Are Fund Managers Better Than Their Funds?

For investors still cringing at their IRAs, 401(k)s or taxable mutual funds and exchange-traded funds, are you ready to take a chance on the companies that have brought you so many unhappy returns?

"You have to be selective on the companies," says Greggory Warren, who follows the asset-management arena for the financial research firm Morningstar. "Some are in far better shape than others."

Among sell-side analysts, there are no screaming buys among publicly traded asset-management firms. Most of the screaming comes from people whose funds and their asset-management-stock prices have dropped sharply over the past 12 months, often in harmony with the broader market, but occasionally much more.

Thomson Reuters compilations of sell-side analyst opinions for 10 asset management companies don't reveal any in which the number of buys surpasses the combined number of holds and sells.

Give or take a few percentage points, some asset management stocks have matched the S&P 500, which was down 36% for the 12 months ended April 17.

Many others made the S&P 500's decline look good. Legg Mason(LM) was off 64%, Janus Capital Group (JNS) dropped 65%, and AllianceBernstein Holding(AB) fell 66%.

Because asset-management stocks are driven by the health of the economy and the market, analysts say they bear watching for indications of a rebound.

"This group is typically is a first mover on any signs of a recovery and will move well before underlying fundamentals," says a recent report by Stifel Nicolaus. "In any early market recovery, the stocks would look expensive until the fundamentals catch up, presenting [a] challenge to investors until a market recovery can be established."