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Asset managers exposed to stocks may be in for a tough second quarter amid weaker stock market performance and softening equity flow momentum.
So far this quarter, equity flows to mutual funds are soft. Funds investing in domestic stocks have had outflows of nearly $4.8 billion for the quarter through May 18, according to data from the Investment Company Institute. Overall flows into stock funds are a positive $2.2 billion--but that's because of heavy inflows into foreign-stock funds.
Such trends in outflows could pose headwinds for more traditional asset managers with significant portions of their assets in equities, including Janus Capital Group Inc. (JNS), Pzena Investment Management Inc. (PZN) and T. Rowe Price Group Inc. (TROW), Goldman Sachs said in a research note. Goldman Sachs cut its stock-investment rating on T. Rowe Price to neutral from buy, citing its high exposure to equity assets--T. Rowe Price has roughly 75% of its assets under management in equities. Janus has about 90% of its assets in equities, while Pzena has all of its assets in stocks. Spokesmen for Janus and Pzena declined to comment on fund flows midquarter, and a spokesman for T. Rowe Price was not immediately available for comment.
The change in tune for mutual funds comes after a stronger first quarter, both for returns and fund flows. In the first quarter, the Standard & Poor's 500 gained 5.4% (not including dividends), compared with a slight decline for the second quarter through Wednesday afternoon. According to the ICI, total equity inflows were about $30 billion for the first-quarter.
Even if the stock market does bounce in the next month, Goldman Sachs said it doesn't expect such a pickup to boost equity flows by a great extent in the near term.
As a result, the firm has lowered its forecasts and price targets on asset managers, particularly those that it views as "pure market plays," including Janus, Pzena and T. Rowe Price.
Instead, Goldman is favoring diversified asset managers such as Ameriprise Financial Inc. (AMP), Blackrock Inc. (BLK) and Invesco Ltd. (IVZ), as well as alternatives such as KKR & Co. (KKR), Apollo Global Management (APO) and Fortress Investment Group (FIG).
Goldman said it expects Blackrock to hold up particularly well versus equity-dominated firms, as less than 10% of its assets under management are in active equity, and more than half are in alternatives, multi-asset class and fixed income. "Importantly," Goldman said, "the latter is taking share from traditional asset management over a secular basis."
-By Corrie Driebusch, Dow Jones Newswires; 212-416-2143; firstname.lastname@example.org