Value Proposition of Active Management is Outperformance Relative to the Index and the Peer Group: An Expert Analyst Discusses Active and Passive Asset Management with The Wall Street Transcript

Wall Street Transcript

67 WALL STREET, New York - April 3, 2013 - The Wall Street Transcript has just published its Investment Banks and Asset Management Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Consistent BDC Dividend Yield - Private Middle Market Funding - Decreased Bank Loan Competition - Exchanges Trading Volumes and Cash Flow - Increase In Investor Risk Tolerance - Asset Growth - Capital Flow Into Equities - Fixed Income Bonds

Companies include: T. Rowe Price Group, Inc. (TROW), BlackRock, Inc. (BLK), Franklin Resources Inc. (BEN), Invesco Ltd. (IVZ), State Street Corp. (STT), The Bank of New York Mellon Co (BK), Northern Trust Corporation (NTRS), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), TD AMERITRADE Holding Corporat (AMTD), Charles Schwab Corp. (SCHW), IntercontinentalExchange, Inc. (ICE), CME Group Inc. (CME), Wells Fargo & Company (WFC), Bank of America Corporation (BAC), UBS AG (UBS) and many more.

In the following excerpt from the Investment Banks and Asset Management Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What is the competitive landscape like for the asset managers right now? And what gives a firm a solid competitive advantage in your mind?

Mr. Montgomery: Ultimately, the best competitive advantage you can have is good performance in products people want to buy right now. So it's the intersection of good performance and good product strategy - in some cases innovating ahead of identifiable demand or at least being quick in response to new demand, that's the real competitive advantage.

I said before, active management in particular is a very competitive industry, and so the value proposition of active management is supposed to be outperformance relative to the index and the peer group.

You don't see a lot of persistence in performance among active managers, again which is indicative of the level of competition in that market. But there are some firms that do it very well. T. Rowe Price is one that has done it very well for a long period of time. They are live by the sword, die by the sword. They sell direct to retail customers that could be described as very performance-sensitive and therefore very fee-sensitive.

If you look across T. Rowe's platform, relative to the total number of funds they sell they have a fairly high proportion of four- and five-star funds as defined by Morningstar, so better-than-average performance platform. But that's not the only competitive advantage one can have, and it's very difficult to do.

I would say that if you're running an asset management company, there are really two broad things you are thinking about - your manufacturing, in other words portfolio management, and then your distribution right. Very good distribution can offset mediocre portfolio management. I mean, if you have really underperforming funds it's hard to sell anything, so you need...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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