A Pair Trade In Asset Managers Worth Considering For Your Portfolio

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  • Invesco Ltd. IVZ has lost 16.8 percent this year, while Janus Capital Group Inc JNS has declined just 9 percent.
  • Keefe, Bruyette & Woods' Robert Lee said that Invesco is the firm's "top pick" and recommended buying shares while against a short position in Janus Capital Group.
  • Though Lee mentioned that he feared there were "few near-term catalysts" in the sector, Lee pointed to Invesco's "breadth of its product suite and distribution platform" as reasons behind naming the company his top pick.

KBW's Robert Lee said that there will be "lackluster (at best) organic growth" in asset management names. However, Lee forecasted that Invesco is about to reap benefits from investments made in new products and distribution that will lead to "better organic AUM and revenue growth," particularly relative to peers. Further, the company's "diverse global footprint" will create a strategic advantage that its peers do not enjoy.

Short Janus?

To smooth out general sector weakness, Lee suggested pairing a long position in Invesco with a short position in Janus Capital Group. Comparatively, Janus may have more equity leverage that could help the firm capitalize on a "rebound in equity prices." However, that potential does not justify Janus' premium to Invesco.

Lee placed a $41 price target on Invesco shares, down $2 from $43 prior. The still represents a 24 percent premium over current price. Shares of Janus Capital Group should remain near $15, according to Lee's analysis.

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Posted In: Analyst ColorLong IdeasShort IdeasPrice TargetAnalyst RatingsTrading IdeasKeefe Bruyette & WoodsRobert Lee
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