Flow data indicates that institutions and retail investors are embracing equities in 2011, a trend Goldman expects to continue. Consequently, asset managers will "generate significant cash to buy back stock and pay dividends." Growth in passive strategies, including ETFs, and international exposure are long-term cyclical drivers for the group. T. Rowe, with 73% of assets under management in equities, is Goldman's top pick in the industry for 2011.
T. Rowe's high-proportion of top-ranked funds positions it as a favorite of institutions and individuals. According to Goldman, T. Rowe has "one of the highest and most consistent organic growth rates in the asset management space, averaging 8% annually since 2002." It has a significant presence in the flow-stable retirement channel, giving it momentum for the first quarter, usually the firm's best for attracting retirement assets. T. Rowe's stock commands a premium, which Goldman says is "worth it." It sells for a forward P/E of 17 and a cash flow multiple of 32, notably more than the average asset management peer. It has returned 8.5% a year, on average, since 2008.