Non-Tapering: Short-term Impact On Brokers And Asset Managers

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Susquehanna Analysts Doug Sipkin and Justin LaSalle-Tarantin analyze the fallout on asset managers and brokers of the Fed’s decision not to press ahead with the much-feared ‘tapering.’

Non tapering impact on asset management side

Franklin Resources, Inc.(NYSE:BEN) is one of the biggest beneficiaries of the Fed’s largesse. The two heavyweight products of the firm, namely the Templeton Growth Fund, Inc. Class A (MUTF:TEPLX) and on Templeton Global Bond Fund Class A (MUTF:TPINX) had turned in an excellent record during September, and the Fed’s action coming on top of that was an added bonanza.

1-templeton-funds tapering

The passive ETF managers such as iShares are also expected to benefit. Already riding solid inflows (iShares garnered around $10.9B in September) the non-taper could boost flows further into passive ETFs.

2-iShares tapering

Non tapering impact on Brokers’ side

In our earlier article, we highlighted the boom in the capital market activity and its favorable impact on brokers.

The lack of taper, in the short term, could add fuel to the fire. The brokers most likely to gain from a lack of taper are Goldman Sachs Group Inc (NYSE:GS) and Raymond James Financial, Inc. (NYSE:RJF).

Goldman Sachs would benefit from a combination of factors such as a rally in the value of fixed income assets, and the MBS markets.

The iShares S&P Natnl AMT – Free Munpl Bd Fd (NYSEARCA:MUB) reacted favorably to the non-taper as can be seen from the chart below:

3-ishares-mub tapering

The recovery in municipals would affect Raymond James Financial, Inc.(NYSE:RJF) advantageously, and boost this side of the firm’s operations – its  other businesses are already doing well.

The analysts are, however, downbeat about the prospects of LPL Financial Holdings Inc (NASDAQ:LPLA), the fourth-largest broker in the U.S., in the context of the lack of taper. Reason: the flattening fed funds futures curve. According to the analysts this could pressure LPLA’s operations during 2014 and 2015. Amongst the players in this study, the analysts feel LPLA could rank as one of the bigger losers. Asset-sensitive retail brokers, in general, could be impacted, including Morgan Stanley (NYSE:MS).

Here are the ratings of the companies covered in this study:

Franklin Resources, Inc. (NYSE:BEN) – Positive

Goldman Sachs Group Inc (NYSE:GS) – Positive

LPL Financial Holdings Inc (NASDAQ:LPLA) – Negative

Morgan Stanley (NYSE:MS) – Neutral

Raymond James Financial, Inc. (NYSE:RJF) – Neutral

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