These should be flush times for the big asset-management firms.
Stock markets are at a record high, strong demand for bond investments eagerly absorbs record debt issuance, and household net worth has never been higher.
What better companies to invest in during a record-setting bull market and corporate-bond boom than those whose product itself is, in effect, the stock and bond markets?
One would think. And yet, in one of Wall Street's starkest divergences, the shares of asset managers have been trampled during this year's bull run. A selection of 10 large publicly traded asset-manager stocks — including Invesco, BlackRock, Franklin Resources, T. Rowe Price and Legg Mason — are off an average of more than 25 percent from their 52-week highs.
Valuations have become compressed, with just about all the names sitting at a discount to the broad market and with the stocks' forward price-to-earnings ratios sitting anywhere from 10 percent to 40 percent below their respective five-year average.
Behind the sour sentiment is a set of broad, powerful trends for which the traditional managers have no easy answer: Low-cost index funds are dominating the collection of new cash from investors over the active strategies these managers specialize in.
Clients increasingly rely on high-tech gatekeepers — whether financial supermarkets such as Schwab or software-driven "roboadvisors" — that funnel cash into ETFs, not on human brokers with strong active-manager relationships. And active managers are underperforming their benchmarks this year at even a higher rate than usual, hurting the outlook for a revival of interest in stock-picking funds.
In short, the market seems to view asset management as a chronically disrupted industry.