ebook essays pieces of the puzzle
Tuesday, November 6th, 2012
a revenue problem

Six firms involved in asset management are shown above.

The top panel plots the total return on each of the stocks relative to the S&P 500.  (That index was up about 7% for this period.)  At bottom is the change in trailing one-year revenue for each firm over that same time frame.

The companies have different business mixes, stories, and issues.  A few notes:

BlackRock (BLK) is the most innovative, as I wrote in the inaugural edition of The Prudent Fiduciary Digest.  It also has grown substantially through acquisition, thus the big difference in revenue increase versus the others.  After a strong run in 2009, the stock hasn’t done well.

Ameriprise (AMP) bills itself as a financial planning and services firm.  It also has a good chunk of its business in the insurance world and generally hasn’t distinguished itself in the asset management business.

The others — Franklin (BEN), Janus (JNS), Legg Mason (LM), and T. Rowe Price (TROW) — are more pure asset managers.

For all of these companies, revenue growth has been tough to come by.  A couple, LM and JNS, have seen declines — and substantial weakness in their stocks.

Overall, the industry has a revenue problem.  I wrote a month ago about the fee chain in the investment industry.  (The recent earnings report from Thomson Reuters showed damage from reduced spending by its investment clients.)

A weak market from here would likely hurt these stocks significantly and a rip-roarin’ one would rescue their business models.  The real question is what happens in the muddle-through scenario.  (Chart:  Bloomberg terminal.)


The title of my latest article for the CFA Institute pretty much describes the piece:  “Cash as Trash, Cash as King, and Cash as a Weapon.”  The talk about cash and its use has gotten very simplistic and tends to hurt rather than help investors.