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.