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Baltimore-based Legg Mason Inc.’s (LM - Analyst Report) assets under management (AUM) for Feb 2013 marginally increased from the prior month. Legg Mason's preliminary quarter-end AUM came in at $661.0 billion, up 0.9% sequentially. Fixed Income AUM was down in the month under review, though liquidity AUM and Equity AUM advanced.

Legg Mason’s equity AUM inched up 0.6% from the prior month to $152.2 billion, while fixed income AUM dipped 0.1% from the prior month to $365.9 billion.

The marginal rise in equity was partially offset by a fall in fixed income AUM, which resulted in long-term AUM of $518.1 billion, reflecting a marginal rise of 0.1% from the previous month. Moreover, liquid assets, which are convertible into cash, moved up 4.0% to $142.9 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. Apart from this, 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) also recorded a marginal rise in its preliminary month-end AUM for Feb 2013. The AUM for the month was $713.8 billion, up 0.2% from $712.6 billion at the end of Jan 2013. Favorable market returns as well as a hike in active long-term inflows were the primary reasons for the rise. Yet, foreign exchange led to a $5.8 billion drop in AUM.

Similarly, Franklin Resources Inc. (BEN - Analyst Report) declared preliminary AUM of $813.8 billion by its subsidiaries for Feb 2013. The company’s results witnessed a rise of 0.5% from $809.8 billion as of Jan 31, 2013. Moreover, it increased 11.9% from $727.4 billion as of Feb 29, 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 at Legg Mason, we expect operating efficiencies to improve and capital deployment efforts to continue enhancing investors’ confidence in the stock.

Legg Mason currently retains a Zacks Rank #2 (Buy). Another asset manager Lazard Ltd. (LAZ - Analyst Report) is also performing impressively and carries a Zacks Rank #1 (Strong Buy).

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