Despite the surge in popularity of exchange-traded funds (ETFs), traditional asset managers and their stocks have been left in the dust. Over the past year, stocks of companies such as T. Rowe Price and Affiliated Managers Group have slumped by 11%, while the S&P 500 index has risen by 20%. However, there is still hope for these companies to regain their footing and make a comeback in the race.

To assess the potential gains for traditional money managers, we conducted a screen based on analysts' predictions. Our screen focused on the total return, which consists of the upside to the consensus target price and the dividend yield.

One company that stands out in this sector is BlackRock, known for leading the charge into ETFs with its iShares business. It has successfully achieved significant growth in assets under management and has garnered a strong following on Wall Street. Currently, the company's stock is trading at a cash earnings multiple of around 20-times this year's earnings forecast, which is on par with the S&P 500 index.

BlackRock has numerous admirers, including Morgan Stanley's Michael Cyprys, who predicts that the company's earnings will grow at an impressive annual pace of over 10%. This growth can be attributed to strategic acquisitions like the recently announced deal for General Infrastructure Partners and innovative ventures such as the iShares Bitcoin Trust ETF.

Cyprys rates BlackRock as a "Top Pick" and believes that the stock, currently priced at $787, could potentially rise by 27% to reach $1,000. However, when considering the Wall Street consensus gathered by FactSet, the projected upside to the stock is more modest at 13.5%. However, when factoring in a dividend yield above 2.5%, analysts forecast a total return of 16% for BlackRock over the next 12 months.

The Less-Loved Managers: A Tale of ETFs and Outflows

The rise of ETFs has revolutionized the asset management landscape, with BlackRock leading the way. However, not all managers have been quick to adapt, and they may be paying the price.

BlackRock Reigns Supreme

Among the managers who were slow to embrace ETFs, some have experienced significant outflows in their assets under management. T. Rowe Price, Affiliated Managers, Invesco, Federated Hermès, and Franklin Resources are among the names that come to mind. Currently, their shares trade at only half the forward multiple of cash flow when compared to BlackRock.

The Race to Catch Up

Recognizing the importance of ETFs, these managers are now striving to catch up. One such example is Affiliated Managers, based in West Palm Beach, which is not only expanding its ETF offerings but also venturing into alternative investing strategies. With excess capital at hand, Affiliated Managers has the flexibility to buy back its stock or make deals to bring in additional affiliate firms. While it doesn't offer a generous dividend, its supporters forecast a 16% upside for its $149 stock in the next year.

Trouble for T. Rowe Price

In contrast, T. Rowe Price has been struggling with substantial outflows from its large-cap stock funds. Although its overall assets under management increased by a net $170 billion in 2023, a staggering $82 billion left throughout the year. In an effort to mitigate this trend, T. Rowe has actively promoted actively managed ETFs as an alternative to its mutual funds. However, this business remains small despite its growth.

A Bleak Outlook

During conference calls, T. Rowe executives expressed hopes that outflows would diminish in 2024. Unfortunately, Wall Street appears pessimistic. Market experts predict a drop in T. Rowe's shares, with the average target price standing 5% below the stock's recent level of $105. Even a 5% dividend yield wouldn't be enough to offset the blow.

A Show Me Stock

All things considered, T. Rowe Price finds itself in a precarious position. As the only traditional asset manager expected to see a decline in shares, it is deemed a "Show Me stock." With numerous challenges ahead, T. Rowe will need to deliver concrete results to regain market confidence.