Top 5 Investment Management Stocks to Enrich Your Portfolio

Wall Street has maintained its northbound journey in 2024 after an astonishing rally in 2023. Year to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are up 3.7%, 9.2% and 9.5%, respectively. On Mar 19, the S&P 500 recorded a fresh closing high. The Dow posted its best daily performance since Feb 22.

Meanwhile, the investment management industry, which consists of companies that manage securities and funds for clients to meet specified investment goals, has seen impressive growth in the past year.

The Zacks-defined Financial – Investment Management Industry is currently in the top 11% of the Zacks Industry Rank. In the past year, the industry has provided 45.2% returns, while its year-to-date return is 7.7%. Since it is ranked in the top half of Zacks Ranked Industries, we expect the consulting services industry to outperform the market over the next three to six months.

Near-Term Drivers

At present, the interest rate is in the range of 5.25-5.5%, its highest in more than 22 years. While the Fed paused rate hikes and signaled rate cuts in 2024, the current high interest rate environment is expected to continue to support margins to some extent in the near term.

A recent CNBC Fed Survey has revealed that the central bank is likely to opt for fewer rate cuts than expected. However, the probability of a soft landing has increased. The survey reported that the Fed is likely to indicate a lesser number of interest rate cuts in 2024 in its March FOMC meeting than what it hinted at in December. Fed Chairman Jerome Powell indicated at least four rate cuts of 25 basis points each in 2024.

The CNBC Fed Survey also showed an average probability of a soft landing at 52% in March, up from 47% in January. The metric came in above 50% for the first time in the survey. The probability of a recession in the next 12 months fell to 32% in March, the lowest since February 2022, and down from 39% in January and 63% in November.

In its January FOMC, the central bank categorically denied the much-hyped first rate cut in March. Although interest rate reduction will start this year, nothing is clear about the extent f its progress. Therefore, margin expansion should continue in 2024.

Client activities remain decent to support asset under management (AUM) growth. Specifically, client activity increased in the second half of last year after the Fed announced a pause in rate hikes.

Thus, supported by overall asset inflows, growth in AUM is expected to continue. Asset managers’ top lines are, therefore, likely to be positively impacted by higher performance fees and investment advisory fees, which constitute the majority of their revenues.

Finally, a preliminary estimate revealed that a massive $1.4 trillion entered U.S. money market funds primarily due to an extremely high interest rate regime, with cash yielding around 5%. A systematic decline in the market interest rate will shift a major part of these gigantic funds to equity markets, especially for portfolio management purposes.      

Our Top Picks

We have narrowed our search to five investment management stocks that have strong growth potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks in the past month.

Zacks Investment Research
Image Source: Zacks Investment Research

SEI Investments Co. SEIC is a publicly owned asset management holding company. SEIC is a leading provider of wealth management business solutions in the financial services industry. SEIC offers investment processing, management and operations solutions globally. SEIC operates through the following five business segments: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, and Investments in New Businesses.

SEI Investments has an expected revenue and earnings growth rate of 6.7% and 15.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last seven days.

Artisan Partners Asset Management Inc.’s APAM robust AUM balance is a major tailwind. We project total AUM to reflect a CAGR of 4.6% by 2025. Diverse investment strategies across multiple asset classes and investments in new teams are likely to aid APAM’s revenue growth. We expect total revenues to witness a CAGR of 3.7% by 2025. Also, APAM’s decent liquidity position will help meet debt obligations.

Artisan Partners Asset Management has an expected revenue and earnings growth rate of 10.5% and 13.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the last 30 days.

KKR & Co. Inc. KKR is a private equity and real estate investment firm specializing in direct and fund-of-fund investments. KKR specializes in acquisitions, leveraged buyouts, management buyouts, credit special situations, growth equity, mature, mezzanine, distressed, turnaround, lower middle market and middle market investments. KKR manages investments such as private equity, energy, infrastructure, real estate, credit strategies and hedge funds.

KKR & Co. has an expected revenue and earnings growth rate of 18% and 46.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 30 days.

T. Rowe Price Group Inc. TROW is a publicly owned investment manager. TROW provides its services to individuals, institutional investors, retirement plans, financial intermediaries, and institutions. TROW launches and manages equity and fixed-income mutual funds.

TROW’s focus on enhancing product offerings, efforts to broaden distribution reach to international markets as well as strategic acquisitions will likely aid the company’s top line. This is further supported by a solid asset AUM) balance which is diversified across various asset classes, client base and geographies. We estimate AUM and revenues to grow 2.5% and 4%, respectively, in 2024.

T. Rowe Price Group has an expected revenue and earnings growth rate of 4.9% and 2.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 30 days.

Affiliated Managers Group Inc. AMG operates as an investment management company providing services to mutual funds, institutional clients, retails and high net worth individuals in the United States.

AMG’s diverse product offerings, robust assets under management (AUM) balance and global distribution capability will drive the top line. We project total revenues and total AUM to witness a CAGR of 3.1% and 2.1%, respectively, by 2026. A robust liquidity position will support AMG’s investments in alternatives, thereby generating solid earnings.

Affiliated Managers Group has an expected revenue and earnings growth rate of 4% and 10%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the last 30 days.

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T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report

KKR & Co. Inc. (KKR) : Free Stock Analysis Report

Affiliated Managers Group, Inc. (AMG) : Free Stock Analysis Report

SEI Investments Company (SEIC) : Free Stock Analysis Report

Artisan Partners Asset Management Inc. (APAM) : 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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