KBW Measures 14 Firms' Q3 Performance; Looks at Q4

Q3 saw flat revenues and lower margins, but strong AUM growth 'bodes well for Q4 results'

In a third-quarter wrap-up of 14 asset management companies, equity researchers at Keefe, Bruyette & Woods reported Monday that the companies’ performed as anticipated, leaving them well positioned for stronger fourth-quarter results.

Overall, the quarter unfolded largely as expected, with relatively flat revenue growth and somewhat lower margins, although earnings per share tended to be helped by lower tax rates, New York-based KBW’s North America Equity Research team reported.

“While organic growth of long-term funds was slightly negative at -0.9% on average in Q3, eight managers out of 14 included in this report generated positive long-term flows,” they wrote. “Strong AUM growth bodes well for Q4 results. However, while we are constructive on the outlook, the recent run-up in the stocks makes it more difficult to find cheap value.”

The six firms that KBW ranked at “Outperform” were Affiliated Managers Group (AMG), BlackRock (BLK), Franklin Resources (BEN), Invesco (IVZ), Legg Mason (LM) and Waddell & Reed (WDR). The eight firms that ranked at “Market Perform” were AllianceBernstein (AB), Artio Global (ART), Calamos Asset Management (CLMS), Eaton Vance (EV), Federated Investors (FII), Janus Capital (JNS), Pzena (PZN) and T. Rowe Price (TROW).

Organic growth into long-term products was strongest on a percentage basis at Affiliated Managers, Franklin Resources and T. Rowe Price, but weakest at AllianceBernstein, Artio and Janus.

The report’s key points noted that third-quarter AUM rose by 9% on average, although average AUM was down 1% and fee realization rates were little changed.

“The full impact of the strong AUM growth will benefit Q4 and future revenue and earnings,” the report said, adding that operating margins were flat to slightly lower sequentially, as expected.

Organic growth trends in long-term funds remained modestly negative on average, but more than 50% of companies had positive organic growth, according to the KBW researchers.

“As expected, strong fixed income, institutional and non-U.S. flows helped support flows, a trend we expect to carry over into Q4, while retail equity flows are likely to remain challenging,” they said.

Read about KBW’s Q3 Fund Performance Tracker at AdvisorOne.com.

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