Baltimore-based Legg Mason Inc. ( LM ) experienced a decline in its assets under management (AUM) in November on a sequential basis. This was preceded by a rise in October and a drop in September AUM.
Preliminary month-end AUM came in at $620.6 billion, down 1.3% from $628.7 billion at the end of October. Besides, equity AUM and fixed income AUM also plummeted, though liquidity AUM climbed compared with the prior month.
Legg Mason's equity AUM as of November inched down 2% from the prior month to $155.8 billion while fixed income AUM dropped 3% to $348.7 billion.
The decrease in equity AUM coupled with a fall in fixed income, resulted in long-term AUM of $504.5 billion, down 2.7% compared with the prior month. Concurrently, liquid assets, which are convertible into cash, edged up 5% to $116.1 billion from $110.3 billion at the end of October 2011.
On a quarterly basis, as of September 30, 2011, Legg Mason's AUM was $611.8 billion, down 7.7% sequentially from $662.5 billion, driven by market depreciation, including foreign exchange, coupled with client outflows of $17.6 billion. On a year-over-year basis, AUM was down 9.2% from $673.5 billion. Fixed income represented 58% of consolidated AUM as of September 30, 2011, liquidity accounted for 18% and equity comprised 24%.
During the quarter, fixed income outflows were approximately $8.8 billion, liquidity inflows were $3.1 billion and equity outflows were $5.7 billion. Total client outflows increased to $17.6 billion from $3.7 billion. Average AUM was $643.3 billion, down 4.1% from $670.8 billion in the prior quarter and 2.3% from $658.6 billion in the year-ago quarter.
Legg Mason's closest competitors Invesco Ltd. ( IVZ ) and Franklin Resources Inc. ( BEN ) reported a fall in month-end AUM for the month of November 2011. Invesco's AUM for the reported month fell 2.1% to $622.4 billion from $635.7 billion at the end of October 2011. The decrease in Invesco's November AUM was primarily driven by negative market returns. Additionally, the $2.9 billion drop in the AUM during the month under review was driven by foreign exchange.
Further, foreign exchange led to a $4.3 billion hike in AUM during the month under review. Franklin declared preliminary AUM of $$675.8 billion for its subsidiaries, as of November 30, 2011, reflecting a decrease of 2.6% from $694.1 billion as of October 31, 2011.
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 cost-cutting measures, we expect operating leverage to improve, and share buybacks to continue instilling investors' confidence on the stock.
Legg Mason currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Further, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.