(By Balachander) BMO Capital downgraded rating on shares of Legg Mason Inc. (NYSE: LM) to "underperform" from "market perform", saying the company is not as well positioned as peers.
The brokerage believes Legg Mason is not as well positioned to participate in a potential rotation to equities relative to peers given its high weighting of 78 percent of AUM in fixed income and liquidity mandates.
While equity fund performance at Legg's affiliates has improved recently, just 47 percent of equity mutual fund AUM ranks in the top half of its Morningstar peer group for the trailing three years, and there is a lag between improved performance and when products get back on the radars of advisors and investors, BMO wrote.
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BMO has a price target of $26 on the stock.
"If the recent strength in equities and equity flows proves to be short lived, we believe Legg Mason still faces fee rate pressure given its mix shift over the past 16 months to less equity and more liquidity AUM," the brokerage said.
BMO also expects 2013 net new asset growth for Legg to be the lowest in our coverage with -0.3 percent growth compared to +3.8 percent for peers.
The company has gaps in its current product offering, including alternatives and global equities, and BMO believes it may take time for these gaps to be filled.
Legg Mason is a global asset management firm, with $649 billion in assets under management as of December 31, 2012.
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LM shares, which have been trading in the 52-week range of $22.36 to $29.49, traded 0.64 percent higher at $26.70 on Tuesday.