Legg Mason April AUM Descends - Analyst Blog

Baltimore-based Legg Mason Inc. LM reported a fall in its assets under management (AUM) as of Apr 30, 2014, as compared with the prior month. Preliminary month-end AUM came in at $673.2 billion, down 4.1% from the prior month.

Notably, effective Apr 1, 2014, some of the client assets earlier reported as AUM have been reclassified as Assets Under Advisement (AUA). Therefore, giving effect to this, $12.4 billion of AUA has been excluded for the month of April.

The decline over the prior month mainly resulted from equity and liquidity outflows following earlier reported redemptions. However, liquidity inflows and favorable markets, which included about $800 million of positive foreign exchange was on the positive side.

Legg Mason's equity AUM as of April-end marginally decreased 1.1% over the prior month to $184.3 billion. Moreover, fixed income AUM declined 1.9% from the prior month to $358.1 billion.

The fall in fixed income as well as equity AUM resulted in long-term AUM of $542.4 billion. The figure marked a decline of 1.7% from the prior month. Liquid assets, which are convertible into cash, plunged around 12.9% to $130.8 billion.

Among other investment managers, Invesco Ltd. IVZ announced a marginal dip of 1.0% over the prior month in its preliminary month-end AUM for Apr 2014, which came in at $779.4 billion. However, Franklin Resources Inc. BEN declared preliminary AUM of $895.4 billion by its subsidiaries as of Apr 30, 2014, which exhibited around 1.0% rise from $886.9 billion as of Mar 31, 2014.

Our Viewpoint

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 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 Affiliated Managers Group Inc. AMG with a Zacks Rank #1 (Strong Buy).