The financial sector has been hit hard since the beginning of March. The collapse of SVB Financial's Silicon Valley Bank, Signature Bank, and most recently First Republic has left investors uneasy about financial stocks.
The Financial Select Sector SPDR Fund is down nearly 9% since March, but that doesn't mean you should ignore all financial stocks because of this. Some asset managers have done an excellent job accumulating assets while boasting strong balance sheets and solid dividend payments.
Two blue-chip asset managers that should be on your radar are BlackRock (BLK 0.98%) and T. Rowe Price (TROW 0.90%). Here's why these stocks are solid buys in May, despite turbulence in the financial sector.
1. BlackRock is the world's largest asset manager
With more than $9 trillion in assets under management (AUM), BlackRock is the world's largest asset manager, ahead of Vanguard and Fidelity. BlackRock's key to success is its wide array of investment products for clients. The asset manager offers 1,250 products globally, including index and exchange-traded funds (ETFs) covering assets such as equities, fixed-income, and alternative investments.
Image source: Getty Images.
What put BlackRock on the map was its purchase of the iShares brand, which it acquired from Barclays in 2009. Before that, BlackRock was the fourth-largest asset manager, with $1.1 trillion in AUM. Its strategic move kick-started over a decade of AUM growth, thanks to the growing popularity of passive investing. Passively managed funds have grown in popularity because of their lower fees and the ease of buying them through ETFs.
Data source: BlackRock. Chart by author. *2023 data is as of Q1.
More recently, BlackRock has benefited from the rising-interest rate environment. Bond investments have become more appealing for investors than they have been in years, thanks to higher yields. For example, interest rates on government bonds have risen to levels not seen since 2007.
Fixed-income products are one of BlackRock's numerous investment products, including ETFs on Treasury bonds, investment-grade debt, and municipal bonds. Last year, BlackRock saw a record $123 billion flow into these funds. Strong trends persisted in the first quarter, as another $34 billion flowed into its bond ETFs. BlackRock's investments span the yield curve, which investors can use to manage risk and shift to safe-haven assets during this time of uncertainty.
BlackRock is a huge player in capital markets because of its numerous investment offerings. Its products are popular with professional money managers and retail investors alike because they can easily gain exposure to various asset classes through its ETFs.
Given its role in the financial markets, BlackRock is one solid stock you can buy and hold for the long haul.
2. T. Rowe Price has shown stability across market cycles
T. Rowe Price is a respected name in asset management, with one of the industry's largest, well-known mutual fund families. The asset manager provides global investment management services and offers U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other sponsored products. With $1.3 trillion in AUM, T. Rowe is the 10th-largest asset manager in the U.S.
Unlike BlackRock, T. Rowe focuses most of its efforts on active management, which has waned in popularity in recent years. Active management is where a team of investors manage an investment portfolio, making buy, hold, or sell decisions on behalf of investors to attempt to beat some designated benchmark.
According to data from Statista, actively managed funds went from accounting for 79% of total assets managed by investment companies in 2011 to 57% of total funds in 2021. Despite this, T. Rowe has performed exceptionally well in the last decade, increasing its AUM by 10% compounded annually. This even considers the 24% drop in AUM last year, primarily due to asset price declines and not client withdrawals.
Active investing has come under pressure in recent years, but I don't think it's all over for active managers. That's because active managers can outperform in challenging market environments like the one we're in today. According to research from Hartford Funds Management Group, over the past 35 years, active managers have outperformed in 18 of those years. If volatility in the market persists, active managers could see investor interest in their funds return.
T. Rowe Price has done a stellar job of navigating various market cycles, as evidenced by 37 years of raising its dividend payout. The company has accomplished solid growth despite the shift toward passive investing. It also boasts a strong balance sheet, with $2 billion in cash and no long-term debt, making this asset manager a solid addition to your diversified portfolio.
