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Stock Strategist Industry Reports

Asset Managers: Our Take on Earnings

Wide-moat BlackRock and T. Rowe may not be the cheapest, but they're the best.

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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.

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Greggory Warren, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.