UBS Investment Research published a report entitled "US Asset Managers" on January 11, 2012. The report isn't publicly available, but we will summarize its main points. In this report, UBS Investment Research has shown a favorable view of the Asset Managers group. They are of the opinion that secular drivers such as "a changing retirement landscape, increased savings rates, international opportunities, and consolidation" will lead to the long-term growth in this sector. Short-term growth, on the other hand, is uncertain. Here are the four stocks listed in the report.
Franklin Resources (BEN) is a publicly owned asset management holding company that provides services to individuals, institutions, pension plans, trusts, and partnerships. It has been given a neutral rating by UBS Investment Research. Franklin Resources provides one of the highest exposures to the fixed income market among UBS' coverage universe. It has benefitted from a robust performance in the Templeton Global Bond Fund.
Over the last four years, its total assets in its global taxable fixed income vertical have increased from $44 billion to $179 billion. More than 95% of this increase is due to the net inflows during the time period. More than one-third of the company's business is conducted outside the U.S. It has offices in 30 countries and serves clients in more than 150 countries. Shares of the company are currently trading at $95.9 per share and are expected to reach a price target of $104, indicating a potential upside of 8%.
BlackRock (BLK) is a publicly owned investment manager that provides its services to institutional, intermediary, and individual investors. UBS Investment Research has given the company a buy rating. With acquisitions made in the last couple of years, the company is one of the biggest fixed income managers in the world.
Most recently, it acquisition of Barclays Global Investors gave the company immediate credibility and market share. Currently, it has more assets than the combined mutual fund of Australia, Brazil, India, South Africa, Mexico and Chile. BlackRock has the highest exposure to international markets in the UBS coverage universe. It is also the furthest along in terms of offering passive solutions to clients.
Competitors of BlackRock include Legg Mason, Inc. (LM), State Street Corp. (STT), and UBS AG (UBS). Among these competitors, BlackRock had the highest quarterly revenue growth of 6.4%. It also reported a gross margin of 60% versus the 34% reported by Legg Mason. Its operating margin was around 37% while Legg Mason had an operating margin of 16%. Shares of BlackRock are currently trading at $186.5 per share and are expected to reach a price target of $218, indicating a potential upside of 17%. John Paulson had $147 million invested in BLK at the end of September.
Invesco (IVZ) is a publicly owned investment manager that provides services to individuals and institutions. UBS Investment Research has given the company a buy rating. The company has a large presence outside the U.S., with Invesco Perpetual being the top retail asset manager in the United Kingdom. Despite its exposure to the European markets, UBS believes that the company faces a potential upside to its valuation. This is supported by the company looking to deepen its capabilities and engage in mergers and acquisitions. The company is also strong on Asia, with joint venture dealings being the source of its success.
Invesco purchased PowerShares in 2006, placing it in the top five contenders of the exchange-traded fund business. Competitors of Invesco include Affiliated Managers Group (AMG) and Allianceberstein Holding (AB). Invesco's price-to-earnings ratio is 14x versus the price-to-earnings ratio of 10x shown by Allianceberstein. Also, Invesco had a price-to-book ratio of 1.23x versus Allianceberstein's 0.87x. Shares of Invesco are currently trading at $21.50 and are expected to reach a price target of $25, indicating a potential upside of 16%. Andreas Halvorsen's Viking Global had more than $500 million invested in IVZ at the end of the third quarter.
T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company that provides services to individuals and institutional investors. It has been given a neutral rating by UBS Investment Research. The company has the most potential to increase its footprint in the international markets and is looking to move towards Asia where strong demographic growth drivers are present. According to UBS, T. Rowe's actively managed equity and fixed income business are responsible for its success.
In the coverage universe of UBS, T. Rowe is the least aggressive company in terms of mergers and acquisitions. It has focused more on organic growth, coupled with a few acquisitions which were made purely to increase its assets. One of the competitors of T. Rowe is BGC Partners, Inc. (BGCP).
T. Rowe had an operating margin of 45% over the last twelve months versus an operating margin of 6% shown by BGC Partners. Its price-to-earnings ratio of 20x is same as that of BGC Partners. Shares of T. Rowe are currently trading at $59 per share and are expected to reach a price target of $61. Jim Simons' Renaissance Technologies had $29 million invested in TROW at the end of September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.