Should Investors Buy the Asset Managers on Rebounding Equity Flows?: Legg Mason, Inc. (LM) and More

Naturally any increase in funds flowing back into retirement accounts will benefit this stock. The company trades at over 17x forward earnings so the stock isn’t cheap after hitting multi-year highs. Analysts though haven’t upgraded earnings estimates after the record January fund flows due to the earnings miss in Q4.

Past equity leader

Legg Mason, Inc. (NYSE:LM) was long known as the home of legendary investor Bill Miller. The Legg Mason Value Trust fund he ran beat the market for 15 consecutive years until 2007. The global asset manager has never completely recovered from the recent underperformance of its leading stock fund.

The company reported AUM grew to $654.1B in January from $648.9B in December. Legg Mason actually reported less equity funds than back at the end of Q3. Combined with a sequential drop in fixed income funds, the fund flows are still suggesting the company is struggling to turn around. The liquidity group is seeing the bulk of new assets, but the total gains are sparse for now.

Potential comeback kid

Janus Capital Group Inc. (NYSE:JNS) was a poster child of the Internet bubble with its famous Janus Fund loaded up on technology stocks. The namesake fund has now dropped to $8B of assets, down from $50.9B in August 2000.

While the company hasn’t reported January fund flows, the recently reported Q4 was a major disappointment. Janus reported an amazing 14th quarter of negative fund flows. It is normally difficult for a global asset manager to regain momentum after such a lackluster performance. The stock is actually posting 52-week highs so investors will either have to play a breakout that is still considerably below the 2011 highs of nearly $14.

10-Year Total Return Chart

The shift to international and fixed income funds over the last 10 years benefited Franklin Resources and T. Rowe Price to a great degree. As the chart below shows, Janus and Legg Mason initially rebounded from the Internet bubble to only be crushed in the financial crisis:

BEN Total Return Price data by YCharts

Conclusion

Whether fair or not, investors have clearly been down on the two companies seen as controlled by equity funds with both Janus Capital and Legg Mason lagging the market rebound. While Ben Franklin and T. Rowe Price provide conservative plays into the sector, any investor really wanting to wager on a rebound in equity fund flows should look into the laggards. Can Legg Mason rebound with Bill Miller gone or will Janus be successful at launching several flavor of the year funds?  Time will tell, but both stocks are worth researching for a rebound.

The article Should Investors Buy the Asset Managers on Rebounding Equity Flows? originally appeared on Fool.com and is written by Mark Holder.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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