Baltimore-based Legg Mason Inc. (NYSE:LM - News) experienced a rise in its assets under management (:AUM) in January 2012 on a sequential basis. This was preceded by a rise in December 2011 but a decline in November 2011 AUM.
Preliminary month-end AUM came in at $631.3 billion, up 0.7% compared with the prior month. Though liquidity AUM plummeted, fixed income AUM and equity AUM climbed compared with the prior month.
Legg Mason’s equity AUM as of January inched up 5% from the prior month to $160.9 billion and fixed income AUM crept up 1.4% to $357.6 billion.
The upside in equity AUM coupled with a rise in fixed income, resulted in long-term AUM of $518.5 billion, up 2.5% against the prior month. However, liquid assets, which are convertible into cash, edged down 6.9% to $112.8 billion from $121.1 billion at the end of December 2011.
On a quarterly basis, as of December 31, 2011, Legg Mason’s AUM was $627.0 billion, up 2.5% sequentially from $611.8 billion, driven by market appreciation, partially offset by net client outflows of $1.3 billion and dispositions of $1.1 billion. On a year-over-year basis, AUM was down 7% from $671.8 billion. Fixed income represented 56% of consolidated AUM as of December 31, 2011, while liquidity and equity represented 19% and 25% respectively.
During the quarter, fixed income outflows were approximately $7.1 billion and equity outflows were $4.9 billion. However, liquidity inflows were $10.7 billion. Besides, average AUM was $622 billion, down 3.3% from $643.3 billion in the prior quarter and 7.5% from $672.4 billion in the year-ago quarter.
One of Legg Mason’s peers - Invesco Ltd. (NYSE:IVZ - News) also reported a 3.7% increase in its preliminary month-end AUM for the month of January 2012. The company’s AUM for the reported month was $648.3 billion, up from $625.3 billion at the end of December 2011. Invesco’s January AUM primarily benefited from positive market returns, foreign exchange and long-term net inflows. Foreign exchange thereby led to a $2.2 billion rise in the company’s AUM during the month under review.
Another peer -Franklin Resources Inc. (NYSE:BEN - News) reported its preliminary month-end AUM of $704.3 billion for its subsidiaries, as of January 31, 2012, reflecting an increase of 5.1% from $670.3 billion as of December 31, 2011.
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 demographics in the market. However, in the near term, assets outflows will remain a significant headwind. Yet, with the restructuring initiatives and the cost-cutting measures, we expect operating leverage to improve, and dividend payments to continue inspiring investors’ confidence on the stock.
The shares of Legg Mason currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining a long-term “Neutral” recommendation on the stock.
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