The year commenced on an impressive note for Investment Management Industry (forms part of broader Finance sector), however, equities plummeted following the rapid spread of coronavirus in various countries including the United States, before taking the shape of a full-blown pandemic. The situation led to the intensified sell-off in March.
The crisis scenario warranted radical actions by the Federal Reserve, and the Trump administration and Congress, which enhanced the financial market liquidity and aided the flow of credit to consumers and businesses. These actions supported markets, and resulted in gains year to date.
Though most of the U.S. economic data were dismal, some better-than-expected interpretations in the later part of the year bolstered investor sentiment. Further, optimism surrounding the coronavirus vaccine has also been favorable. Therefore, the S&P 500 Index has recorded 14.62% gains year to date on strong rebound in equity markets.
Remarkably, stocks in non-U.S. equity markets have also rebounded, following massive declines in the first quarter. With overall industry inflows and solid investment performance, growth in assets under management (AUM) balance for majority of the industry players is anticipated. Thus, asset managers’ top line is likely to improve, supported by higher performance fees and investment advisory fees, which constitute the majority of their revenues.
Despite the prevailing global concerns, the U.S. economy is witnessing steady improvement. This, combined with growing demand for personalized investment products, is anticipated to open up growth opportunities for the asset management industry.
While asset managers have been facing a number of challenges including stringent regulatory scrutiny, near-zero interest rates and escalating costs; demand for new investment products at lower costs have been supporting the bottom line. Further, with heightened use of technology, asset managers have been able to enhance efficiency and operate profitably. Moreover, the rise in industry consolidation since the beginning of the year amid the pandemic is likely to offer support to investment managers’ profits.
Moreover, though retail investors continue to park funds with investment managers, institutional investors have been shying away. Another factor leading to inflows is that Americans have started saving more (and spending less) as the economy remains uncertain on the prevailing pandemic-related crisis. Hence, the investment management industry is getting more funds from retail investors.
Weakness of the U.S. dollar is also driving the global diversified assets mix. Though active managers are striving hard over passive managers, they have recorded growth in asset classes including international small-cap equity and core fixed income. Notably, fixed income generated positive returns as investors ran for safe-haven assets due to the prevailing global growth concerns and the pandemic induced uncertainty.
Though the impact of the COVID-19 pandemic on the investment management industry is visible, a second wave of the pandemic in certain countries might result in heightened market volatility once again. Nonetheless, at present, the sector seems to be better equipped to deal with systemic jolts. Overall, investment management companies are likely to come up with a value proposition, under which both performance and fees meet clients’ increasing demands.
Here is how to play the industry:
Stocks Worth Buying Now
While the concerns should not be overlooked, one can consider buying stocks as the industry provides an entry point with stocks being undervalued, currently. With the help of the Zacks Stock Screener, we have zeroed in on three investment management stocks carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy) with the market capitalization greater than $1 billion. Moreover, these stocks have recorded year-to-date gains of more than 20% and pay dividends that yield more than 1.50%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Here are the three stocks that met the criteria:
Boston, MA-based Eaton Vance Corporation EV is engaged in the creation, marketing, and management of investment funds in the United States.
Zacks Rank: #2
Market Capitalization: $7.73B
YTD Gains: 45%
Dividend Yield: 2.22%
Overland Park, KS-based Waddell & Reed Financial, Inc. is a provider of investment management and advisory, investment product underwriting and distribution, and shareholder services administration to mutual funds, and institutional and separately managed accounts in the United States.
Zacks Rank: #2
Market Capitalization: $1.57B
YTD Gains: 50.4%
Dividend Yield: 3.98%
New York-based BlackRock, Inc. BLK is a publicly owned investment manager primarily providing services to institutional, intermediary, and individual investors including corporate, public, union, and industry pension plans, insurance companies, third-party mutual funds, endowments, public institutions, governments, foundations, charities, sovereign wealth funds, corporations, official institutions, and banks.
Zacks Rank: #2
Market Capitalization: $107.85B
YTD Gains: 40.6%
Dividend Yield: 2.05%
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>