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Morningstar | 4Q Equity Market Sell-Off Leaves Janus Henderson in a Weaker Spot Coming Into 2019

A confluence of several issues--poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel--has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While we believe there will always be room for active management, the advantage when it comes to getting placement on platforms will probably go to those asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees.With an estimated $350 billion in managed assets at the end of 2018, Janus Henderson has the size and scale to be competitive in the industry and is structurally set up to hold on to assets regardless of market conditions, being somewhat diversified across its four main asset class segments--equities (close to two thirds of managed assets), fixed income (a fifth), multi-asset and alternatives (the remainder). But this has not always translated into solid organic growth or above-average profitability, with the firm's adjusted operating margins of 27.3% on average during fiscal 2013-17 being below the group average of 30%.During 2013-17, the firm's organic growth rate averaged negative 4.5%, with a standard deviation of 4.5%, worse than the average of its publicly traded peers at positive 0.5%, with a standard deviation of 6.3%, with revenue growth and operating margins both trailing the results from the 12 U.S.-based asset managers we cover. Given that we expect the industry to continue to face stiff cyclical and secular headwinds, we envision Janus Henderson's organic growth averaging negative 3.4% annually during 2018-22, with revenue growth and operating margins affected by industry fee compression and the need to spend more to enhance performance and distribution.