July 6 (Reuters) - J.P.Morgan Securities upgraded Franklin Resources (BEN.N) and T Rowe (TROW.O), and downgraded Eaton Vance (EV.N) and Federated (FII.N), saying it prefers equity managers over fixed income managers due to the recent strength in equity markets and the likely impact on future earnings.
“We realign our ratings (on asset managers) for the second half of 2009 based on improvements in global market returns versus domestic returns... and the eventual negative impact we expect higher rates will have on money funds,” analyst Kenneth Worthington wrote in a note to clients.
He downgraded Eaton Vance Corp and Federated Investors Inc by a notch each to “underweight,” but raised his rating on Franklin Resources Inc to “overweight” and T Rowe Price Group Inc to “neutral” on improved performance. He previously rated both Franklin and T Rowe “underweight.”
Franklin has a large international business that stands to gain from a weaker dollar, Worthington said.
On the other hand, high fixed-income concentration at Federated and the deteriorating performance at some key Eaton Vance funds could cause both stocks to lag those of peers, Worthington said.
The two also lack a meaningful international business to help offset their exposure to fixed income markets, he added.
But, Worthington said he continues to believe the asset management sector is investible at current valuations.
“However, since we have little conviction on the direction of the equity markets, we support a more market-neutral stance on the traditional asset management sector with an equal number of overweight and underweight ratings,” he added.
Shares of T Rowe closed at $39.50 Friday on Nasdaq, while those of Eaton Vance, Franklin and Federated closed at $25.50, $69.74 and $23.15, respectively, on the New York Stock Exchange. (Reporting by Tenzin Pema in Bangalore; Editing by Himani Sarkar)