The Zacks Investment Management industry continues to bear the brunt of a constant shift toward passive investing. As fees earned by the industry players are lower compared with active investment strategies, this continues to exert pressure on margins. Also, tighter regulations, rising compliance costs and technology upgrades are expected to strain industry players’ profitability.
Yet, the industry will benefit from investors' shift toward higher-yielding investment vehicles. Hence, sustained economic growth and falling rates will support assets under management (AUM). So, asset managers like Franklin Resources, Inc. BEN, Affiliated Managers Group, Inc. AMG and Federated Hermes, Inc. FHI are worth keeping an eye on.
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About the Industry
The Zacks Investment Management industry consists of companies that manage securities and funds for clients to meet specified investment goals. The companies earn by charging service fees or commissions. Investment managers, also called asset managers, manage hedge funds, mutual funds, private equity, venture capital and other financial investments for third parties. By appointing an investment manager for one’s assets, investors get more diversification options than if they manage their assets independently. Investment managers invest their clients’ assets in different asset classes, depending on their needs and risk-taking abilities. Hence, the diversification, which investors get by appointing asset managers to manage their assets, helps reduce the impacts of volatility and ensures steady returns over time.
3 Themes Influencing the Investment Management Industry
Shift Toward Passive Investing to Continue: Investors have been moving away from actively managed funds and toward low-cost passive investment options. With interest rates expected to decrease further later in the year, investors are likely to reassess their risk levels, leading to a rise in asset inflows into equities and alternative investments, such as index funds, private credit funds and exchange-traded funds (ETFs). These investment options typically offer lower fees to asset managers compared with actively managed investment funds. As the demand for such investment vehicles continues to increase, asset managers will be able to generate higher fees. On the whole, decent economic growth and declining interest rates will keep driving inflows into the industry. However, a steady shift toward a passive strategy will weigh on industry players’ margins.
Mounting Expenses: Tighter regulations globally to enhance transparency have increased compliance costs for investment managers. Also, as industry players are constantly trying to upgrade technology to keep up with evolving customer needs, technology-related costs are expected to keep rising. Also, using artificial intelligence (AI) and machine learning to enhance operational efficiencies may lead to increased expenses in the short term, but will ultimately support investment managers' operating margins in the long run.
Rising Assets Inflow to Support AUM Growth: Equity markets globally have performed impressively in the past two years, driven by sustained economic growth. This resulted in solid AUM growth. With falling interest rates, investors are likely to rotate out of money market mutual funds or short-term investments into other higher-yielding assets like equity funds, alternative assets and long-term bond funds.
Also, deregulation is expected to open up access to cryptocurrencies and the previously untapped retirement market. Further, the steady growth of tokenized assets – the tokenization of traditional assets, such as real estate and equities – is attracting investor interest. These factors are expected to drive AUM balance in the upcoming period. So, investment managers will likely witness a solid improvement in performance fees and investment advisory fees, which constitute a major part of their revenues.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Investment Management industry is a 37-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #219, which places it in the bottom 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is because of the disappointing earnings outlook for the constituent companies in aggregate. The aggregate earnings estimate revisions show that analysts are losing confidence in this group’s growth potential. Since the 2024-end, the industry’s earnings estimates for 2025 have been lowered 11%.
Before we present a few stocks from the industry despite a gloomy picture, let us check out the industry’s recent stock market performance and valuation picture.
Industry vs. Broader Sector
In the past two years, the Zacks Investment Management industry has outperformed the S&P 500 Index and its sector. Stocks in the industry have collectively soared 53.4%, while the S&P 500 composite has rallied 41.4% and the Zacks Finance Sector has appreciated 49.7%.
Two-Year Price Performance
Industry's Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TB), which is commonly used for valuing investment management companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TB of 4.66X. This compares with the highest level of 7.47X, the lowest level of 2.76X and the median of 5.53X over the past five years. The industry is trading at a significant discount compared with the market at large, as the trailing 12-month P/TB for the S&P 500 composite is 12.64X, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
As finance stocks typically have a low P/TB ratio, comparing investment managers with the S&P 500 may not make sense to many investors. However, the comparison of the group’s P/TB ratio with that of its broader sector seems more meaningful.
