Assets Under Management AUM

My quest for the best asset manager

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In a recent Barrons article, Andrew Bary wrote:

“Asset manager stocks have been hit hard this year… with some down 35% to 45%, nearly double the decline of the S&P 500. No industry is more directly tied to stock and bond markets, and a bear market depresses assets under management, revenue and earnings. Earnings estimates for 2022 have recently declined and earnings are on track to fall below last year’s results.

Clever. However, like homebuilder stocks, they look attractive in this complicated market.

Many asset manager stocks are trading at 10x forecast 2022 earnings — or less — and yielding 3% to 5%. Most have strong balance sheets and their dividends generally look safe.

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(iREIT on Alpha)

Much like real estate investment trusts ((REITs)), asset managers can meet long-term investment and retirement needs, especially for millennials. Certainly, unlike REITs which offer investors returns high and predictable income…they are much less reliable in terms of the income they generate.

This is because they generate huge fees instead of collecting rent checks.

They also trade at much lower valuations than higher growth, higher fee alternatives such as black stone (BX), which now trades at 18.9x.

As many of my readers know, I am developing a suite of ETF indices under “Wide Moat Indexes”. So I became much more obsessed with asset managers – like many of my followers.

They want a tracker for them, much like we have for REITs and other categories. If so, consider this our inaugural research report on the subject!

“There is nothing more deceptive than an obvious fact.” sherlock holmes

Rating of the #1 Asset Manager: BlackRock

BlackRock, Inc. (BLK) has $9.6 trillion in assets under management (AUM) and the leading exchange-traded fund (“ETF”) platform in iShares. This company further stands out from the crowd as it rides the age-old transition to passive investing.

In total, BLK generates 3% to 5% annual organic growth in its assets under management – ​​at a time when almost everyone is struggling to generate positive organic growth. Wolf Report wrote that:

“BLK is the ultimate dividend/safety stock, with a significant fundamental upside based not just on premium but on a pure fair value multiple of 15x.”

He’s right about security. BLK has an AA fortress rating from S&P and a very diversified platform. It generates a mix of fees, performance, and other revenue that insulates it somewhat from downward turns in the market.

As Wolf also explains:

“The company also sees that there are decades of growth ahead for ETFs and in particular its ETFs, which will allow [it] to keep growing… the company expects its ETF AUM to hit $15 [trillion] by 2025…”

BLK’s technology initiatives, such as Aladdin – a portfolio management system that is gaining traction – also set this asset manager apart.

The shares are trading at $647, with a price-to-earnings ratio of 15.2x. The dividend yield is 3% and analysts’ growth estimates are 11% in 2023 and 10% in 2024.

BLK has an impressive track record of dividend growth – with an average compound annual growth rate (CAGR) of 26% over 20 years. Our 12-month price target is $815 per share, which translates to a 22% 12-month total return forecast.

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Asset Manager Review #2: T. Rowe Price

T. Rowe Price Group, Inc. (TROW) is one of our most compelling recommendations for this overvalued market.

With over $1.5 trillion in assets under management, its greatest specific advantage over its peers has been the level and consistency of its investment performance. The company currently has 59% of its US mutual funds rated (in all major share classes) at four or five stars.

In 81% of quarters over the past 20 years, TROW has grown organically. And the actual AUM grew much faster.

From 2010 to 2019, it grew by 12% CAGR… 6 times faster than net inflows. In the long term, management expects to be able to maintain organic growth of 2%.

TROW has an impressive track record of shareholder service, with 17% annualized growth in earnings and dividends over the past 30 years. Shares are now trading low at 10.5 times forecast 2022 earnings and yielding 4%.

TROW also has one of the best balance sheets with $3.5 billion, or $16 per share, of net cash and fund investments. When you consider the $2.2 billion in cash on its balance sheet and the $3.5 billion in 2021 consensus free cash flow…

You do have a AAA track record. This is far superior to the AA rated BLK.

The shares are trading at $121.50 with a P/E multiple of 10.5x. Their dividend yield is 4% and analysts’ growth estimates are 6% in 2023 and 5% in 2024.

Granted, TROW’s dividend history isn’t impressive. And its current price weakness goes hand in hand with the underperformance of its flagship fund: New Horizons Fund (PRNHX) is down 40% since the start of the year.

