Baltimore-based Legg Mason Inc. (LM - Analyst Report) reported a fall in its assets under management (AUM) as of Jul 31, 2014, as compared with the prior month. Preliminary month-end AUM came in at $693.3 billion, down 1.6% from the prior month.
Notably, effective Apr 1, 2014, some of the client assets earlier reported as AUM have been reclassified as Assets Under Advisement (AUA). Therefore, in effect, $11.5 billion of AUA has been excluded for the month of July.
The decline over the prior month mainly resulted from fixed income outflows of $3.8 billion following earlier reported redemptions worth $5.4 billion. Moreover, liquidity and equity outflows of $0.6 billion and $0.4 billion, respectively, along with negative foreign exchange impact of about $1.7 billion were the negatives.
Legg Mason’s equity AUM as of July-end decreased 2.6% over the prior month to $191 billion. Moreover, fixed income AUM declined 1.4% from the prior month to $361.4 billion.
The fall in fixed income as well as equity AUM resulted in long-term AUM of $552.4 billion. The figure marked a decline of 1.8% from the prior month. Liquid assets, which are convertible into cash, declined marginally to $140.9 billion.
Among other investment managers, Invesco Ltd. (IVZ - Analyst Report) reported a slight fall in preliminary month-end AUM for Jul 2014. The AUM for the month was $798.8 billion, down 0.4% from $802.4 billion at the end of Jun 2014. Moreover, Franklin Resources Inc. (BEN - Analyst Report) declared preliminary AUM of $907.9 billion by its subsidiaries for Jul 2014. The company’s results exhibited a decline of 1.4% from $920.5 billion as of Jun 30, 2014.
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. Moreover, a significant rebound in equity markets in the coming quarters would be a catalyst.
However, in the near term, asset outflows might remain a significant headwind. Nevertheless, owing to the company’s restructuring initiatives and aggressive cost cuts, we expect operating efficiencies to improve and dividend payments to keep up investors’ confidence in the stock.
Currently, Legg Mason carries a Zacks Rank #3 (Hold). A better-ranked asset manager worth consideration is AllianceBernstein Holding L.P. (AB - Snapshot Report) with a Zacks Rank #1 (Strong Buy).