Legg Mason August AUM Swings Up; Strong Inflows Recorded

Zacks

Baltimore-based Legg Mason Inc. (LM) reported a rise in its assets under management (AUM) as of Aug 31, 2014, as compared with the prior month. Preliminary month-end AUM came in at $711.2 billion, up 2.6% from the prior month.

Notably, effective Apr 1, 2014, some of the client assets earlier reported as AUM have been reclassified as Assets Under Advisement (AUA). Therefore, in effect, $11.3 billion of AUA has been excluded for the month of August.

The increase over the prior month mainly resulted from fixed income, equity and liquidity inflows of $2.1 billion, $0.2 billion and $4.5 billion, respectively. However, negative foreign exchange impact of about $0.6 billion was the negative.

Legg Mason’s equity AUM as of August-end increased 3.6% over the prior month to $197.9 billion. Moreover, fixed income AUM climbed 1.8% from the prior month to $367.9 billion.

The rise in fixed income as well as equity AUM resulted in long-term AUM of $565.8 billion. The figure marked an increase of 2.4% from the prior month. Liquid assets, which are convertible into cash, rose 3.2% to $145.4 billion.

Among other investment managers, Invesco Ltd. (IVZ) reported a rise in preliminary month-end AUM for Aug 2014. The AUM for the month was $811.8 billion, up 1.6% from the prior month. Moreover, Franklin Resources Inc. (BEN) declared preliminary AUM of $922.2 billion by its subsidiaries for Aug 2014. The company’s results exhibited a rise of 1.6% from $907.9 billion as of Jul 31, 2014.

Our Viewpoint

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 be a catalyst.

However, foreign exchange fluctuations remain a significant headwind. Nevertheless, owing to the company’s restructuring initiatives and aggressive cost cuts, we expect operating efficiencies to improve and dividend payments to keep up investors’ confidence in the stock.

Currently, Legg Mason carries a Zacks Rank #3 (Hold). A better-ranked asset manager worth consideration is AllianceBernstein Holding L.P. (AB) with a Zacks Rank #1 (Strong Buy).

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