Personally, I prefer BLK. But TROW is certainly tempting, as stocks historically trade at 15x. Our fair value target is $155, and our 12-month total return target is 12% to 15%.

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Asset Manager Review #3: AllianceBernstein

AllianceBernstein Holding LP (AB) is 65% owned by Fair holdings (EQH). The smallest of the five asset managers in this article, it has just $700 billion in assets under management.

As Daniel Varga points out:

“…the company launched a new ETF in Australia in April 2021, and it was a huge success. Now the company is ready for the US market… [it] hired several talents from leading ETF companies and [is] plans to launch a brand new ETF in the US later this year. In my opinion, this will also help post-launch entries in the short term. »

Notably, AB filed an application to launch an active ETF in 2010 and obtained a waiver from the SEC in 2013. But he never moved forward from there.

Here’s another aspect worth noting: “Hesitancy to switch to ETFs at this time is seen as a factor that led Cathie Wood to leave the asset manager in 2012 to launch the ETF shop in resounding success Ark Invest”.

AB has a very profitable dividend with a tasty yield of 9.3%. But before you get too excited, the company has a very poor track record when it comes to dividend growth. This appears in the cuts highlighted in yellow below.

That said, analysts’ 21% growth forecast for 2024 is intriguing…

This one deserves more due diligence, so I will definitely add it to my iREIT on Alpha deep-dive list. Members should stay tuned.

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Asset Manager Rating #4: Invesco

Invesco Ltd. (IVZ) has a broadly diversified platform that includes active and passive vehicles with approximately $1.6 trillion in assets under management. Its primary business model focuses on ETFs, led by the $150 billion gorilla known as Invesco QQQ Trust (QQQ).

IVZ is ranked #4 in ETF assets behind iShares, Vanguard and State Street (STT). A few days ago, Wolf Report wrote on IVZ, where he explained:

“Invesco is an Atlanta-based investment management company, [Georgia]. Apart from its US operations, it has branches in 20 different countries around the world and operates brands such as Invesco, Trimark, Invesco Perpetual, PowerShares and others. The business has been around for over 40 years and was originally the spin-off of a bank’s fund management operations.”

Although not as financially sound as BLK and TROW, IVZ has a BBB+ credit rating and only 37% long-term debt to equity.

It also offers investors a dividend yield of 4.3% – although it cut that dividend in 2020 and 2021 from $1.23 to $0.78 to $0.67.

It may just be the REIT dog in me, but I despise dividend cuts…especially when I compare it to successful BLK policies.

Even so, I have to admit that IVZ is cheap, trading at 6.5x forecast 2022 earnings. Its target of $22 puts our Expected annual return over 12 months at 20%.

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Asset Manager Rating #5: Franklin Resources

Finally, there is Franklin Resources, Inc. (BEN), with approximately $1.5 trillion in assets under management consisting primarily of:

  • Equity (35%)
  • Fixed income funds (42%)
  • Multi-asset/balanced funds (10%)
  • Alternatives (9%)
  • Money market funds.

BEN is also one of the most global companies of US-based asset managers. More than 35% of its assets under management are invested in global/international strategies. And just over 25% come from outside the United States

It has made several acquisitions in recent years. Take his $6.5 billion deal for Legg Mason this year, which roughly doubled AUM. In a December post, Dividend Sensei said:

“Because BEN is a turnaround story, it is considered a speculative safe bet and has a maximum risk cap recommendation of 2.5%. That’s because BEN misses growth estimates half the time, and its historic margin-of-error-adjusted growth consensus range is 3% to 11% CAGR.

Additionally, BEN has a much less attractive dividend history that includes lump sum earnings and distributions. Still, the shares are trading at $25.34, or 6.9 times expected earnings for its September 2022 fiscal year.

The stock yields 4.6% and the payout ratio is only 35%. Negative growth is expected in 2023, and I don’t see any analysts buying on my FactSet terminal. Just hold and sell.

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In conclusion…

This completes the first round of my search for the best asset managers. In this first edition which focuses on asset-light business models, BlackRock is the clear winner.

That means it’s time for me to do a deep dive on BlackRock as well. And, for the record, I will most likely become a shareholder within the next 48 hours – if I haven’t already bought by the time you read this.

Stay tuned for my next series, where I will focus on Blackstone, Cohen and steers (CNS), KKR (KKR), and others.

As always, thanks for reading and I look forward to your comments.