The best time to build positions in the publicly traded asset managers tends to be during market downturns or periods of market dislocation. It pays to be selective, though, as most of these companies are highly leveraged to the performance of the equity markets. With that in mind, we continue to recommend that long-term investors focus on two companies: Wide-moat BlackRock (BLK) is not only one of the few U.S.-based asset managers generating organic growth right now (driven by its market-leading position in the exchange-traded fund market with iShares) but also broadly diversified and garners most of its assets under management from institutional investors. Wide-moat T. Rowe Price (TROW) has the best and most consistent active investment performance in our coverage and derives two thirds of its AUM from retirement-based products.
While these two rarely get cheap and are currently trading at 49% and 18% premiums, respectively, to the rest of the group on a price/earnings basis (based on consensus estimates for 2018), BlackRock is looking slightly attractive right now on a price/fair value estimate basis, trading at 87% of our $600 fair value estimate. T. Rowe Price’s shares have held their own so far this year, trading at 91% of our $115 fair value estimate, despite having around a third of total AUM invested in equities.
Greggory Warren, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.