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Goldman: High-yield bond mess to hit these stocks

The S&P 500 dropped 4 percent last week amid fears that losses in the high-yield bond market would spill over to the stock market. In a new report, Goldman Sachs warned clients about equities that may be the first to feel this junk bond pain: asset managers Franklin Resources, Affiliated Managers Group and Larry Fink's BlackRock.

"Rising signs of stress in high yield sent ripple effects through the asset management space on Friday, Dec. 11, sending (the industry's) stocks down 5 percent. Amid Third Ave. news and further performance declines, we expect retail outflows from funds invested in less-liquid areas of fixed income (high yield, emerging market loans) to accelerate, with sell-rated BEN most exposed, while BLK and AMG have been unfairly penalized in the sell-off, in our view," said the firm in the Monday note.

Chasing yield, retail investors poured about $100 billion into high-yield, fixed-income mutual funds between 2009 and 2012, according to Goldman. During that same time period, total high-yield debt outstanding grew to around $1.2 trillion.

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Sliding oil prices have recently put pressure on this part of the fixed-income market since high-yield funds allocate on average about 20 percent of their portfolio in the energy and metals/mining sectors, according to Goldman.

As oil falls, junk bond losses mount and the retail investor pulls more money out of these funds. Adding to fears, some of this debt does not trade frequently, raising liquidity concerns as redemptions rise. This concern was exacerbated by Third Avenue Management's announcement late last week to block investors from withdrawing money from its $789 million Focused Credit Fund that it ultimately intends to liquidate. On the heels of the news, other large investment managers extended declines.

This credit mutual fund at Third Avenue, a firm led by value-investing legend Marty Whitman, suffered significant underperformance in recent years and is down 23 percent year to date.

Goldman Sachs is negative on Franklin Resources because it has the highest exposure to fickle small investors. More than 80 percent of its fixed-income assets are in funds owned by retail investors, who are more likely to flee these funds than institutional investors, said the note. What's more, almost a third of Franklin's bond assets are in high yield or emerging market debt, according to Goldman.

BlackRock is also heavily exposed to junk bonds, but any weakness in the stock could be a buying opportunity, said Goldman.

"BLK's sell-off seems overdone in our view as its exposure to retail HY/EM loans is just 1 percent of total AUM, while structural ETF worries didn't seem warranted," stated the note.

Goldman noted the heavy trading volume in its iShares iBoxx High Yield Corporate Bond ETF (HYG) as evidence there won't be liquidity issues with these BlackRock securities.

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Another name the firm believes should not get lumped in with other high-yield asset managers under fire is Affiliated Managers Group (AMG). The firm noted that even though AMG was off sharply due to its ownership of Third Avenue's Focused Credit Fund, the fund's size of $789 million is immaterial to AMG's economics. AMG is also more insulated from potential deterioration in flows as Goldman stated its presence in retail high-yield is essentially "nil."

BlackRock declined to comment on the Goldman report. AMG did not return a call and email asking for comment. Franklin Resources acknowledged CNBC's questions on the report, but did not immediately offer a comment.