Legg Mason Inc.LM

Morningstar Rating

Stock Research and Analysis

by Greggory Warren, CFA

Legg Mason is in a considerable bind. Underperformance in its equity and fixed-income operations have led to significant outflows from its funds, while concerns about its financial health have crept up because of the firm's heavier debt load and exposure Read more

Bulls Say

Legg Mason is one of the largest asset managers in the United States, overseeing more than $630 billion in assets (at the end of fiscal 2009) through its control of more than 16 different asset managers.

The majority of Legg Mason's domestic funds were beating their Lipper category average on a one-, three-, five-, and 10-year total return basis at the end of June, a marked improvement from the last few quarters.

Bill Miller seems to have gotten some of his groove back, with Legg Mason Value Trust up 29% in the most recent quarter and posting a 14% return through the first six months of calendar-year 2009.

Net fund flows improved during the June quarter, with Legg Mason reporting $30 billion in investor outflows versus $44 billion in the March 2009 quarter and $77 billion in the period before that.

We believe that should Legg Mason continue to struggle, the firm could still garner between 1.0%-1.5% of its AUM in a potential takeout based on the strong positioning of its fixed-income operations. Read more

Bears Say

Underperformance in both its equity and fixed-income funds led to significant investor outflows last year, with the majority of the redemptions coming from Legg Mason's institutional clients.

Western Asset Management was hard hit during the market downturn, with institutional funds such as Western Asset Core Bond WATFX posting a negative total return of 10.8% in 2008 (versus a 4.8% gain for rival fund PIMCO Total Return PTTRX).

After besting the market for 15 consecutive years, Legg Mason Value Trust's dramatic underperformance in 2006, 2007, and 2008, sparked investor outflows from many of the firm's equity offerings.

Legg Mason recently slashed its quarterly dividend from $0.24 to $0.03 per share. With the SIV issue behind the firm and an improving balance sheet, the timing of the decision is puzzling. Read more

Strategy

Legg Mason has not shied away from acquisitions--Private Capital Management (2001), Royce & Associates (2001), CitiGroup Asset Management (2005), and The Permal Group (2005)--to expand its asset Read more

Management

Mark Fetting has been chairman and CEO of Legg Mason since December 2008, having served as president and CEO from January 2008. Fetting succeeds Raymond "Chip" Mason, the only other chief executive in Legg Mason's 36-year history as a publicly traded Read more

Profile

Legg Mason provides investment management and related services to institutional and individual clients, company-sponsored mutual funds, and other pooled investment vehicles. Read more

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