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The Zacks Investment Management industry will benefit from investors' shift toward higher-yielding investment vehicles, such as equities, alternative funds and long-term bonds. While the trend of passive investing continues, demand for active investment strategies is also not diminishing. Hence, sustained economic growth and falling rates will aid assets under management (AUM) balance.
Yet, tighter regulations, rising compliance costs and technology upgrades are expected to strain industry players’ profitability. However, asset managers like SEI Investments Co., Invesco Ltd. and Artisan Partners Asset Management are expected to benefit from steady asset inflows.
About the Industry
The Zacks Investment Management industry consists of companies that manage securities and funds for clients to meet specified investment goals. The companies earn by charging service fees or commissions. Investment managers, also called asset managers, 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 if they manage their assets independently. Investment managers invest their clients’ assets in different asset classes, depending on their needs and risk-taking abilities. Hence, the diversification, which investors get by appointing asset managers to manage their assets, helps reduce the impacts of volatility and ensures steady returns over time.
3 Major Themes Affecting the Investment Management Industry
Rising Assets Inflow to Support AUM Growth: Equity markets globally have performed impressively in the past two years, driven by sustained economic growth. This resulted in solid AUM growth. With falling interest rates and the removal of election uncertainty in several regions, investors are likely to rotate out of money market mutual funds or short-term investments into other higher-yielding assets like equity funds, alternative assets and long-term bond funds.
Additionally, deregulation is expected to open up the previously inaccessible retirement market. Thus, these factors are expected to drive AUM balance in the upcoming period. So, investment managers will likely witness a solid improvement in performance fees and investment advisory fees, which constitute a major part of their revenues.
Shift Toward Passive Investing to Continue: Investors have been moving away from actively managed funds and toward low-cost passive investment options. With interest rates expected to decrease further in 2025, investors are likely to re-assess their risk levels, leading to increased asset inflows into equities and alternative investments, such as index funds and exchange-traded funds (ETFs).
These investment options typically offer lower fees to asset managers compared with actively managed investment funds. Yet, the demand for active ETFs that provide exposure to leveraged loans through collateralized loan strategies and/or popular and higher-performing sectors is rising. Another faster-growing area of investor interest is private credit funds.
Thus, as the demand for such investment vehicles continues to increase, asset managers will be able to generate higher fees. On the whole, solid economic growth and declining interest rates will keep driving inflows into the industry, though a steady shift toward passive strategy will put pressure on industry players’ margins.
Mounting Expenses: Tighter regulations globally to enhance transparency have resulted in a rise in compliance costs for investment managers. Also, as industry players are constantly trying to upgrade technology to keep up with evolving customer needs, technology-related costs are expected to keep rising. Further, using artificial intelligence (AI) to enhance operational efficiencies may lead to increased expenses in the short term, but will ultimately support investment managers' operating margins in the long run.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Management industry is a 37-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #38, which places it in the top 15% 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 underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 the encouraging earnings outlook for the constituent companies in aggregate. The aggregate earnings estimate revisions show that analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s earnings estimates for 2024 have been revised 4.1% upward.
Before we present a few stocks from the industry that look promising, let us check out the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Investment Management industry has outperformed the S&P 500 and its sector in the past two years. Stocks in the industry have collectively soared 65.9%, while the S&P 500 composite has rallied 52.5% and the Zacks Finance Sector has appreciated 41.4%.
Industry's Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TB), which is commonly used for valuing investment management companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TB of 5.18X. This compares with the highest level of 5.59X, the lowest level of 2.15X and the median of 3.89X over the past five years. The industry is trading at a significant discount compared with the market at large, as the trailing 12-month P/TB for the S&P 500 composite is 14.79X.
As finance stocks typically have a low P/TB ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But the comparison of the group’s P/TB ratio with that of its broader sector seems more meaningful.
When we compare the group’s P/TB ratio with the broader Finance sector, it seems the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 5.44X for the same period is slightly above the Zacks Investment Management industry’s ratio.
3 Investment Management Stocks to Bet On
SEI Investments: Headquartered in Oaks, PA, this asset management company, with a market cap of $11.1 billion, is a leading provider of wealth management business solutions in the financial services industry. As of Sept. 30, 2024, it had AUM worth $493.9 billion and client assets under administration of $1.05 trillion.
SEI Investments has been witnessing consistent improvement in revenues. Global presence, diverse product offerings, solid balance sheet, strategic buyouts and robust AUM balance are expected to keep driving revenues.
