10 Investors' Stocks Beating the Market (Update2)

(Story updated to add that Legg Mason reported assets under management of $638 billion as of the end of February.)

BOSTON ( TheStreet) -- The financial-services sector, and asset managers in particular, has come roaring back this year amid signs of economic growth and an apparent resolution of the sovereign debt crisis in Europe.

The positive outlook from investors has also renewed confidence in asset management firms, which are benefiting from higher trading volume and money inflows to their funds this year, even as they battle to stanch the run-off of the past few years to inexpensive, passively managed index funds or exchange traded funds after several years of funds' underperformance.

As a result, the leading asset management companies' stocks are posting double-digit gains in 2012.

Shares of companies in the asset management company category, as tracked by Morningstar, are up an average of 19% this year, versus the benchmark S&P 500's 12% gain. Two of the biggest fund management firms, Vanguard Group and Fidelity Investments, aren't publicly traded.

On Friday, S&P Capital IQ upgraded the asset management and custody banks sector to "positive" from "neutral" because "so far this year, fund flows have done a turnaround with new investments coming into long-term funds.

"We observe a shift in investor sentiment toward the positive as many 2011 fears have been put to rest or at least tempered."

The Investment Company Institute reported investor inflows to bond and equity funds of $35.6 billion in January, the first positive month of inflows after outflows over the last seven months of 2011.

That trend picked up speed in the following six-week period with inflows of $59.6 billion through the first week of March.

But bond funds are the biggest beneficiaries. For example, investors pulled $126 million out of mutual funds that buy domestic and foreign stocks during the the first week of March, while $10.7 billion flowed into mutual funds that invest in bonds, ICI reported.

But, in the long term, the outlook for the industry should be bright as baby boomers continue to add to their retirement nest eggs. S&P says that "over the next 10 years, there should be a significant increase in retirement investments."

Most big, national banks also provide money management and advisory services, but many sold off their mutual fund units after the financial crisis. Only a few, such as Bank of America ( BAC) and its Merrill Lynch money management unit, and investment bank JPMorgan Chase ( JPM), still rely on asset management as growth drivers, especially JPMorgan.

Bank of America's global wealth management unit brought in more than $15 billion in net new assets in 2011 and generated net income of $1.6 billion. Bank of America shares have rocketed 66% this year.

JPMorgan, now one of the 10 largest U.S. stock and bond fund managers, saw huge growth last year of almost $50 billion in assets under management. Its shares are up 35% this year.

Here, in inverse order of returns this year, are 10 asset management firms that are benefiting from increased investor activity:

10. T.Rowe Price ( TROW)

Company profile: T. Rowe Price, with a market value of $17 billion, provides asset-management services for individual and institutional investors.

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 37%. Analysts give its shares four "buy" ratings, three "buy/holds," 16 "holds," and one "sell," according to a survey of analysts by S&P. But S&P upgraded it to "strong buy" from "hold," on March 6 with a price target of $73, which is a 16% premium to its current price. Assets under management grew by 2% last year. S&P says "We think good relative performance of (its) mutual funds will continue to drive asset growth. For the three years through 2011 as 76% of the firm's funds outperformed their comparable Lipper averages."

9. State Street ( STT)

Company profile: State Street, with a market value of $22 billion, is one of the largest trust banks worldwide, combining banking, asset servicing, and asset-management operations. At year end, State Street had nearly $1.9 trillion in assets under management, and nearly $22 trillion in assets under custody.

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 27%. Analysts give its shares seven "buy" ratings, nine "buy/holds," six "holds," and one "sell," according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate that it will earn $3.90 per share, growing by 15% to $4.48 per share in 2013. S&P reiterated its "buy" rating on March 14. It just got a clean bill health in the Federal Reserve's stress tests and subsequently said last week that it is raising it dividend and initiating a new share buyback program. It said it will repurchase up to $1.8 billion of its shares through March 31, 2013. The new program follows a previous authorization completed in November under which it purchased roughly $675 million worth of its stock. It also raised its quarterly dividend to 24 cents per share, up from 18 cents.

8. BlackRock ( BLK)

Company profile: BlackRock, with a market value of $37 billion, is the world's largest asset manager, with more than $3.5 trillion in assets under management.

