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Baltimore-based Legg Mason Inc. (LM - Analyst Report) reported a marginal increase in its assets under management (AUM) in Jan 2013 from the prior month.

Preliminary quarter-end AUM came in at $654.1 billion, up 0.8% sequentially. Fixed Income AUM was down in the month under review, though liquidity AUM and Equity AUM advanced.

Legg Mason’s equity AUM, as of January-end, increased 4.0% from the prior month to $151.3 billion while fixed income AUM dipped 0.4% from the prior month to $365.7 billion.

The rise in equity was partially offset by a fall in fixed income AUM, which resulted in long-term AUM of $517.0 billion, reflecting a 0.9% rise from the prior month. Morever, liquid assets, which are convertible into cash, inched up 0.5% to $137.1 billion.

Quarterly Performance

As of Dec 31, 2012, Legg Mason’s AUM was $648.9 billion, up 3.0% year over year from $627.0 billion, driven by market appreciation of $5.7 billion. Fixed income represented 57.0% of consolidated AUM as of Dec 31, 2012, liquidity represented 21.0% and equity comprised 22.0%.

During the quarter, liquidity inflows were about $7.6 billion. However, equity and fixed income outflows were $8.3 billion and $6.8 billion, respectively. Besides, average AUM was $648.3 billion compared with $622.0 billion in the prior-year quarter.

Performance of Other Asset Managers

Invesco Ltd. (IVZ - Analyst Report) recorded a rise in its preliminary month-end AUM for Jan 2013. The AUM for the month stood at $712.6 billion compared with $687.7 billion at the end of Dec 2012. Favorable market returns as well as surge in both active and passive long-term inflows were the primary reasons for the rise. However, foreign exchange was responsible for a $3.0 billion drop in AUM.

Franklin Resources Inc. (BEN - Analyst Report) declared preliminary AUM of $809.8 billion for its subsidiaries in Jan 2013. The company’s results witnessed a 3.6% rise from $781.8 billion as of Dec 31, 2012. Moreover, it increased 15.0% from $704.3 billion as of Jan 31, 2012.

Our Viewpoint

We believe that Legg Mason has the potential to outperform its peers in the long run based on its diversified product mix and leverage to the changing market demography. However, in the near term, assets outflow will remain a significant headwind.

However, owing to the restructuring initiatives and the cost-cutting measures, we expect operating efficiencies to improve and dividend payments to continue enhancing investors’ confidence in the stock.

Legg Mason currently retains a Zacks #2 Rank (Buy). Other asset mangers that are performing well include Lazard Ltd. (LAZ - Analyst Report), which also carries a Zacks Rank #2.

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