Further, plans to expand inorganically, technological innovations and the rising demand for SEI Wealth Platform (SWP) across financial institutions are expected to aid SEIC’s financials. A robust liquidity position will keep its capital distributions sustainable.
Over the past three months, SEIC shares have jumped 28.3%. Over the past 30 days, the Zacks Consensus Estimate for the company’s 2024 earnings has been revised almost 1% upward to $4.41. SEIC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Invesco: Headquartered in Atlanta, GA, Invesco operates as an independent investment manager and offers a wide range of investment products and services. As of Sept. 30, 2024, Invesco had offices in more than 20 countries and AUM worth $1.8 trillion.
Strategic expansion, global presence, diverse product offerings and solid AUM balance will support Invesco’s financials. Further, the company’s efforts to improve operating efficiency are expected to keep expenses manageable.
Additionally, synergies from acquisitions will keep aiding IVZ’s profitability. Given the earnings strength and solid balance sheet position, the company is expected to sustain efficient capital distributions.
Over the past three months, shares of Invesco have gained 15%. Over the past 30 days, the Zacks Consensus Estimate for the company’s 2024 earnings has remained unchanged at $1.69. The stock, which has a market cap of $8.3 billion, carries a Zacks Rank of 2 (Buy).
Artisan Partners: Based in Milwaukee, WI, Artisan Partners is focused on providing high-value-added active investment strategies to clients globally. As of Sept. 30, 2024, the company’s AUM balance was $167.8 billion.
Robust AUM balance along with diverse product offerings and investment strategies will keep aiding Artisan Partners’ revenue growth. Improving trends in global equity and debt markets and the stabilization in the economy will likely support AUM, thus aiding top-line growth.
Focusing on long-term growth, APAM invests in new teams and technological and operational capabilities. The company’s debt levels seem manageable given the decent liquidity position.
APAM shares have gained 18% over the past three months. Over the past 30 days, the Zacks Consensus Estimate for its 2024 earnings has remained unchanged at $3.49. The company currently sports a Zacks Rank #1.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook SEI Investments, Invesco and Artisan Partners Asset Management
For Immediate Release
Chicago, IL – December 13, 2024 – Today, Zacks Equity Research SEI Investments Co. (SEIC - Free Report) , Invesco Ltd. (IVZ - Free Report) and Artisan Partners Asset Management (APAM - Free Report) .
Industry: Investment Management
Link: https://www.zacks.com/commentary/2382633/3-investment-management-stocks-to-buy-as-industry-gains-momentum
The Zacks Investment Management industry will benefit from investors' shift toward higher-yielding investment vehicles, such as equities, alternative funds and long-term bonds. While the trend of passive investing continues, demand for active investment strategies is also not diminishing. Hence, sustained economic growth and falling rates will aid assets under management (AUM) balance.
Yet, tighter regulations, rising compliance costs and technology upgrades are expected to strain industry players’ profitability. However, asset managers like SEI Investments Co., Invesco Ltd. and Artisan Partners Asset Management are expected to benefit from steady asset inflows.
About the Industry
The Zacks Investment Management industry consists of companies that manage securities and funds for clients to meet specified investment goals. The companies earn by charging service fees or commissions. Investment managers, also called asset managers, 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 if they manage their assets independently. Investment managers invest their clients’ assets in different asset classes, depending on their needs and risk-taking abilities. Hence, the diversification, which investors get by appointing asset managers to manage their assets, helps reduce the impacts of volatility and ensures steady returns over time.
3 Major Themes Affecting the Investment Management Industry
Rising Assets Inflow to Support AUM Growth: Equity markets globally have performed impressively in the past two years, driven by sustained economic growth. This resulted in solid AUM growth. With falling interest rates and the removal of election uncertainty in several regions, investors are likely to rotate out of money market mutual funds or short-term investments into other higher-yielding assets like equity funds, alternative assets and long-term bond funds.
Additionally, deregulation is expected to open up the previously inaccessible retirement market. Thus, these factors are expected to drive AUM balance in the upcoming period. So, investment managers will likely witness a solid improvement in performance fees and investment advisory fees, which constitute a major part of their revenues.
Shift Toward Passive Investing to Continue: Investors have been moving away from actively managed funds and toward low-cost passive investment options. With interest rates expected to decrease further in 2025, investors are likely to re-assess their risk levels, leading to increased asset inflows into equities and alternative investments, such as index funds and exchange-traded funds (ETFs).
