Baltimore-based Legg Mason Inc.’s (LM) January 2011 assets under management (AUM) came in essentially flat with December 2010 figures. This was preceded by an AUM rise in December and fall in November.

Legg Mason reported preliminary month-end AUM of $671.8 billion for January. While liquidity and equity AUM grew in the month, it was offset by a drop in fixed income AUM.

While Legg Mason’s equity AUM inched up 0.8% from the prior month to $185.6 billion but fixed income AUM slipped 0.8% from the prior month to $352.9 billion. The decrease in fixed income AUM resulted in a slight decrease of 0.3% in Legg Mason’s long-term AUM to $538.5 billion in January from $540.0 billion at the end of the prior month. However, liquid assets, which are convertible into cash, nudged up 1.1% to $133.3 billion from $131.8 billion at the end of December 2010.

On a quarterly basis, Legg Mason’s AUM was $671.8 billion at December 31, 2010, down 0.3% sequentially from $673.5 billion due to net outflows of $16.7 billion, significantly offset by market appreciation of $14.8 billion. On a year-over-year basis, AUM was down 1.0% from $681.6 billion. Fixed income represented 53% of consolidated AUM as of December 31, 2010, liquidity represented 20% and equity comprised 27%.

For the quarter ended December 2010, Legg Mason’s closest competitor BlackRock Inc. (BLK) reported AUM of $3.56 trillion, up from $3.35 trillion in the prior-year quarter, substantially surpassing Legg Mason’s AUM.

For another peer  Invesco Ltd. (IVZ), increased market values as a result of gradual recovery in global equity markets improved AUM by 2% sequentially and 34% year over year to $616.5 billion as of December 31, 2010.

Our Take

Though near-term challenges remain with a slow economic recovery, we believe Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to changing demographics in the market. Additionally, with restructuring initiatives and cost-cutting measures, we expect operating leverage to improve and share buybacks to inspire investors’ confidence on the stock.

The company claims to have been able to pave a recovery path for fiscal 2011, given the early signs of economic recovery and improvement in business sentiments. A sound cash position complemented by a risk-free balance sheet will also provide ample leverage along with its restructuring initiatives.

Legg Mason currently retains its Zacks #3 Rank, which translates to a short-term ‘Hold’ rating.

 
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