Baltimore-based Legg Mason Inc. (LM) reported a fall in its assets under management (AUM) as of Aug 31, 2013, compared with the prior month. Preliminary month-end AUM came in at $644.5 billion, down 1.8% from July-end.
The decline over the prior month mainly resulted from unfavorable markets and outflows in both equity and fixed income. Further, AUM decreased by about $1.0 billion due to the negative effects of foreign exchange.
Legg Mason’s equity AUM as of August-end declined 3.9% from the prior month to $163.5 billion. The decline resulted from $1.3 billion disposition of a non-core affiliate.
Moreover, fixed income AUM inched down 1.6% compared with the prior month to $347.0 billion, driven by ongoing tax-free redemptions and the global sovereign mandate.
The drop in fixed income and equity AUM resulted in a long-term AUM of $510.5 billion, reflecting a 2.3% decrease against the prior month. Liquid assets, which are convertible into cash, surged slightly to $134.0 billion.
Among other investment managers, Invesco Ltd. (IVZ) announced a 3.4% fall in its preliminary month-end AUM for Aug 2013, which stood at $719.7 billion. Another firm – Franklin Resources Inc. (BEN) declared preliminary AUM of $817.3 billion by its subsidiaries for the month of Aug 2013, reflecting a decrease of 2.0% over the prior month.
We believe Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing market demography. Moreover, a significant rebound in equity markets in the coming quarters would act as a catalyst.
However, in the near term, asset outflows will remain a significant headwind. Yet, owing to the restructuring initiatives and cost-cutting measures, we expect operating efficiencies to improve for Legg Mason and dividend payments to continue to inspire investors’ confidence in the stock.
Currently, Legg Mason carries a Zacks Rank #3 (Hold). Some better performing asset managers include Affiliated Managers Group Inc. (AMG) with a Zacks Rank #2 (Buy).
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