Asset Managers in the Spotlight
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For those that read the WSJ, you've been seeing the recent changes the SEC is trying to push through governing money market funds. Both the corporate world and the investment world are vehemently opposed to them and should they pass would only further drain these funds of their assets.
Currently there is a little under $3T in money funds which is down from a spike of $4T several years ago. These funds serve as the primary vehicle for daily investments for most large corporations. The changes the SEC are trying to make would certainly push these companies into other vehicles. And the market is aware of that. Federated (NYSE: FII), Blackrock (NYSE: BLK), Legg Mason (NYSE: LM), and Evercore (NYSE: EVR) all operate in this space.
For these reasons, it might seem like I would AVOID all of these stocks, but I am actually bullish on each. First, I do not think the changes, in their current form will go through so the negative press is overplayed. Second, regardless of whether or not they go through, these companies are ramping up their alternatives to 2a-7 money funds and those are gaining a bit more attention and will benefit as money flow into those funds increases. Next, all of these stocks pay a decent dividend with Federated's topping 5%.
Lastly, the biggest alternative to these money funds is to simply park the money in a bank account. As we know banks aren't exactly lending and do not want large cash balances sitting on their books (with no time commitment), Bank of New York actually went so far as to charge it's customers interest for large deposits! I think that the rates banks offer will continue to drop & with the Dodd-Frank provision for unlimited FDIC coverage ending this year, you'll see a large transfer of cash back into funds from the banks. Granted this is at the end of the year, but I think it sets the stage for a long term growth story.
Motley Fool newsletter services recommend BlackRock and Federated Investors. The Motley Fool owns shares of Legg Mason. CMartin26 has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.