Why Asset Managers Will Do Well

Yesterday I shared some thoughts about the aging of the population and how that changing demographic situation can be a boon to health as well as death care stocks. In digging deeper into the population data and consulting other data from the Employee Benefit Research Institute (ERBI), there are several reasons to be thinking about shares of asset managers and even online brokerage firms. Before we get to the scary data, here's the backdrop ¿ according to U.S.Debtclock.org, the current population stands at nearly 319 million, with the workforce at roughly 146 million and about 49 million retired. Given current demographics and the sheer number of people retiring over the next several years, the retirement category is poised for further growth. Or so you would think, given the assertion that 10,000 baby boomers are retiring each day. But when you consider some other data points, like the one from the Federal Reserve Board (FRB) that says nearly a third of U.S. adults said they had no savings or pension to help them afford retirement, we have to at least question that assertion. Worse yet, the FRB also found that of the people surveyed between the ages of 55-65, 19% had no savings. Given those findings, it's not all that surprising the ERB's 2014 Retirement Confidence Survey found that 33% of workers expect to retire after age 65, and 10% don't plan to retire at all. Very different from the early 1990s, when more than 85% expected to retire by age 65. Once you digest that little nugget, it may not surprise you as much to learn that 57% of Americans have less than $25,000 in household savings and investments (excluding their home and pension benefits) and American households are so strapped, that only half could come up with $2,000 in cash if an unexpected need arose in the next month. That data also comes from the ERBI and, while not exactly pleasant, it is rather sobering. Now, I could get all Negative Nancy, but over the last few months we've seen the savings rate climb and according to the Investment Company Institute we've had net inflows into equity and bond investments every month for the last eight months. Are people waking up to the longer-term pain point of what may happen if they don't start saving? Could be, or they could simply be throwing their hands up and chasing the bull market we've had. Given what we're seeing on the retail front from a number of different companies that have either missed expectations and or announced weaker-than-expected second halves of 2014, perhaps we are seeing a shift in consumers from spenders to savers? If we continue to see these positive inflows over the next few months, not only is the stock market likely to trend higher ¿ and given the improving manufacturing economy and continued low rates I think it will ¿ but companies like Calamos Asset Management (CLMS), Waddell & Reed (WDR) and Artisan Partners (APAM) as well as online brokerage firms like TD Ameritrade (AMTD), Charles Schwab (SCHW) and others could move higher. Some simple screening suggests more work should be done on Waddell & Reed as the shares are down 13% year-to-date, even though the company is tracking to deliver earnings of $3.77 per share this year, up from $2.96 per share last year. With upside into the low-to-mid $60s, there's 15%-16% upside before factoring in the 2.4% dividend yield. While that's certainly attractive, the risk-to-reward tradeoff is far stronger in the low $50s.

Why Asset Managers Will Do Well

Many cash-strapped households need to ramp up their savings.

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