When we compare the group’s P/TB ratio with the broader Finance sector, it seems the group is trading at a discount. The Zacks Finance sector’s trailing 12-month P/TB of 5.26X for the same period is above the Zacks Investment Management industry’s ratio, which the chart below shows.
Price-to-Tangible Book Ratio (TTM)
3 Investment Management Stocks to Keep on Your Radar
Franklin Resources: Headquartered in San Mateo, CA, Franklin Resources is one of the well-known global investment management companies. As of March 31, 2025, the company’s AUM balance was $1.54 trillion.
BEN sells its mutual funds and other products to the public under different brands, including Franklin, Templeton, Legg Mason, Balanced Equity Management, Benefit Street Partners, Brandywine Global Investment Management and Clarion Partners.
In the past few years, Franklin Resources has grown through acquisitions and partnerships. The buyouts have led to an enhanced presence in the separately managed account space and bolstered its investment capabilities in private debt, real estate, hedge funds and private equity. Such efforts will help the company in improving and expanding its alternative investments and multi-asset solutions platforms.
A robust AUM balance, along with diverse product offerings, investment strategies and a relatively strong distribution platform, will keep supporting BEN’s revenue growth. Also, Franklin Resources has been an early entrant in many foreign markets, enjoying a first-mover advantage.
BEN shares have gained 6.7% so far this year. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2025 and fiscal 2026 earnings have been revised marginally upward to $2.02 and 2.17, respectively. The company, which has a market cap of $11.7 billion, currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BEN
Affiliated Managers: Based in Massachusetts, Affiliated Managers is a global asset manager with investments in high-quality, independent partner-owned firms or affiliates. On the whole, the affiliates manage numerous differentiated strategies across a wide range of return-oriented asset classes and structures across alternatives and differentiated long-only. As of March 31, 2025, the company had a total AUM of $712.2 billion.
With a strong balance sheet and liquidity position, Affiliated Managers has considerable capability to invest in other companies and generate meaningful growth through these investments. This year, the company has committed almost $700 million to three new partnerships – Northbridge, Verition and Qualitas Energy. These investments (likely to add roughly $18 billion in AUM across liquid alternatives and private markets) are expected to be accretive to the company’s earnings and improve its “organic growth profile.”
Since 2023, AMG has significantly diversified its business “in distinct fast-growing areas of private markets.” These efforts have substantially reshaped the company’s business profile, focusing on alternatives. As of March 31, 2025, Alternatives constituted 41.4% of total AUM and generated almost 50% of the company’s earnings.
Over time, earnings contribution from alternative strategies will keep growing. Affiliated Managers is targeting investments in alternatives to evolve the business mix toward secular growth areas and strong investor preference.
This year, shares of AMG have lost 5.9%. In the past 30 days, the Zacks Consensus Estimate for the company’s 2025 and 2026 earnings has moved north to $22.89 and $25.73, respectively. The stock, which has a market cap of $5 billion, carries a Zacks Rank of 3.
Price and Consensus: AMG
Federated: Headquartered in Pittsburgh, PA, Federated is a global asset manager with $839.8 billion in AUM as of March 31, 2025. The company offers world-class active investment management and engagement services across a wide range of asset classes for investors globally.
Acquiring money market assets depicts the buoyancy of Federated in the money market business. The record level of money market AUM will provide the company with various new fund offerings. Management expects the market conditions for money market strategies to remain favorable, with money market fund yields continuing to offer an attractive alternative to direct market instruments and bank deposit rates.
Over the years, the company has inked deals and expanded operations in strategic markets. The company continues to seek alliances and acquisitions to expand its business globally. FHI’s inorganic growth efforts are expected to continue to drive the AUM balance in the upcoming period.
FHI shares have gained 2.1% so far this year. Over the past 30 days, the Zacks Consensus Estimate for 2025 and 2026 earnings have been revised marginally upward to $4.40 and 4.43, respectively. The company, which has a market cap of $3.4 billion, currently carries a Zacks Rank #3.
Price and Consensus: FHI
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