Legg Mason's February AUM Rises - Analyst Blog

Baltimore-based Legg Mason Inc. LM reported a rise in its assets under management (AUM) as of Feb 28, 2014, as compared with the prior month. Preliminary month-end AUM came in at $694.8 billion, up 2.2% from the prior month.

The surge over the prior month mainly resulted from market appreciation and $1.5 billion of positive foreign exchange. Further, long term inflows were driven by equity inflows, partly offset by marginal fixed income outflows.

Legg Mason's equity AUM as of February-end jumped 4.6% over the prior month to $185.9 billion. Moreover, fixed income AUM increased 1.6% from the prior month to $364.0 billion.

The rise in fixed income as well as equity AUM resulted in long-term AUM of $549.9 billion. The figure marked a 2.6% increase from the prior month. Liquid assets, which are convertible into cash, rose around 1.0% to $144.9 billion.

Among other investment managers, Invesco Ltd. IVZ announced a 3.4% rise over the prior month in its preliminary month-end AUM for Feb 2014, which came in at $791.2 billion. Also, Franklin Resources Inc. BEN declared preliminary AUM of $882.2 billion by its subsidiaries for Feb 2014, which exhibited a 2.9% rise from $857.2 billion as of Jan 31, 2014.

Our Viewpoint

We believe that 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. Moreover, a significant rebound in equity markets in the coming quarters would be a catalyst.

However, in the near term, asset outflows might remain a significant headwind. Nevertheless, owing to the company's restructuring initiatives and aggressive cost cuts, we expect operating efficiencies to improve and dividend payments to keep up investors' confidence in the stock.

Currently, Legg Mason carries a Zacks Rank #3 (Hold). A better-ranked asset manager worth consideration is Lazard Ltd. LAZ with a Zacks Rank #1 (Strong Buy).