Asset Managers: Our Take on Earnings
Wide-moat BlackRock and T. Rowe may not be the cheapest, but they're the best.
With investors focused on organic growth and profitability when assessing the U.S.-based asset managers, we've seen a bifurcation in the group during the past year between the perceived haves (those capable of generating organic growth and maintaining margins) and the have-nots (those that are expected to struggle to do both or that have fallen into a pattern of poorer performance and positioning).
While some of the 12 U.S.-based asset managers we cover are currently trading at multiples not seen since the 2008-09 financial crisis, we recommend that long-term investors focus on quality over price by sticking with the only remaining wide-moat firms in our coverage: BlackRock (BLK) and T. Rowe Price (TROW). We remain wary of the companies trading at meaningful discounts to the group average, especially those with no-moat ratings; we expect the headwinds they will face--from the continued growth of passive products at the expense of active funds to fee and margin compression among most active equity managers, as well as the potential for a sustained bear market decline in U.S. equities--to keep their multiples depressed for some time, with few meaningful catalysts capable of getting them up off the mat.
Greggory Warren, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.