Market Overview

Barclays' Precarious Thoughts On Active Asset Management

Barclays' Precarious Thoughts On Active Asset Management

Asset managers have been under pressure recently, as passive and robotic investing strategies have grown substantially. Decreasing costs and the increasing ease of investing has reduced the value-add of asset managers to individuals.

Barclays’ Take

Barclays' Kenneth Hill believes industry headwinds will continue to heighten on asset managers before the industry gets better. The analyst forecast two new catalysts likely to further pressure active manager margins including regulation: an upcoming market correction and hedge funds’ poor performance.

Regulation Threats

Regulation has always played a large part in shaping the finance industry. Hill expected the Department of Labor’s fiduciary standard to further tilt the 401(K) space toward passive investing, making it more difficult for active managers to gain 401(K) clients.

“Not only will the rule shape the process for IRA rollovers, the products that can be sold in those offerings, and how they are sold, we see it making it more likely that the industry will increasingly play it safe to avoid potential conflicts or unintended negative outcomes (further reinforced by lawsuits against many high profile managers in the 401k recently),” stated Hill.

Related link: Worse Than Marxism: Bernstein Believes Policymakers Should Consider Taking A Stand On Passive Investment

According to the analyst, the initiative will most likely mean more low-priced passive investment strategies in place of high-priced active products as a default for 401(K0s. “It also likely means that only the highest-quality active will be justified as part of a portfolio, and only as long as those funds remain high quality,” said Hill.

The Barclays analyst claimed it would make 401(K)s less person-to-person and more robotic or self-directed.

Poor Performance

Hedge fund’s disappointing returns in recent years do not help active management either. According to the analyst, the funds have been struggling to produce alpha amid crowded trading strategies. In the future, Hill expects a net-capital outflow from the hedge fund space.

In accordance to these forecast industry trends, Barclays had an Underweight rating on Franklin Resources, Inc. (NYSE: BEN) and an Equal-Weight rating on BlackRock, Inc. (NYSE: BLK) and T. Rowe Price Group Inc (NASDAQ: TROW).

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Latest Ratings for BEN

Nov 2020Keefe, Bruyette & WoodsDowngradesOutperformMarket Perform
Oct 2020Deutsche BankMaintainsHold
Oct 2020Morgan StanleyMaintainsUnderweight

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