Sector Snap: Goldman Concerned On Asset Managers

NEW YORK (AP) — Asset manager stocks posted double-digit gains in the market rally last week, but Goldman Sachs analysts think that spike may have been too far, too fast.

Concerned that the volatile conditions this quarter will lead companies that sell mutual funds and other investments to post weak earnings results, Goldman analysts Marc Irizarry, Alexander Blostein and Neha Killa said the 17 percent gain the stocks saw last week shouldn't obscure the companies' fundamentals.

Mutual funds have dropped significantly since the beginning of the year — though performance is not as "horrific" as it was in the fourth quarter. Yet investors are still pulling their money out, they said. "The sharp equity rally is constructive, but equity funds quarter to date are facing $60 billion in outflows and the average equity fund is down another 14 percent," the trio wrote in a note Thursday, predicting a "sharp correction" for asset managers.

They said they expect first-quarter earnings results to be "broadly disappointing" for the group.

They did, however, upgrade one fund manager, Waddell & Reed Financial Inc., an Overland Park, Kan., company that offers Waddell & Reed Advisors Funds and Ivy Funds. Goldman raised its rating on Waddell & Reed to "Buy" from "Neutral," while downgrading rival Eaton Vance Corp. and recommending investors swap the stocks.