We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Bright Near-Term Outlook for Investment Management Industry
Read MoreHide Full Article
The Zacks Investment Management industry consists of companies that manage securities and funds of clients to meet specified investment goals, and earn by charging service fees or commissions for managing such assets. Investment managers are also called asset managers as they manage hedge funds, mutual funds, private equity, venture capital and other financial investments for third parties.
By appointing an investment manager for one’s assets, investors get more diversification options than they would have by themselves. This diversification helps in reducing volatility, and hence spreads and smoothens returns over time, as investment managers invest their clients’ assets into different asset classes, depending on their need and risk-taking ability.
Here are the industry’s three major themes:
There has not been significant volatility in the equity markets of late, despite the continued uncertainty related to the U.S.-China trade war along with other geopolitical concerns. So far in 2019, most of the months have witnessed asset outflows, while some experienced active equity inflows. The majority of asset managers’ revenues come from performance fees and investment advisory fees. Thus, despite the increase in outflows, growth in assets under management (AUM) is expected to continue in the near term, driven by expectations of speedy resolution of above-mentioned concerns and low level of volatility.
As investors look for low-cost investment strategies, demand for passive investing is on the rise. Last year, many investors shifted preference from active to passive management, with the same expected to continue in 2019. Because of the continued shift to institutional investment in lower-cost passive mandates from the more-profitable active strategies, margins of asset managers may remain under pressure.
The tightening of regulations to increase transparency led to a rise in compliance costs for investment managers. Moreover, as wealth managers are trying to upgrade technology to keep up with evolving customer needs, technology costs should continue to rise. This could result in an increase in overall expenses.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Management industry is a 51-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #102, which places it at the top 40% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of encouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have increased 11.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Stock Market Performance
The Zacks Investment Management industry has underperformed both the S&P 500 composite and its own sector over the past two years.
While the stocks in this industry have collectively lost almost 3.4% over this period, the Zacks S&P 500 composite rallied 19.7% and the Zacks Finance sector gained 2.3%.
Two-Year Price Performance
Industry’s Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing finance companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 2.24X. This compares with the highest level of 3.54X, the lowest level of 1.34X and median of 2.10X over the past five years. Additionally, the industry is trading at a significant discount when compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 10.89X, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a low P/TBV ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV of 3.56X for the same period is above the Zacks Investment Management industry’s ratio, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
Bottom Line
While margin compression, and escalating compliance and technology costs are expected to hurt investment managers’ profits in the near term, continued growth in AUM will likely aid in revenue generation.
One should particularly consider betting on investment management stocks that depict an upbeat earnings outlook. We are presenting one stock with a Zacks Rank #1 (Strong Buy) and three with a Zacks Rank #2 (Buy) that investors may consider betting on.
Legg Mason, Inc. : The stock of this Baltimore-based company has gained 7.3% over the past year. The Zacks Consensus Estimate for the company’s current fiscal year’s earnings has been revised 5.5% upward over the past 60 days. The stock currently sports a Zacks Rank of 1.
Price and Consensus: LM
Ameriprise Financial, Inc. (AMP - Free Report) : The stock of this Minneapolis-based company has gained 3% over the past year. The consensus estimate for the company’s 2019 earnings has been revised marginally upward over the past 60 days. The stock currently carries a Zacks Rank #2.
Price and Consensus: AMP
Franklin Resources, Inc. (BEN - Free Report) : The consensus estimate for this San Mateo, CA-based company’s fiscal 2019 earnings has been revised upward by 3.2% over the past 60 days. The stock has gained 8.3% over the past year. The stock currently carries a Zacks Rank #2.
Price and Consensus: BEN
Cohen & Steers, Inc. (CNS - Free Report) : The stock of this New York-based company has gained 22.6% over the past year. The consensus estimate for the company’s 2019 earnings has remained stable over the past 60 days. The stock currently carries a Zacks Rank #2.
Price and Consensus: CNS
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
Image: Bigstock
Bright Near-Term Outlook for Investment Management Industry
The Zacks Investment Management industry consists of companies that manage securities and funds of clients to meet specified investment goals, and earn by charging service fees or commissions for managing such assets. Investment managers are also called asset managers as they manage hedge funds, mutual funds, private equity, venture capital and other financial investments for third parties.
By appointing an investment manager for one’s assets, investors get more diversification options than they would have by themselves. This diversification helps in reducing volatility, and hence spreads and smoothens returns over time, as investment managers invest their clients’ assets into different asset classes, depending on their need and risk-taking ability.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Management industry is a 51-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #102, which places it at the top 40% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of encouraging earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have increased 11.1%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Stock Market Performance
The Zacks Investment Management industry has underperformed both the S&P 500 composite and its own sector over the past two years.
While the stocks in this industry have collectively lost almost 3.4% over this period, the Zacks S&P 500 composite rallied 19.7% and the Zacks Finance sector gained 2.3%.
Two-Year Price Performance
Industry’s Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing finance companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 2.24X. This compares with the highest level of 3.54X, the lowest level of 1.34X and median of 2.10X over the past five years. Additionally, the industry is trading at a significant discount when compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 10.89X, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a low P/TBV ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV of 3.56X for the same period is above the Zacks Investment Management industry’s ratio, as the chart below shows.
Price-to-Tangible Book Ratio (TTM)
Bottom Line
While margin compression, and escalating compliance and technology costs are expected to hurt investment managers’ profits in the near term, continued growth in AUM will likely aid in revenue generation.
One should particularly consider betting on investment management stocks that depict an upbeat earnings outlook. We are presenting one stock with a Zacks Rank #1 (Strong Buy) and three with a Zacks Rank #2 (Buy) that investors may consider betting on.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Legg Mason, Inc. : The stock of this Baltimore-based company has gained 7.3% over the past year. The Zacks Consensus Estimate for the company’s current fiscal year’s earnings has been revised 5.5% upward over the past 60 days. The stock currently sports a Zacks Rank of 1.
Price and Consensus: LM
Ameriprise Financial, Inc. (AMP - Free Report) : The stock of this Minneapolis-based company has gained 3% over the past year. The consensus estimate for the company’s 2019 earnings has been revised marginally upward over the past 60 days. The stock currently carries a Zacks Rank #2.
Price and Consensus: AMP
Franklin Resources, Inc. (BEN - Free Report) : The consensus estimate for this San Mateo, CA-based company’s fiscal 2019 earnings has been revised upward by 3.2% over the past 60 days. The stock has gained 8.3% over the past year. The stock currently carries a Zacks Rank #2.
Price and Consensus: BEN
Cohen & Steers, Inc. (CNS - Free Report) : The stock of this New York-based company has gained 22.6% over the past year. The consensus estimate for the company’s 2019 earnings has remained stable over the past 60 days. The stock currently carries a Zacks Rank #2.
Price and Consensus: CNS
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>