These investment options typically offer lower fees to asset managers compared with actively managed investment funds. Yet, the demand for active ETFs that provide exposure to leveraged loans through collateralized loan strategies and/or popular and higher-performing sectors is rising. Another faster-growing area of investor interest is private credit funds.
Thus, as the demand for such investment vehicles continues to increase, asset managers will be able to generate higher fees. On the whole, solid economic growth and declining interest rates will keep driving inflows into the industry, though a steady shift toward passive strategy will put pressure on industry players’ margins.
Mounting Expenses: Tighter regulations globally to enhance transparency have resulted in a rise in compliance costs for investment managers. Also, as industry players are constantly trying to upgrade technology to keep up with evolving customer needs, technology-related costs are expected to keep rising. Further, using artificial intelligence (AI) to enhance operational efficiencies may lead to increased expenses in the short term, but will ultimately support investment managers' operating margins in the long run.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Investment Management industry is a 37-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #38, which places it in the top 15% 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 underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 the encouraging earnings outlook for the constituent companies in aggregate. The aggregate earnings estimate revisions show that analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s earnings estimates for 2024 have been revised 4.1% upward.
Before we present a few stocks from the industry that look promising, let us check out the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Investment Management industry has outperformed the S&P 500 and its sector in the past two years. Stocks in the industry have collectively soared 65.9%, while the S&P 500 composite has rallied 52.5% and the Zacks Finance Sector has appreciated 41.4%.
Industry's Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TB), which is commonly used for valuing investment management companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TB of 5.18X. This compares with the highest level of 5.59X, the lowest level of 2.15X and the median of 3.89X over the past five years. The industry is trading at a significant discount compared with the market at large, as the trailing 12-month P/TB for the S&P 500 composite is 14.79X.
As finance stocks typically have a low P/TB ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But the comparison of the group’s P/TB ratio with that of its broader sector seems more meaningful.
When we compare the group’s P/TB ratio with the broader Finance sector, it seems the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 5.44X for the same period is slightly above the Zacks Investment Management industry’s ratio.
3 Investment Management Stocks to Bet On
SEI Investments: Headquartered in Oaks, PA, this asset management company, with a market cap of $11.1 billion, is a leading provider of wealth management business solutions in the financial services industry. As of Sept. 30, 2024, it had AUM worth $493.9 billion and client assets under administration of $1.05 trillion.
SEI Investments has been witnessing consistent improvement in revenues. Global presence, diverse product offerings, solid balance sheet, strategic buyouts and robust AUM balance are expected to keep driving revenues.
Further, plans to expand inorganically, technological innovations and the rising demand for SEI Wealth Platform (SWP) across financial institutions are expected to aid SEIC’s financials. A robust liquidity position will keep its capital distributions sustainable.
Over the past three months, SEIC shares have jumped 28.3%. Over the past 30 days, the Zacks Consensus Estimate for the company’s 2024 earnings has been revised almost 1% upward to $4.41. SEIC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Invesco: Headquartered in Atlanta, GA, Invesco operates as an independent investment manager and offers a wide range of investment products and services. As of Sept. 30, 2024, Invesco had offices in more than 20 countries and AUM worth $1.8 trillion.
Strategic expansion, global presence, diverse product offerings and solid AUM balance will support Invesco’s financials. Further, the company’s efforts to improve operating efficiency are expected to keep expenses manageable.
Additionally, synergies from acquisitions will keep aiding IVZ’s profitability. Given the earnings strength and solid balance sheet position, the company is expected to sustain efficient capital distributions.
Over the past three months, shares of Invesco have gained 15%. Over the past 30 days, the Zacks Consensus Estimate for the company’s 2024 earnings has remained unchanged at $1.69. The stock, which has a market cap of $8.3 billion, carries a Zacks Rank of 2 (Buy).
Artisan Partners: Based in Milwaukee, WI, Artisan Partners is focused on providing high-value-added active investment strategies to clients globally. As of Sept. 30, 2024, the company’s AUM balance was $167.8 billion.
Robust AUM balance along with diverse product offerings and investment strategies will keep aiding Artisan Partners’ revenue growth. Improving trends in global equity and debt markets and the stabilization in the economy will likely support AUM, thus aiding top-line growth.
Focusing on long-term growth, APAM invests in new teams and technological and operational capabilities. The company’s debt levels seem manageable given the decent liquidity position.
APAM shares have gained 18% over the past three months. Over the past 30 days, the Zacks Consensus Estimate for its 2024 earnings has remained unchanged at $3.49. The company currently sports a Zacks Rank #1.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.