As investors take on additional risk, asset management companies with above-average equity and alternative asset exposure are seeing increased demand for their products, says Daniel Fannon, a senior research analyst at Jefferies & Company, Inc.
“The backdrop in the fourth quarter is clearly a move towards more risk. So we’re seeing a greater demand or greater growth towards more risk-oriented assets, and that includes equities as well as alternative-based products,” Fannon said. “So we’re seeing demand for liquid alternatives as well as increasingly private equity, which is more on the hedge-fund side, as well as more risk going back to what would be traditional asset managers.”
Fannon’s top stock picks in the asset management space are Invesco Ltd. (IVZ) and Affiliated Managers Group (AMG). These companies benefited from favorable market activity over the past 18 months, which boosted their margins and asset levels, and accelerated inflows.
“Those are both firms that I think are either actually gathering inflows on a consistent basis,” Fannon said. “And that would be AMG with their emerging market and international exposure, or a firm like Invesco that is positioned to see flows improve as the markets get better and the distribution relationships that they’ve forged over the last couple of years really begin to mature and manifest, and see flows come through as a result.”
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