Better diversified money management firms such as BlackRock should prove more resilient in a difficult market environment, according to a Goldman Sachs report on U.S.-listed money managers that took a cautious stance on firms such as Federated Investors with “idiosyncratic product risks.”
Goldman Sachs in a report released Thursday cut its 12-month price targets for listed traditional and alternative U.S. money managers by an average 9%, but retained its neutral call on the sector, noting that valuations already reflect a more cautious view.
Among specific recommendations, Goldman upgraded BlackRock to a “buy” from “neutral,” noting in part that the firm's “diversified AUM mix with a large, sticky institutional client base is likely to provide downside protection in the current volatile market.” Invesco, meanwhile, remains a buy.
Goldman Sachs downgraded its recommendation on Federated to “sell” from “neutral” after a 33% gain by Federated's stock year to date as of May 31. Those gains had been fueled by rising short-term interest rates early in 2012 that gave way this week to sharp declines.
Low rates have forced Federated to waive fees on its money market strategies to ensure clients garner positive returns. That situation, plus the continued threat of regulatory reforms for money market strategies, left Federated facing “disproportionate risks” compared to other listed firms, Goldman Sachs said.