After years of outflows from E TRADE Financial Corporation (NASDAQ:ETFC) equity funds, should investors finally invest in the brokerage stocks as the money starts flowing back? One key to the equation is that most of the money flowed into bond funds that have low average fees, placing an importance on finding the asset managers with the least exposure to bond funds. Or at least the ones that will see those funds rotate into equity funds.
According to TrimTabs, January had a record $77 billion flow into U.S.-listed equity funds (mutual funds and ETFs). While investors can debate whether these flows will continue, it is clearly worth reviewing the stocks that will benefit from a growth in equity investments that typically have higher fees than fixed income funds and especially money market funds. The real question is whether investors should move into fund managers or brokerage services. This article will focus on some of the leading brokerage firms.
As with any sector, every brokerage firm is not alike. A vast difference exists between the focus on stocks, mutual funds, or even ETFs and individual investors versus investment advisors. The following highlights a cross section of four different firms:
Charles Schwab Corp (NYSE:SCHW) has long been a leading provider of brokerage services for individual investors and independent investment advisors. The company has an incredible $1.95 trillion in total client assets, up 16% over December 2011.
The stock is valued at $21.5 billion and trades for a surprising 19x forward earnings. Analysts only expect a long-term growth rate of around 13% suggesting the price has already moved up expecting huge fund flows.
Past online leader
E*TRADE Financial was a poster child of the financial crisis. The leading provider of internet-based stock trading moved toward becoming a bank that offered mortgages. That business was built up during the peak housing years leading to devastating loses for the company. At the same time, investors slowed down trading activity hurting the core business of E*TRADE.
Recently though, the flows into the stock market led to DARTs of 154K in January. Those totals were up 18% over December and 6% over last January. At $144 billion, total security holdings were up 3.7% sequentially.
Current online leader
TD Ameritrade Holding Corp. (NYSE:AMTD) was long known as a pioneer in online investing though usually overshadowed by E*TRADE until the financial crisis. The company now caters to independent registered investment advisors (RIAs) along with individual investors.
The company reported average DARTs of 387K in January, up 3% from last year and 17% from December. Ameritrade reported total client assets of $499 billion, up 17% over last year.