Baltimore-based Legg Mason Inc. (LM) experienced a slight rise in its assets under management (AUM) in July 2012 compared with the prior month, following resurgence from the last month. However, in May 2012, the company’s AUM skidded.
Preliminary month-end AUM came in at $635.8 billion, up 0.6% compared with the last month. Growth in fixed income AUM and liquidity AUM was recorded, though partially offset by a decline in equity AUM. AUM reported in July includes transfer of $2 billion of liquidity assets to Morgan Stanley Smith Barney along with a $2 billion redemption from an enhanced liquidity, low fee directive within fixed income.
Legg Mason’s equity AUM as of July 2012 inched down 1% from the prior month to $149.6 billion while fixed income AUM surged 1.2% to $364.9 billion.
The upside in fixed income AUM, partly offset by a fall in equity, resulted in long-term AUM of $514.5 billion, reflecting a 0.5% rise against the prior month. Moreover, liquid assets, which are convertible into cash, ascended 1% to $121.3 billion from $120.1 billion at June 2012-end.
Quarterly Performance
On a quarterly basis, as of June 30, 2012, Legg Mason’s AUM was $631.8 billion, down 1.8% sequentially from $643.3 billion, driven by dispositions of $4.6 billion, market depreciation of $4.3 and client outflows of $2.6 billion. Fixed income represented 57% of consolidated AUM as of June 30, 2012, liquidity represented 19% and equity comprised 24%.
During the quarter, fixed income inflows were about $100 million and liquidity inflows were $1.2 billion. However, equity outflows were $3.9 billion. Average AUM was $635.5 billion compared with $670.8 billion in the prior quarter.
Peer Performance
One of Legg Mason’s peers, Invesco Ltd. (IVZ), also reported a 2% rise in its preliminary month-end AUM for the month of July. The company’s AUM for the reported month was $659.5 billion compared with $646.6 billion at the end of June 2012. The increase in Invesco’s AUM resulted from encouraging market returns, long-term net inflows and favorable foreign exchange.
Another peer, Franklin Resources Inc. (BEN), also declared an increase in its preliminary month-end AUM for July 2012. The company reported preliminary AUM of $718.7 billion for its subsidiaries, as of July 31, 2012, signifying a rise of 1.6% from $707.1 billion as of June 30, 2012.
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. However, in the near term, assets outflows will remain a significant headwind.
Yet with the restructuring initiatives and the cost-cutting measures, we expect operating efficiencies to improve, and dividend payments to continue to inspire investors’ confidence in the stock.
Legg Mason currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.
FRANKLIN RESOUR (BEN): Free Stock Analysis Report
INVESCO LTD (IVZ): Free Stock Analysis Report
LEGG MASON INC (LM): Free Stock Analysis Report
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