Why This Analyst Names BlackRock, Victory Capital His Top Asset Manager Stock Picks

In a volatile market and unpredictable macroeconomic backdrop, investors can look to trends among professional asset managers to get an idea of how smart money is positioning for the remainder of 2022. On Tuesday, Bank of America analyst Craig Siegenthaler highlighted four trends he has observed among traditional asset managers.

Asset Manager Trends: First, he says there has been a secular shift from active management to passive management, which included an acceleration of passive equity net flows in March compared to February. Siegenthaler said this secular shift from active to passive management also includes bond flows as well.

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Second, Siegenthaler has observed a secular shift from U.S. equities to global equities. He said this trend at least temporarily reversed in March. U.S. equities outperformed global equities, and European, Japanese and non-Japanese Asian equities all experienced net outflows.

Siegenthaler also reported a reversal of the cyclical trend of money flowing from equities to fixed income investments. In March, most fixed income segments registered negative net flows, with U.S. Treasuries, U.S. corporate bonds and bank loans as notable exceptions.

Finally, he said money market flows experienced a modest inflow in March despite tax season typically serving as a seasonally weak period for money market flows.

How To Play It: For investors, Siegenthaler said there is limited opportunity at the moment among traditional asset manager stocks, but he recommends BlackRock, Inc. BLK and Victory Capital Holdings Inc VCTR as top picks.

"We remain cautious on the traditional asset managers due to the prospects of decelerating EPS growth driven by softer organic growth, fee pressure, negative operating leverage and volatile market backdrop," he said.

Benzinga's Take: For both Wall Street and Main Street investors, the next several quarters are going to be all about how aggressively the Federal Reserve raises interest rates and how much of an impact those rate hikes have on inflation numbers that are at more than 40-year highs.