Are mutual fund stocks about to lose favor on Wall Street? The stocks have been on a run for this decade, handily outpacing broader stock indices, but that may be about to change. This week, JP Morgan downgraded its rating on T. Rowe Price's shares out of concern that the company has "played out" its hand. The Baltimore-based firm is one of the largest pure play fund firms listed on the exhanges.
Kenneth Worthington, a JP Morgan analyst, wrote that he expects brokerage and echanges to outperform asset managers for the rest of the year. His concern is the "significant increase" in valuation that asset managers have seen so far in 2006.
T. Rowe Price, for example, has seen its shares reach a 52-week high as they have gained one third since the start of the year. Asset managers as a group have gained 16.4 percent of the time.
"We are downgrading T. Rowe to neutral as we feel our catalysts have played out," wrote Worthington. "While we continue to think T. Rowe remains one of the best long-term investments in the asset management sector, we seek a better entry point into the stock."
Worthington had pointed to T. Rowe's retirement and institutional business as growth areas. However, the passage of the Pension Protection Act has provided the expected catalyst to move the stock price. He had also noted the firm's increased use of capital to buy back outstanding shares.
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