Legg Mason's February AUM Perks Up - Analyst Blog


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Baltimore-based Legg Mason Inc. ( LM ) experienced a rise in its in February 2012 assets under management (AUM) on a sequential basis, spurred by improvement in U.S. stock market. This was preceded by a rise in both January 2012 and December 2011 AUM.

Preliminary month-end AUM came in at $638 billion, up 1.1% compared with the prior month. Growth in fixed income AUM, liquidity AUM and equity AUM were witnessed compared with the prior month.

Legg Mason's equity AUM as of February inched up 1.2% from the prior month to $162.9 billion and fixed income AUM crept up slightly to $358.3 billion.

The upside in equity AUM coupled with a rise in fixed income, resulted in long-term AUM of $521.2 billion, reflecting a 0.5% rise against the prior month. Moreover, liquid assets, which are convertible into cash, edged up 3.5% to $116.8 billion from $112.8 billion at the end of January 2012.

On a quarterly basis, as of December 31, 2011, Legg Mason's AUM was $627.0 billion, up 2.5% sequentially from $611.8 billion, driven by market appreciation, partially offset by net client outflows of $1.3 billion and dispositions of $1.1 billion. On a year-over-year basis, AUM was down 7% from $671.8 billion. Fixed income represented 56% of consolidated AUM as of December 31, 2011, while liquidity and equity represented 19% and 25% respectively.

During the quarter, fixed income outflows were approximately $7.1 billion and equity outflows were $4.9 billion. However, liquidity inflows were $10.7 billion. Average AUM was $622 billion, down 3.3% from $643.3 billion in the prior quarter and 7.5% from $672.4 billion in the year-ago quarter

Peer Performance

One of Legg Mason's peers -- Invesco Ltd. ( IVZ ) also reported a 3% rise in its preliminary month-end AUM for February 2012. The company's AUM for the reported month was $667.6 billion, up from $648.3 billion at the end of January 2012. Invesco's February AUM primarily benefited from positive market returns, foreign exchange and long-term net inflows. Foreign exchange led to a $0.8 billion rise in the AUM during the month under review.

Another peer -- Franklin Resources Inc. ( BEN ) reported preliminary month-end AUM of $727.4 billion for its subsidiaries, as of February 2012, reflecting an increase of 3.3% from $704.3 billion as of January 31, 2012.

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 demographics in the market. 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 leverage to improve, and dividend payments to continue inspiring investors' confidence on the stock.

The shares of Legg Mason currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Considering the fundamentals, we are also maintaining 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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