Barclays analysts on Tuesday expanded their asset manager coverage, with one Overweight rating for BlackRock (NYSE:BLK).
Meanwhile, three Equal Weightings were assigned for AllianceBernstein (NYSE:AB), Invesco (IVZ), and Victory Capital (VCTR), and three Underweight ratings for Franklin Resources (NYSE:BEN), T. Rowe Price (TROW), and Virtus Investment Partners (NYSE:VRTS).
“Asset managers tend to be robust cash flow generators and generous capital returners. But while market growth and/or outperformance can lead to rapid AUM growth at times, competitive pressures and mix shift can make organic revenue growth hard to come by,” analysts wrote,
“And flows are facing headwinds, so there is no easy fix to turn this around, in our view.”
Barclays observes that the asset management industry is increasingly focusing on secular growth areas such as passive strategies, exchange-traded funds (ETFs), alternatives, and SMAs, which they view as higher quality drivers of medium- to long-term growth.
While BLK may rank lower in terms of AUM as a percentage of total, its mix gives alternatives an outsized share of revenues, and the scale and integration of its private markets operations offer a significant advantage, the investment bank notes.
Conversely, BEN has a relatively high percentage of alternatives AUM, but overall AUM has remained flat for the past six quarters, with net flow rates lower than many publicly traded alternative asset managers.
Meanwhile, IVZ has experienced ETF inflows, but its organic revenue growth has been constrained due to the mix, particularly the growth of the QQQ ETF, which generates no management fees.
“In general, though, these are the key factors we are looking for: mix of alternatives, ETFs, flow profile, and fee pressure – all of which translate to organic growth,” analysts note.