Market Overview

Goldman Sachs Downgrades Ameriprise Financial, Virtus On 'Weak Flows' And Retail Risks


In a report published Friday, Goldman Sachs analyst Alexander Blostein commented that he expects Asset Managers to report "soft results" and deteriorating organic growth for most firms.

Blostein noted that U.S. equities represent a large source of outflows with $53 billion rotated out of domestic stocks and $45 billion rotated into global equities in the second quarter.

"Despite improved performance (57 percent of active AUM is beating the benchmark), equity ETF's continue to gain share (+22bn in 2Q)," Blostein argued in his note. "Despite weakness in fixed income (Barclays Aggregate Index is down two percent in 2Q), fixed income flows are proving to be more resilient (only two weeks of outflows in June)."

Blostein continued that volume trends remain "bifurcated," and benefits Energy and FX products over stocks. Looking forward, the analyst suggested that volatility in oil markets, "diverging" global rate policies and uncertainty in the European Union should favor commodity markets such as the CME Group Inc (NASDAQ: CME) over equity markets like NASDAQ OMX Group, Inc. (NASDAQ: NDAQ).

Ameriprise Downgraded To Neutral

Blostein downgraded shares of Ameriprise Financial, Inc. (NYSE: AMP) to Neutral from Buy with a price target lowered to $130 from a previous $140 given a "more challenging" top-line backdrop along with slowing trends in retail brokerage and asset management outflows.

Blostein stated that rising macro "uncertainty" along with regulatory scrutiny on some of the company's higher-commission products (such as non-traded REITs) will pressure revenue growth and incremental margin expansion within the firm's Advice & Wealth Management division, which historically acted as a "key driver" of outperformance.

Despite the concerning near-term view, Blostein did state that he still likes the firm's long-term asset gathering capabilities, best-in-class capital return story and the potential upside in a higher rate environment. However, absent of a "materially higher" equity markets and/or a "substantial" turnaround in asset management flows, shares are likely to be range-bound.

Virtus Downgraded To Sell

Blostein downgraded shares of Virtus Investment Partners Inc (NASDAQ: VRTS) to Sell from Neutral with a price target lowered to $115 from a previous $135 as flows will continue to "deteriorate" and pressure the company's earnings per share.

The analyst stated that he sees evidence of "continued pressure" in the firm's "Trend" fund products and "increasing performance pressures" in its emerging markets products. In fact, the firm's emerging market products could be "the next shoe to drop" and accounts for around 15 percent of management fees. The fund's performance has been "slipping meaningfully" as of late and as such outflows will likely have an "outsized" impact on revenue.

Blostein did however note that the company operates an "attractive" business with "good" margins in the 55 to 60 percent range but it faces a "deteriorating near-term organic growth profile."

Latest Ratings for AMP

Apr 2020Piper SandlerMaintainsOverweight
Mar 2020Morgan StanleyMaintainsEqual-Weight
Mar 2020Piper SandlerMaintainsOverweight

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Posted-In: Alexander Blostein Asset Managers Commodities Energy ProductsAnalyst Color Downgrades Price Target Analyst Ratings

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