Credit Suisse has carved out a list of stocks that it believes will be the biggest beneficiaries of the digital evolution theme among asset managers.
Technological advancement has already been a big theme on Wall Street and the rise of FAANG stock has not gone unnoticed. Financial services industry in the United States is evolving with the technological revolution being ushered in by asset managers. Money managers are using technology to enhance competition, automate core financial functions, increase transparency, and personalise client experience, according to a recent report by Credit Suisse.
Further, portfolio and risk analytics is also being deployed to ease the customer experience. Now, what should investors do to best capture this technology theme being executed by US AMCs? Credit Suisse has carved out a list of stocks that it believes will be the biggest beneficiaries of this theme.
LPL Financial Holdings (Outperform)
LPL’s technology investments include scalable solutions to advisors such as Virtual Admin where it offers a dedicated specialist to reduce daily tasks. “We expect LPL to continue benefitting from several long-term ROCA accretive migrations and LPLA’s gross profit ROA has been stable relative to most brokerage firms,” the report said. The firm continues to take market share, aiding its growth. Since November the stock has zoomed 56% to trade at $119 per share.
Interactive Brokers (Outperform)
Credit Suisse noted that Interactive Brokers operates a digital investing platform that works similar to the D2C offerings of the large US e-brokers. To add to this, the firm has a large global platform with a large portion of its AuA mix from clients in Asia, Europe, and Latin America. “We believe IBKR’s industry-leading operating margin of 60% positions the company to expand its brokerage offering into underpenetrated geographies due to its scalable platform and offer its services to a growing global investor base,” analysts at Credit Suisse said. The firm’s global footprint exposes it to various regulatory headwinds, a key risk associated with it.
Blackstone will acquire DCI, an investment manager that uses a proprietary, fundamental-based, technology-driven model. “DCI is at the forefront of quant investing in the corporate bond market and will aid Blackstone’s in their ability to provide differentiated solutions to clients,” the report added. From its diverse earning sources, Blackstone is expected to generate double-digit fee-related growth. Shares of Blackstone have surged from 29% since the end of October to now trade at $65 apiece.
Aladdin is an operating system of BlackRock used by asset managers, banks and wealth managers. “Today, there are over 55,000 Aladdin users including 15,000 users from BlackRock. BLK continues to enhance Aladdins’ solutions offerings with acquisitions including the $1.3B acquisition of eFront,” Credit Suisse said. The fee stream from the same is expected to grow 10-15% per year. BlackRock is also one of the largest ETF managers in the world with a dominant share across geographies. The stock has jumped 23% since November to now trade at $741 per share.