3 investment management stocks to take advantage of asset inflows – August 11, 2021
Zacks’ investment management industry has benefited from the significant increase in stock market volatility and increased client activity seen amid the coronavirus outbreak. While the markets have normalized late, customer activity remains correct, which has resulted in an overall influx.
While near-zero interest rates and increasing spending on technology upgrades hamper profitability to some extent, growth in investment managers’ income is expected to continue in the near term thanks to rising asset balances. assets under management (AUM). Thus, some industry players like The Blackstone Group Inc. (BX – Free report), Group of Affiliated Managers, Inc. (AMG – Free report) and Lazard Ltd. (LAZ – Free Report) should benefit from developments.
About the industry
Zacks’ investment management industry consists of companies that manage securities and funds for clients in order to achieve specified investment objectives. These companies earn by charging service fees or commissions. Investment managers are also referred to as asset managers because they manage hedge funds, mutual funds, private equity, venture capital, and other financial investments for third parties. By appointing an investment manager for their assets, investors benefit from more diversification options than they would have if they managed their assets themselves. Investment managers invest their clients’ assets in different asset classes, depending on their needs and their ability to take risks. The diversification, which investors achieve by appointing asset managers to manage the assets, helps reduce the impact of volatility and ensures stable returns over time.
3 investment management industry trends to watch
Decent inflows to continue to support the growth of assets under management: In 2020 and the first three months of this year, there has been a significant increase in equity market volatility and strong client activity, due to the uncertainty induced by the coronavirus, which has contributed to the growth assets under management. As markets started to normalize in the second quarter of this year, overall customer activity has remained decent. Additionally, while some industry players have witnessed asset outflows, the majority of them have seen strong inflows in recent months due to growing investor optimism. Thus, driven by the increase in inflows, the growth in assets under management should continue in the short term. The managers’ turnover should therefore improve, supported by higher performance fees and investment advisory fees, which constitute the majority of their income.
Low interest rates, change in preferences likely to continue to hurt margins: Given the continued need for low-cost investment strategies, the demand for passive investment is expected to continue to increase, as in recent years. As a result, asset managers’ margins could remain under pressure. The persistently low interest rate environment, and there is almost no chance of a rate hike anytime soon, is expected to further hamper margin growth to some extent in the short term. term. Still, the increase in industry consolidation seen since early 2020 in the midst of the pandemic is likely to offer some support for investment managers’ earnings.
Rising technology costs cause concern: Tighter regulation to increase transparency has increased compliance costs for investment managers. Additionally, as wealth managers constantly try to upgrade technology to keep pace with changing client needs, technology costs are expected to continue to rise. These will likely lead to an increase in overall spending.
Zacks’ Industry Rankings Shows Bright Prospects
Zacks’ investment management industry is a group of 44 stocks within the larger Zacks Finance industry. The industry is currently ranked Zacks Industry Rank # 62, which places it in the top 24% of over 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates short-term outperformance. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of industries ranked by Zacks is the result of bright earnings prospects for the constituent companies as a whole. Looking at the revisions to the overall earnings estimates, it appears that analysts have confidence in the growth potential of this group. Industry profit estimates for the current year have been revised up 23% since late August 2020.
Before we feature a few stocks that you might want to consider for your portfolio, let’s take a look at recent stock performance and industry valuation.
Industry Outperforms Sector and S&P 500
Zacks Investment Management’s industry has outperformed the S&P 500 composite and its industry over the past two years.
Industry stocks collectively gained 74.1% over this period. The Zacks Finance sector grew 30.5%, while the Zacks S&P 500 composite grew 58.8% during the same period.
Two-year price performance
Current industry assessment
One can get a good idea of the industry’s relative valuation by looking at its price-to-book (P / TB) ratio, which is commonly used to value financial companies due to the large variations in their results from quarter to quarter. the other. .
The industry currently has a 12 month P / TB of 3.15X. This compares to the highest level of 3.95X, the lowest level of 1.94X, and the median of 3.21X over the past five years. Additionally, the sector is trading at a significant discount to the market as a whole, as the 12-month P / TB for the S&P 500 composite is 18.10X, as shown in the chart below.
Price / tangible pound ratio (TTM)
Since financial stocks generally have a low P / TB ratio, comparing investment managers to the S&P 500 may not make sense to many investors. But a comparison of the group’s P / TB ratio with that of its larger sector seems more meaningful. When we compare the group’s P / TB ratio with the wider financial sector, it looks like the group is trading at a decent haircut. Zacks Finance’s 12-month P / TB of 4.66X for the same period is higher than Zacks’ investment management industry ratio, as shown in the chart below.
Price / tangible pound ratio (TTM)
3 investment management actions to bet on
black stone: This New York, NY-based Zacks Rank # 2 (Buy) company holds a senior position in alternative investments. The company’s diversified products and revenue mix contributed to the growth in assets under management. As of June 30, 2021, Blackstone had total assets under management worth $ 684.03 billion.
The company’s strong fundraising capacity is expected to continue to support profitability. In addition, revenue growth is expected to continue over the next few quarters thanks to the promising performance of Blackstone’s funds. The $ 1.4 billion deal to acquire Sphera will help it provide ESG-focused investment opportunities.
Over the past six months, Blackstone shares have gained 62.1%. Over the past 60 days, Zacks’ consensus estimate for profits in 2021 and 2022 has been revised up 4.8% and 8.9%, respectively, to $ 3.72 and $ 4.27 per share.
Price and consensus: BX
Affiliate managers: Massachusetts-based Affiliated Managers owns interests in a large group of investment management companies or affiliates. Affiliates manage over 500 investment products in each major product category: global, international and emerging market equities, domestic equities, alternative and fixed income products.
As of June 30, 2021, this Zacks Rank # 2 company had a total of $ 755.7 billion in assets under management. It should continue to generate significant growth through new investments. Its successful partnerships and focus on strengthening retail market operations will likely continue to contribute to earnings. The acquisition of a majority stake in Parnassus Investments as well as the buybacks of minority stakes in OCP Asia and Boston Common Asset Management go in this direction.
Affiliated Managers stock has gained 12.9% in the past six months. Zacks’ consensus estimate for earnings in 2021 has been increased 2.5% in the past 60 days to $ 16.92 per share. Likewise, earnings estimates for 2022 have been revised up 7.5% to $ 19.66.
Price and consensus: AMG
Lazard: Based in Hamilton, Bermuda, Lazard is one of the world’s leading financial advisory and asset management firms. She specializes in providing solutions to the complex financial and strategic challenges of a diverse set of clients around the world, including businesses, governments, institutions, partnerships and individuals.
As of June 30, 2021, Zacks Rank # 2 had assets under management of $ 277 billion. Its stable asset management business provides long-term revenue visibility and generates profit. Its cost management initiatives remain impressive and should continue to support results.
Over the past six months, the company’s shares have gained 14.800%. Over the past 60 days, Zacks’ consensus estimate for earnings in 2021 and 2022 has been revised up 10% and 4.1%, respectively, to $ 4.64 and $ 4.83 per share .
Price and consensus: LAZ