3 Investment Management Stocks to Watch Amid Industry Challenges

Industry Overview - The Zacks Investment Management industry is experiencing a shift towards passive investing, which is pressuring margins due to lower fees compared to active strategies [1][4] - Tighter regulations and rising compliance costs, along with technology upgrades, are expected to strain profitability for industry players [1][5] - Despite these challenges, the industry is likely to benefit from a shift towards higher-yielding investment vehicles, supported by sustained economic growth and falling interest rates [2][6] Key Themes Influencing the Industry - The ongoing shift towards passive investing is expected to continue, with investors reassessing risk levels and increasing inflows into equities and alternative investments [4] - Rising compliance costs due to tighter regulations and the need for technology upgrades are mounting expenses for investment managers [5] - The global equity markets have performed well, leading to significant growth in assets under management (AUM), with a rotation expected from money market funds to higher-yielding assets [6][7] Industry Performance and Valuation - The Zacks Investment Management industry has outperformed the S&P 500 Index over the past two years, with a collective increase of 53.4% compared to 41.4% for the S&P 500 [12] - The industry currently has a trailing 12-month price-to-tangible book (P/TB) ratio of 4.66X, which is significantly lower than the S&P 500's ratio of 12.64X, indicating a discount compared to the broader market [15][18] Notable Companies in the Industry - Franklin Resources, Inc. (BEN): As of March 31, 2025, BEN has an AUM of $1.54 trillion and has been growing through acquisitions, enhancing its investment capabilities [20][21][22] - Affiliated Managers Group, Inc. (AMG): With an AUM of $712.2 billion as of March 31, 2025, AMG is focusing on alternative investments, which constitute 41.4% of its total AUM [25][27] - Federated Hermes, Inc. (FHI): FHI has an AUM of $839.8 billion as of March 31, 2025, and is expanding its operations through strategic alliances and acquisitions [29][31]