The slowdown in rising income and strong investor flows is a happy change for many U.S. asset managers, even if it is seen to provide a temporary respite from strategic challenges. .
For the first time in four years, U.S. listed managers are estimated to increase their revenue by a full calendar year. A surge in stock market prices has boosted assets under management across the industry. For example, BlackRock reported a record $ 9tn in AUM at the end of March, an increase of 39 per cent from $ 6.45bn in the previous 12 months.
Share prices are zooming and running well in the broader market during 2021 for the sector, led by Invesco, Ameriprise Financial and Franklin Resources.
“A lot of asset managers are cheap and consider stocks, which are traded at six times the average,” said Michael Cyprys, analyst at Morgan Stanley. “The inflows and creation of active managed funds have improved and we have seen an improvement in operating margins and revenue.”
“The value of industry -managed assets has increased a lot due to market praise and retail investors are chasing the market and putting a lot of money into funds,” said Craig Siegenthaler, analyst at Credit Suisse. “The stock market is unlikely to continue to rally at this pace, so flows will slow in the next couple.”
Any moderation in the flow and making the market choppy can divert attention back to the long-standing challenges facing the industry. The intense pressure of fee competition and poor performance compared to the relentless rise of products sold passive exchange has stimulated an endless phase of industry integration.
Invesco acquired Oppenheimer Funds in 2018 and last year Morgan Stanley, in a surprise move, bought Eaton Vance, focusing on growing its presence and providing more services to clients in one place. The sector faces cost pressures from technology investment, expansion to exchange traded funds and private markets.
An industry vigilance was announced by Marty Flanagan, president and chief executive of Invesco, after the $ 1.4bn asset manager delivered strong first-quarter earnings and net long-term inflows of $ 24.5bn. last month. “I don’t think the strategic dynamic has changed,” Flanagan said in a earnings call to analysts. “Clients expect a lot from their asset managers and you need to scale in all areas of the organization.”
The record of deals is mixed, with cost savings more easily achieved than derived from inflows from funds.
“The best deal is with adding a new product or a set of customers for your distribution network,” says Cyprys. “In this industry what matters is the flow, the amount of new money that comes in.”
A tailwind for the industry is the start of China approving licenses for western wealth and fund managers that could change client flows.
However the direction of travel remains focused on exchange trade funds. Following recordows of $ 503bn in U.S. ETFs last year, investors retain an additional $ 269bn in ETFs until 2021, according to the CFRA. One beneficiary of the ETF boom and many viewed as an attractive target for a much larger asset manager is the Wisdom Tree.
“The macro trends in mutual funds that ETFs and wealth managers are going to model portfolios mean we can benefit and gain market share from others,” said Jarrett Lilien, the chief and chief operating officer of Wisdom Tree at the Financial Times. “Our core business is evolving and we’re expanding,” he says, as he acknowledges that “we think we’re beautiful”.
The secular headwinds facing the industry explain the wide gap in estimates between asset managers and the broader market. Despite a strong rally in share prices, the sector traded 13.2 times its estimated earnings-per-share over the next 12 months, and below the broad S&P 500 by 22.2 times, according to in KBW.
KBW says a strong year of earnings growth for traditional asset managers should result in average income growth of nearly 20 percent this year, which “slows down another healthy 9 percentage in 2022 “.
“In the long -term context of history, estimates remain inexpensive, but if they could have given it about long -term growth,” said Rob Lee, analyst at KBW. The strong performance of the Affiliated Managers Group, Invesco and Franklin, “emphasizes investor response to signs of improved operational performance” especially if [asset managers’] “Stocks come from short prices”, Lee said.
However, a split among asset managers emerged as reflected in their individual growth rates, according to Credit Suisse. Consistent with net flow and assets under management, the industry’s high organic growth rate has recovered from last year’s start led by BlackRock and Invesco but AMG, Franklin Resources and T Rowe Price have lagged behind their peers.
“Long -term challenges remain and the structural pressures of the industry are shifting to lower fees and flows that leave vehicle funds behind,” Cyprys said.