Yahoo Finance Zacks Industry Outlook Highlights Ameriprise Financial, SEI Investments and Artisan Partners Asset Management
For Immediate Release
Chicago, IL – June 28, 2024 – Today, Zacks Equity Research discusses Ameriprise Financial, Inc. AMP, SEI Investments Co. SEIC and Artisan Partners Asset Management Inc. APAM.
Industry: Investment Management
Link: https://www.zacks.com/commentary/2294100/3-investment-management-stocks-to-buy-despite-industry-woes
The continued shift in investor preference toward passive investment strategies is expected to hamper top-line growth of the Zacks Investment Management industry stocks. Elevated technology costs will likely hurt profitability to an extent.
While investment management companies benefited from significantly higher volatility and client activity in the past, they are not likely to record impressive growth in their assets under management (AUM) balances in the near term due to volatile asset flows. Yet, firms like Ameriprise Financial, Inc., SEI Investments Co. and Artisan Partners Asset Management Inc. are expected to benefit in a higher rate environment.
About the Industry
The Zacks Investment Management industry consists of companies that manage securities and funds for clients to meet specified investment goals. They earn by charging service fees or commissions. Investment managers are also called asset managers, as they manage hedge funds, mutual funds, private equity, venture capital and other financial investments for third parties.
By appointing an investment manager for one’s assets, investors get more diversification options than they would have if they managed their assets by themselves. Investment managers invest their clients’ assets in different asset classes, depending on their needs and risk-taking abilities. Hence, the diversification, which investors get by appointing asset managers to manage their assets, helps reduce the impacts of volatility and ensures steady returns over time.
3 Investment Management Industry Trends to Watch
A Volatile Trend in Asset Flows May Hurt AUM Growth: In 2020 and the first half of 2021, there was a significant rise in equity market volatility and client activity, owing to the coronavirus-induced uncertainty, which aided total AUM growth. In the second half of 2021, markets began to normalize, with client activity being decent.
Year 2022 again witnessed an unexpected rise in volatility and relatively higher client activity, resulting in asset inflows for the majority of the industry players. While 2023 and the first three months of 2024 saw relatively subdued market volatility, client activity remained decent on the back of investors seeking higher yields from different asset classes.
Amid the current challenging market conditions, AUM growth might be hampered due to a volatile trend in asset flows. Asset managers’ top lines are, therefore, expected to be adversely impacted to some extent because of lower performance fees and investment advisory fees, which constitute the majority of their revenues.
Despite Higher Interest Rates, Shift in Preferences Might Hamper Margins: Interest rate hikes from the beginning of 2022 have resulted in an improvement in investment managers’ margins. Also, the rise in industry consolidation witnessed since 2020 is likely to continue supporting bottom-line growth. However, given the continued need for low-cost investment strategies, the demand for passive investing has been on the rise, which has hurt investment managers’ margin growth to an extent.
Thus, despite the Federal Reserve’s plan to keep interest rates high in the near term, investment managers’ margins may not improve significantly because of the shift in preference. Also, higher funding and deposit costs might weigh on margin growth to some extent.
Elevated Costs are Concerning: Tighter regulations to increase transparency have led to a rise in compliance costs for investment managers. Also, as wealth managers are constantly trying to upgrade technology to keep up with evolving customer needs, technology costs are expected to keep rising. These will likely lead to increased overall expenses, thus, hurting investment managers’ bottom lines.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Investment Management industry is a 38-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #175, which places it at the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of dismal earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s bottom-line growth potential. The industry’s most recent earnings estimates for 2024 have been revised 1.3% lower since the end of July 2023.
Despite the near-term challenges, we present a few stocks that you may want to consider for your portfolio. But before that, let us check out the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Investment Management industry has outperformed the S&P 500 and its sector in the past two years.
Stocks in the industry have collectively gained 46.3%. The S&P 500 composite has rallied 44% and the Zacks Finance Sector has appreciated 28%.
Industry's Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TB), which is commonly used for valuing finance companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TB of 3.90X. This compares with the highest level of 5.74X, the lowest level of 2.14X and the median of 3.77X over the past five years. Additionally, the industry is trading at a significant discount compared with the market at large, as the trailing 12-month P/TB for the S&P 500 composite is 14.85X.
As finance stocks typically have a low P/TB ratio, comparing investment managers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TB ratio with that of its broader sector seems more meaningful. When we compare the group’s P/TB ratio with the broader Finance sector, it seems that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TB of 4.75X for the same period is slightly above the Zacks Investment Management industry’s ratio.
3 Investment Management Stocks to Consider
Ameriprise: Headquartered in Minneapolis, MN, this Zacks Rank #2 (Buy) company has a market capitalization of $43.5 billion. Its focus on core operations, launching new products and services, and asset growth will likely keep supporting top-line growth. As of Mar 31, 2024, the company owned, managed and administered assets worth $1.42 trillion.
