NEW YORK (

TheStreet

) -- Keefe Bruyette & Woods unveiled its list of top asset manager picks for 2011 on Tuesday, and while it singled out four names, the report also noted there are others with a strong outlook.

Overall, KBW favors equity to fixed income-focused asset managers, as historically interest rates would appear to have nowhere to go but up. Nonetheless, KBW analysts argue investors will remain cautious, focusing on dividend-paying stocks and funds.

"We expect still shell-shocked individual investors may stay generally more risk averse for the foreseeable future," the report states.

As for other macro trends affecting the industry, KBW believes many of the growth opportunities are outside the U.S. Asset managers positioned to exploit that trend include

BlackRock

(BLK) - Get Report

,

T Rowe Price

(TROW) - Get Report

,

Blackstone

(BX) - Get Report

, former

Citigroup

(LM) - Get Report

unit

Legg Mason

(LM) - Get Report

,

Invesco

(IVZ) - Get Report

,

Och-Ziff Capital Management Group

(OZM)

and

Franklin Resources

(BEN) - Get Report

, the KBW report states.

While KBW analysts noted there are several cheap stocks in the asset management sector, including

AllianceBernstein Holdings

(AB) - Get Report

and

Artio Global Investors

( ART) and they note these names "have had consistent net outflows, particularly in equity products."

"While these stocks are cheap by most valuation metrics, we believe that their equity performance in general has been somewhat problematic at best, which could limit their ability to participate in any rebound in equity flows," the report states.

KBW is also cautious on its near-term sector outlook due to a recent big rally in several traditional money managers like Legg Mason.

Asset management has traditionally been an attractive business within financial services and JPMorgan analyst Kenneth Worthington noted a "positive outlook" on the sector for the first half of 2011 in Dec. 15 report. However, FBR Capital Markets believes online brokers like

TD Ameritrade

(AMTD) - Get Report

will outperform asset managers as a group.

Part of FBR's more skeptical view of asset managers, however, relates to the same theme highlighted by KBW, which is that fixed income products are likely to suffer. That has driven a selloff in Franklin Resources, which has a heavy fixed income focus--a selloff KBW argues "may be overdone." KBW has an "outperform" rating on Franklin.

Even if the sector lags, however, picking the right asset management firm is likely to result in satisfying, if not spectacular, returns. Here are the top picks from KBW for 2011.

4.Blackstone Group

Blackstone closed a $15 billion fund, it announced Tuesday. Raising such a sizeable sum is no easy task in the wake of the subprime crisis and the news, while not a big surprise, appeared to be behind a surge in Blackstone's shares on Tuesday. In early afternoon trades, the shares were up 3.76% to $14.07.

In an October report rating Blackstone "outperform," with a $19 price target, KBW analyst Rob Lee argues "prospective capital deployment is accelerating," and he cites a "strong, diversified deal pipeline," as well as improving values in Blackstone private equity and real estate portfolios.

Lee believes the market underestimates Blackstone's ability to earn big performance fees going forward.

As for the prospective risks, Lee writes that Blackstone relies heavily on leverage as part of its investment strategies, while citing "limited transparency into many of its investment products and strategies."

Indeed, retail investors may be getting in over their heads investing in Blackstone. A 2007 profile of chief executive Stephen Schwarzman in

The Wall Street Journal

days before the private equity firm offered shares to the public cited "a former associate," of Schwarzman who says the buyout king bragged about having "cracked the code in how to be a private company in the clothing of a public company."

3.

KKR & Co.

(KKR) - Get Report

The publicly-listed affiliate of the legendary buyout firm has been on a tear since swapping its Amsterdam listing for one on the New York Stock Exchange in July of this year, returning 38.5%, compared to 14.3% for the Standard & Poor's 500 over the same period. While Blackstone and

Fortress Investment Group

(FIG)

have performed similarly, KKR was slightly better as of mid Tuesday afternoon trading for that specific time period

Following a 4.27% rise on Tuesday KKR, KKR was trading at $14.15 compared to KBW's target of $16 as of its last individual report on the company published Nov. 4. In that report, KBW argued improving markets should enhance KKR's ability to "monetize" its investments through initial public offerings and sales. The report also states that KKR appears headed for success in raising new funds, citing management statements that KKR expects to have at least $2.8 billion in new capital commitments from institutional investors in their private equity funds by the end of the fourth quarter.

The risks on KKR are similar to those for Blackstone, however, though with the addition of "substantial key man risk," as the company "remains very dependent upon founders Henry Kravis and George Roberts, among other key principals," the report states.

2. Invesco

KBW's Lee believes Invesco has done a good job out of the gate integrating Morgan Stanley's retail asset management business, which it acquired June 1. While the third quarter was the first one in which Invesco included the business in its results, management has already created $95-100 million in cost synergies, according to an Oct. 26 report from Lee.

KBW estimates KBW will earn $1.33 per share this year and trade at 16.6 times earnings, and up that to $1.70 per share for a multiple of 13 times earnings in 2011. However, Lee believes his estimates are "potentially conservative and in light of the potential operating leverage in the business." While U.S. growth prospects are dim, Invesco is "lay

ing the groundwork for a global organization that should, over time, be able to show improving global new business trends and improved profitability with any continuation in top-line growth," according to Lee's report in October.

1.

Calamos Asset Management

(CLMS)

KBW analyst Larry Hedden sees strong "organic" growth prospects for Calamos as it has several "defensive, low-volatility, and income-oriented strategies," which he believes will appeal to a still-cautious investor base.

In an Oct. 7 upgrade to Calamos, Hedden cited Calamos's "solid long-term investment track record," arguing it should benefit from "improving flow trends. In Tuesday's report, KBW cites Calamos as one of several fund managers, including

Affiliated Managers Group

(AMG) - Get Report

, Franklin Resources, Invesco,

Janus

(JNS)

, T. Rowe Price, and

Waddell & Reed

(WDR) - Get Report

that would benefit if retail investors return to the markets, as KBW expects will eventually occur.

In Tuesday's report citing Calamos as a top pick for 2011, KBW calls the asset manager "an extremely cheap stock," by a couple of different multiples. It trades at just over four times enterprise value divided by EBITDA and just under 10 times 2011b earnings per share estimates.

--

Written by Dan Freed in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.