. The escalation in Invesco’s AUM was a result of encouraging market returns and total net inflows. In addition, favorable foreign exchange of $1.7 billion was recorded.

Another peer - Franklin Resources Inc. ( BEN - Analyst Report ) also declared an increase in its preliminary month-end AUM for August 2012. The company reported preliminary AUM of $731.0 billion for its subsidiaries, as of August 31, 2012, signifying a rise of 1.7% from $718.7 billion as of July 31, 2012.

Our Viewpoint

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

Legg Mason currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.