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 27%. Analysts give its shares seven "buy" ratings, five "buy/holds," and nine "holds," according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate that it will earn $13.08 per share, growing by 14% to $14.91 per share in 2013.

7. AllianceBernstein Holding ( AB)

Company profile: AllianceBernstein, with a market value of $1.6 billion, offers investment management services to institutional, retail and private clients, through its mutual funds, hedge funds, and separately managed accounts. At the end of January it had $421 billion in assets under management.

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 13%. Analysts give its shares six "holds," two "weak holds," and three "sells," according to a survey of analysts by S&P. It's expected to earn $1.03 this year, growing to $1.17 in 2013. S&P has its shares rated "strong sell" because of asset redemptions and outflows, particularly from institutional investors "as a result of a relatively poor investment track record since 2008, particularly in equities."

6. Legg Mason ( LM )

Company profile: Legg Mason, with a market value of $4.1 billion, provides investment management services for institutional and individual investors. It had $627 billion in managed assets at the end of 2011. Last week it reported managed assets of $638 billion, a 1% increase from January, including the previously announced divestiture of Bartlett & Co. that reduced such assets by $2.8 billion.

Investor takeaway: Its shares are up 22% this year and have a three-year, average annual return of 27%. Analysts give its shares two "buy" ratings, two "buy/holds," 12 "holds," two "weak holds" and one "sell," according to a survey of analysts by S&P. For fiscal 2012, analysts estimate that it willearn $1.49 per share, growing by 34% to $1.99 per share in 2013.

5. Eaton Vance ( EV)

Company profile: Eaton Vance, with a market value of $3.4 billion, Eaton Vance provides asset management and investment advisory services to institutional and individual investors and specializes in tax-managed equity and fixed-income investments. It is also an issuer of closed-end funds. It had $188 billion in assets under management late last year.

Investor takeaway: Its shares are up 23% this year and have a three-year, average annual return of 17%. Analysts give its shares one "buy" rating, 10 "holds," two "weak holds," and one "sell," according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate it will earn $1.89 per share and that will grow by 12% to $2.12 per share in 2013.

4. Franklin Resources ( BEN)

Company profile: Franklin, with a market value of $27 billion, provides investment services for individual and institutional investors. With $727 billion in assets under management, it's one of the world's largest asset managers. It's expected to earn $8.77 per share this year.

Investor takeaway: Its shares are up 31% this year and have a three-year, average annual return of 40%. Analysts give its shares five "buy" ratings, five "buy/holds," 11 "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has it rated "buy" with a $128 price target, a 6% premium to the current price.

3. Invesco ( IVZ)

Company profile: Invesco, with a market value of $12 billion, provides investment management services for individual and institutional investors under the Invesco, Van Kampen, Trimark, Perpetual, Atlantic Trust, PowerShares, and W.L. Ross brand names. It more than $625 billion in assets under management, about one-third from outside the U.S.

Investor takeaway: Its shares are up 32% this year and have a three-year, average annual return of 31%. Analysts give its shares six "buy" ratings, 11"buy/holds," and three "holds," according to a survey of analysts by S&P.

2. Federated Investors ( FII)

Company profile: Federated, with a market value of $2.3 billion, is a provider of asset management services for institutional and individual investors.

Investor takeaway: Its shares are up 47% this year and have a three-year, average annual return of 9%. Analysts give its shares nine "holds," two "weak hold," and four "sells," according to a survey of analysts by S&P. As a big manager of money market funds, with slightly more than $285 billion in such assets at the end of 2011, historically low interest rates have made it difficult for Federated to maintain positive yields on these funds and industry-wide, investors have also moved to higher-yielding assets elsewhere.

1. Janus Capital ( JNS)

Company profile: Janus Capital, with a market value of $1.8 billion, is a provider of investment management services to individual and institutional investors.

Investor takeaway: Its shares are up 49% this year and have a three-year, average annual return of 22%. Analysts give its shares three "buy" ratings, two "buy/holds," 11 "holds," two "weak holds," and one "sell," according to a survey of analysts by S&P.

S&P, which has the stock rated "hold," said "we believe that shareholders will benefit from holding Janus over the long term, we think the company will face near-term challenges from the relatively weak performance of many of its equity mutual funds, which has prompted many investors to pull their funds and re-deploy them elsewhere."

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

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