The stock market is about to wrap up a banner year. The S&P
500 has surged more than +29% through December 26 and is poised to
deliver its highest annual return since 1997. And following several
years of investors pulling money out of the market, they have
returned in droves in 2013.
According to the
, net new cash flows have been positive
for equity funds in 2013. Conversely, net flows for bond funds have
been negative each month since June. Unsurprisingly, that's also
when the word "taper" starting popping up everywhere.
This "Great Rotation" could very well remain a major investment
theme in 2014 too. The Fed finally announced plans on December 19
to taper the amount of its long-term bond purchases. This drove the
10-year Treasury note above 3% on December 26 for the first since
July 2011. And rates could very well continue to march higher as
the Fed further winds down QE.
Rising long-term interest rates would continue to send bond prices
lower and likely drive more and more investors out of bonds and
into stocks. This alone could help drive equity prices higher in
Investment Management Industry Soaring
Given the remarkable price gains and multi-billion dollar positive
fund flows, it should come as no surprise that the 'Investment
Management' industry is currently one of the hottest based on
According to the Zacks Industry Rank, it currently ranks 11th out
of 265 industries. That puts it in the top 5% of all industries.
Of course, not all asset managers will benefit equally from the
"Great Rotation". Investors should focus on those managers with a
high percentage of assets under management in equities.
3 Investment Managers to Buy Now
Below are 3 investment managers who are well positioned to benefit
from a continuation of the "Great Rotation":
Lazard is a financial advisory and asset management firm with
origins dating back to 1848. The company had $176.5 billion in
assets under management as of September 30, 2013. Approximately 82%
of that was in equities.
Lazard has delivered 3 positive earnings surprises in the last 4
quarters, with an average beat of 36%. It is a Zacks Rank #1
(Strong Buy) stock.
Waddell & Reed
Waddell & Reed is one of the oldest mutual fund complexes in
the United States. It had $114 billion in assets under management
as of September 30, 2013, with 79% of that in equities.
Waddell has delivered 5 consecutive positive earnings surprises and
carries a Zacks Rank of 1 (Strong Buy).
GAMCO Investors asset manager and financial services company with
$43.5 billion in assets under management. Over 90% of its AUM is in
Thanks to strong net inflows and equity markets, GAMCO has
delivered 3 consecutive positive earnings surprises. Expect this
streak to continue. GAMCO is a Zacks Rank #2 (Buy) stock.
The Bottom Line
With investors likely to continue shifting out of bonds and into
stocks, equity asset managers could have another stronger year in
2014. And these 3 are particularly well-positioned to benefit.
Todd Bunton, CFA is a Stock Strategist for
and Editor of the
Income Plus Investor service
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