While AMP’s net revenues (GAAP basis) witnessed a decline in 2020, the metric recorded a compound annual growth rate (CAGR) of 3.9% over the five years ended 2023, with the uptrend continuing in the first quarter of 2024. Its efforts to launch products are likely to keep supporting net revenue growth in the quarters ahead.
Ameriprise has been restructuring its business to remain profitable. The acquisition of BMO Financial Group’s EMEA asset management operations in 2021 bolstered AMP’s wealth and asset management businesses and supported its global diversification efforts.
The company’s federal savings bank — Ameriprise Bank — offers a range of banking and credit products to its wealth management clients. Driven by these initiatives, AMP has been able to focus on core competencies and improve its market share.
Moreover, AMP regularly hikes dividends. In April 2024, Ameriprise announced a dividend hike for the 17th time since 2010. It also has a share repurchase plan in place. In July 2023, the company’s board of directors authorized a $3.5-billion repurchase plan through Sep 30, 2025. As of Mar 31, 2024, the company had $2.6 billion worth of shares left to be repurchased.
Given a strong balance sheet and liquidity position, Ameriprise is expected to be able to sustain enhanced capital distributions in the future.
Over the past year, AMP shares have gained 33.3%. Over the past 60 days, the Zacks Consensus Estimate for the company’s 2024 earnings has been revised 1% upward to $34.95 per share.
SEI Investments: Headquartered in Oaks, PA, this asset management company, with a market cap of more than $8 billion, is a leading provider of wealth management business solutions in the financial services industry. As of Mar 31, 2024, it had AUM worth $443.6 billion and client assets under administration of $983.3 billion.
Though the company’s revenues declined in 2023, the metric witnessed a CAGR of 3.4% over the last five years (ended 2023), with the uptrend continuing in first-quarter 2024. Its assets under management, advisement and administration saw a CAGR of 9.7% over the same time frame.
The company’s diversified products and revenue mix, strong global presence, solid AUM balance, and strategic acquisitions reflect improving prospects. In December 2023, it acquired Altigo to expand in the alternatives investment space. In November 2023, the company acquired National Pensions Trust, which will likely enhance its position in the defined contribution market.
Notably, technology is the backbone of SEI Investments’ businesses. The company’s primary business platform — Investment Processing — delivers its outsourced software and processing services through TRUST 3000 and the SEI Wealth Platform (“SWP”). SEIC’s 2021 strategic acquisitions, including Oranj's cloud-native technology platform, Finomial and Novus, support its technological advancement efforts.
The company launched two key technology enhancements through the SWP — Digital Account Open and Digital Model Management, which are available to independent advisors. In 2022, SEIC launched SEI Data Cloud through a strategic partnership with Snowflake to address the financial services industry’s demand for more advanced data integration. These initiatives and constant innovations in software will likely help SEI Investments win clients and continue to support top-line growth.
In February 2024, the company invested $10 million in TIFIN, a leading force in AI-driven wealth management innovation. The partnership is poised to reshape the landscape of wealth management through rapid exploration, market innovation access and talent development.
Over the past year, SEIC shares have gained 10.3%. Over the past 60 days, the Zacks Consensus Estimate for the company’s 2024 earnings has been revised 1% upward to $4.14 per share. SEIC currently carries a Zacks Rank #2.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Artisan Partners: Headquartered in Milwaukee, WI, APAM focuses on providing high-value-added, active investment strategies to clients globally. Its investment teams manage a broad range of U.S., non-U.S. and global investment strategies that are diversified by asset class, market cap and investment style.
The company has a market cap of more than $3 billion. As of Mar 31, 2024, it had total AUM worth $160.4 billion.
Artisan Partners’ total AUM saw a five-year (2018-2023) CAGR of 9.3%, with the uptrend persisting in the first quarter of 2024. The company’s efforts to improve and add investment strategies continue to support AUM growth. Moreover, a diversified AUM base across equity and fixed-income classes is a positive.
The company’s net revenues saw a CAGR of 3.3% over the five years ended 2023 with some volatility. The uptrend persisted in the first quarter of 2024. The increase was driven by a rise in management fees earned from Artisan Funds & Artisan Global Funds and Separate accounts.
APAM’s diverse product offerings and investment strategies continue to attract investors and are expected to support revenue growth. Focusing on long-term growth, it continues to invest in new teams, and technological and operational capabilities.
APAM shares have gained 3.6% over the past 12 months. Over the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has been revised 1% higher to $3.41 per share. The company currently carries a Zacks Rank #2.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ameriprise Financial, Inc. (AMP) : Free Stock Analysis Report
SEI Investments Company (SEIC) : Free Stock Analysis Report
Artisan Partners Asset Management Inc. (APAM) : Free Stock Analysis Report
