Are Financial Management Firms a Good Buy Again?

Stock markets worldwide have rallied strongly since the lows reached in March of this year. In the U.S. the S&P 500 is up about 22% year-to-date. Despite many not trusting this rally, the market continues to defy gravity. As the market continues to go up or hold ground at current levels, some are convinced that the equity market is a leading indicator.

Retail investors who disappeared from the markets from the brutal market crash of the credit crisis are slowly trickling back in. Investors are putting money back to work via 401K retirement plans, their individual investment accounts, etc. As a result, asset management firms are seeing a rise in the flow of assets under management.

Asset management companies make significant amounts of profit from management fees. The average mutual fund fee in the US was over 1.5% last year.

“In 1940 there were only 68 funds and about 300,000 shareholder accounts. By 1990 there were 3,000 funds and 62 million accounts with a trillion dollars in assets. In 2008, 8,000 funds had 265 million shareholder accounts and almost $10 trillion in assets, down from $12 trillion in 2007. According to the Investment Company Institute, the trade association for the mutual fund industry, 45 percent of all American households owned mutual funds in 2008, up from 41 percent in 1998.”

As assets under management rise, fund companies stand to benefit. Despite the explosive growth of the ETF industry, mutual funds still manage the largest amount of funds invested by retail investors.

One way to identify investment opportunities is to analyze the top mutual fund companies that manage the most assets. The following table shows the Top 10 Mutual Fund Companies by assets:

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Some of the asset managers listed above are not publicly listed. The top mutual fund companies that are publicly listed include: JP Morgan & Chase Co (JPM), BlackRock Funds (BLK), Federated Investors (FII), Bank of New York Mellon/Dreyfus Co (BK) and Goldman Sachs & Co (GS). Other large US asset management companies include Alliance Bernstein (AB), Eaton Vance (EV), Franklin Resources (BEN), Legg Mason (LM) and T. Rowe Price Group Inc (TROW).

Comments

[Hugerat:]

You can

Oct 26 08:50 PM

[Hugerat:]

You can't possibly be serious. Most asset managers have tripled off their lows, and are now bumping up against their traditional valuation of 2% of AUM. Some are even nearing all time highs. 6 months ago they were a great buy. Now you'd just be late to the party.

Oct 26 08:56 PM

[ozcutty:]

Still feel AB has a way to go, results Thursday, should be good

Oct 27 08:04 AM