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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (160376)	10/27/2008 12:05:40 AM
From: ChanceIs	Read Replies (3) \| Respond to of 306849

Mutual-Fund Firms Absorb a Profit Hit Some Money-Management Stocks Down 45% to 70% in Three Months >>>Janus used to be well respected. But then again, so did Bill Miller's value trust.<<< By DIYA GULLAPALLI Money-management firms have been among the last bastions of safety in the financial-services industry as top banks and insurers have blown up this year. Not anymore. Trouble is quickly brewing for such firms, which make their money selling mutual funds and other investment products to individual (or "retail") and institutional investors. Stocks in top money managers like T. Rowe Price Group Inc. and Janus Capital Group Inc. have fallen between 45% and 70% in the past three months, while the Dow Jones Industrial Average total return has sunk 25%. [DJIA vs. Money Managers] Earnings were down sharply at nearly all asset managers reporting quarterly results in recent days. On Friday, T. Rowe reported a 12.6% drop in quarterly profits. Also last week, Janus said earnings dipped a stunning 49%, BlackRock Inc. reported a 15% decline and Franklin Resources Inc. reported a 30% decline. The biggest reason: Bear-market spooked investors are dumping funds. Asset managers get much of their income from investors' fees, so the fewer investors there are, the less the managers earn. Stock funds are now on pace for their largest annual investor selling, or outflows, ever by some measures. In September, U.S. stock funds lost an estimated $19.1 billion, the fourth consecutive monthly outflow and the fourth-highest monthly outflow in history. Stock funds have continued to post outflows in October, including $6.47 billion in the week ended Wednesday . August, September and October are now the three worst months on record for mutual-fund outflows, according to TrimTabs Investment Research. Such woes are a factor in the broader market's problems. Investor redemptions for the U.S. mutual-fund industry, with $12 trillion in assets, are likely fueling the steep stock declines of recent weeks. These companies are essentially bets on a bull market. If stocks go up, earnings can go up because firms get paid on assets, and when times are good, they get new cash. In down markets, the bets works in reverse, assets go down with the market and investors redeem. The turnabout for asset managers has been sudden. The Dow Jones Wilshire U.S. Asset Managers Index managed to stay ahead of the broader Dow Jones Wilshire U.S. Financials Index until last month by as much as six percentage points. Now both are down about 50%. The dire results are forcing money management executives to cut staff. Since their main expense is compensation, the industry has relatively few other ways to manage costs in down markets. Denver-based Janus announced in its earnings release this week that it's laying off 9% of employees to yield $15 million in annualized savings. AllianceBernstein chief executive Lewis Sanders called layoffs "unavoidable" in the earnings announcement last week, while American Century Investments chief executive Jonathan Thomas also said that he can't rule out headcount reductions right now. No Quick Turnaround The tough news likely won't be over soon. "The recent selloff of the equity markets will likely pressure earnings growth for the asset managers throughout 2008 and into 2009," wrote Fox-Pitt Kelton Cochran Coronia Waller analyst Roger Smith recently. The firm has downgraded AllianceBernstein, Affiliated Managers Group Inc., T. Rowe Price and BlackRock. Analysts have suddenly turned negative on the industry. J.P Morgan Chase noted asset managers are "under material pressure" and "a good place to avoid near-term." UBS AG has said it is now "cautious on the group." Goldman Sachs Group Inc. recently downgraded asset managers to "neutral" from "attractive." Poor fund performance, of course, is why investors are fleeing. The average stock fund's return declined 11% in September, the worst one-month return since August 1998, according to Lipper Inc. The average U.S. diversified stock fund is down 27% in the past month. Twenty-four of the 25 biggest fund companies nationwide were recently posting stock and bond fund asset declines this year, according to Financial Research Corp. The only exception is Allianz SE's Pacific Investment Management, or Pimco, where safer bond offerings have drawn investors. The firm with the steepest decline in assets this year through August is Power Financial Corp.'s Putnam Investments, where stock and bond fund assets have dropped 22% to $65.4 billion. Even the exchange-traded fund industry, which boomed through last year, has fallen into a funk. U.S. ETF assets have declined 4.6% to $580 billion this year through September, the latest figures.