Asset managers’ shares are cheap, and the companies could benefit from an upturn in investment flows. Sizing up BlackRock, T. Rowe Price, and more.
Traditional asset managers face a litany of problems, from the shift to low-fee passive investment strategies like exchange-traded funds to a growing investor preference for alternative assets such as private credit funds. The result is that their once-popular stocks no longer have many fans.
What could go right? Flows could become less negative, and third-quarter profit reports might offer some hopeful signs. BlackRock suffered outflows from long-term funds in the third quarter. “Growth hit a speed bump,” Brown says. “This is an attractive entry point in the stock.” “It’s one of the few firms with inflows into actively managed equities, a great municipal bond business, and an improving margin story” says John Dunn, an Evercore ISI analyst.
Affiliated Managers has bought stakes in about 40 managers, and shares revenue with them. They include ESG specialist Parnassus Investments, value manager Yacktman, and alternatives-focused AQR. The company has a much higher exposure to higher-fee alternatives than many peers. The stock, around $127, trades for just seven times projected 2023 earnings. The company favors share buybacks, having bought back more than 25% of its stock since 2018.
The stock, at about $23, trades for 10 times estimated 2023 earnings and yields 5.2%. Flow trends have improved in recent quarters and were positive in the June quarter. Profit trends have been weak, however, with earnings per share down 23% in the June quarter.
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