Talk of M&A Activity Boosts Fund Share Prices
February 6, 2006
A rising stock market and talk of merger and acquisition activity are driving up the share prices of many publicly traded mutual fund companies. According to a report from The Financial Times, it hasn't been terribly tough for managers to beat the S&P 500 this year, which is up 8%. As a result, firms are making a strong showing on Wall Street.
But the gains are also due to talk of industry consolidation. For instance, shares of Legg Mason, which took over Citibank's asset management division last year, are up 76%. Janus Capital's stock, which in recent months has demonstrated robust signs of recovery from the mutual fund scandal, has risen by 50%. Affiliated Managers Group, which invests in asset managers, has risen by 40%.
And while some of the industry's biggest firms - including American Funds, Vanguard and Fidelity Investments - are privately owned, the trend to profitability and higher margins seems apparent.
For example, T. Rowe Price, whose shares are up by a third in the past year, recently reported fourth quarter results. Its net income rose to $117 million, 20% higher than a year earlier, and assets under management rose by 15% to a record $270 billion. Shares of Franklin Resources are up more than 50% this past year, and the firm has just reported a 32% rise in net income for its December quarter, to $318 million.
Speculation now is that there could be a merger between Morgan Stanley and BlackRock. BlackRock's share price has risen by almost 70% in the past year.
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