Baltimore-based Legg Mason Inc. (LM) experienced a rise in its assets under management (AUM) in October on a sequential basis. This was preceded by a drop in both September and August AUM.
Preliminary month-end AUM came in at $628.7 billion, up 2.8% from $611.8 billion at the end of September. Moreover, equity AUM and fixed income AUM surged up, though liquidity AUM plummeted compared with the prior month.
Legg Mason’s equity AUM in October climbed 10% from the prior month to $159.4 billion while fixed income AUM inched up 1% to $359.0 billion.
The increase in equity AUM coupled with a rise in fixed income, resulted in long-term AUM of $518.4 billion, up 3.6% compared with the prior month. Concurrently, liquid assets, which are convertible into cash, edged down 1% to $110.3 billion from $111.4 billion at the end of September 2011.
On a quarterly basis, as of September 30, 2011, Legg Mason’s AUM was $611.8 billion, down 7.7% sequentially from $662.5 billion, driven by market depreciation, including foreign exchange, coupled with client outflows of $17.6 billion. On a year-over-year basis, AUM was down 9.2% from $673.5 billion. Fixed income represented 58% of consolidated AUM as of September 30, 2011, liquidity represented 18% and equity comprised 24%.
During the quarter, fixed income outflows were approximately $8.8 billion, liquidity inflows were $3.1 billion and equity outflows were $5.7 billion. Total client outflows increased to $17.6 billion from $3.7 billion. Average AUM was $643.3 billion, down 4.1% from $670.8 billion in the prior quarter and 2.3% from $658.6 billion in the year-ago quarter.
Peer Performance
Legg Mason’s closest competitors Invesco Ltd. (IVZ) and Franklin Resources Inc. (BEN) reported a rise in month-end AUM for the month of October 2011. Invesco’s AUM for the reported month grew 6.2% to $635.7 billion from $598.4 billion at the end of September 2011. The rise in Invesco’s October AUM was mainly attributable to positive market returns and net inflows.
Further, foreign exchange led to a $4.3 billion hike in AUM during the month under review. Franklin declared preliminary AUM of $$694.1 billion for its subsidiaries, as of October 31, 2011, reflecting an increase of 5.2% from $659.9 billion as of September 30, 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 cost-cutting measures, we expect operating leverage to improve, and share buybacks to continue instilling investors’ confidence on the stock.
Legg Mason currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.
