Stocks of mutual fund companies have been posting solid returns over the last couple of years, buoyed by the strength of the stock market, healthy operating margins and mergers and acquisitions activity, The New York Times reported.

The stock of Legg Mason, for instance, has chalked up an annualized return of about 58 percent since 2003, while T. Rowe Price has registered 44 percent and BlackRock, 49 percent, according to figures from Morningstar.

A batch of six fund firms tracked by Matt Snowling, an analyst with Friedman Billings Ramsay, jumped 22 percent in 2005, and 8.9 percent in the first quarter of 2006, outpacing the broader indexes. The firms include Franklin Resources, Janus Capital, Legg Mason, T. Rowe Price and Waddell & Reed Financial.

In most cases, shareholders of fund companies have been doing much better than shareholders of mutual funds.

"Over the past 20 years you have been better off owning the asset management companies than owning their services," Don Philips, managing director at Morningstar, told the Times.

It has been quite a comeback for mutual fund stocks, which were hit by the stock market downturn of 2001 and 2002, as well as the fund trading scandals which first came to light in 2003.

But with the stock market bouncing back, net inflows to stock, bond and hybrid mutual funds reached $216 billion in 2003 and $210 billion in 2004, almost double the figures recorded in 2001 and 2002, according to the Investment Company Institute.

In addition, operating margins for fund companies remain healthy, despite rising costs brought about by regulatory issues and pressure to slash fees.

Then there's the M&A activity, which helped push up the stocks of firms including BlackRock, which in February announced that it will acquire Merrill Lynch's investment management unit, in a deal that would make it one of the top 10 asset managers in the world.

"A number of the smaller asset management firms have performed well, because some investors believe that there might be more consolidation to come," said Franklin Morton, senior vice president of Ariel Capital Management.  

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