How I Made $5000 in the Stock Market

Their Funds May Not Beat the Market. Their Stocks Just Might.

Oct 03, 2025 01:00:00 -0400 by Ian Salisbury | #Mutual Funds #Funds Quarterly

(Illustration by Lisk Feng)

The fund industry faces big hurdles, but these three asset managers have been unjustly dismissed.

Key Points

T. Rowe Price Group has some great stockpickers at its funds. But owning shares of T. Rowe itself wouldn’t have done them any favors. While the S&P 500 index has more than doubled over the past five years, T. Rowe’s stock has barely budged.

T. Rowe isn’t the only fund company struggling to keep up in recent years. Franklin Resources’ stock hasn’t fared much better. Nor has Invesco ’s. Going back a decade, the only major fund company to beat the S&P 500 is BlackRock, edging out the market by a percentage point on an annualized basis.

While the industry faces big hurdles, investors might want to pick up some of their stocks. BlackRock, the leader in exchange-traded funds, has a slew of new products and growth initiatives, including crypto and private assets. Invesco is gaining assets under management, largely thanks to its innovative ETFs and efforts to expand outside the U.S.

T. Rowe, by contrast, continues to lose assets and hasn’t gained much traction with new products. A stretch of underperformance by some of its top funds isn’t helping. But the stock is cheap at 11 times earnings, well below its five year average of 14. It has a 5% dividend yield that looks well covered.

Moreover, T. Rowe recently got a vote of confidence from Goldman Sachs, which says it’s investing up to $1 billion in the Baltimore-based company. As part of the deal, the companies say they’ll collaborate on a new line of target-date strategies that include private assets overseen by Goldman.

T. Rowe declined to comment for this article, although CEO Rob Sharps earlier told Barron’s the deal allowed T. Rowe to “accomplish some things…we wouldn’t be able to accomplish on our own.”

Mutual fund companies’ problems are years in the making, and in some ways there are no easy fixes.

Assets keep shifting to index funds that charge far lower fees than active managers. Led by Vanguard, index funds now control just over half the $33 trillion in the fund industry’s long-term assets, not including money-market funds. In all, active funds have bled more than $2 trillion in assets over the past decade.

The mutual fund industry has found no way to address a longstanding problem: Most active managers fail to beat index funds over long periods. The industry has also struggled to stop ETFs from capturing a larger share of assets, even as fund companies keep launching ETFs of their own, in some cases as clones of their mutual funds.

ETFs, which trade like stocks, are more tax-efficient and offer daily liquidity and, in most cases, lower costs. Investors have voted with their dollars: ETFs now hold $10 trillion in assets, with over 90% in index funds and the rest in active strategies.

ETFs are also moving rapidly into growth areas like crypto and private assets. Mutual fund companies are trying to catch the wave, launching some ETFs and alternative strategies like private-credit funds. But they have been slower to catch on and aren’t moving the needle on the companies’ bottom lines.

One other major hurdle for mutual funds: baby boomers. As they have retired, they have gone from contributing to 401(k)s to draining them. Boomers in retirement also tend to shift from stocks to bond strategies that generate lower fees than actively managed stock funds.

Boomers’ enormous numbers compared with Gen Xers mean the outflows from 401(k)s aren’t likely to let up, according to research firm Cerulli Associates. “Barring some significant changes, like people saving or higher employer contributions, we’re expecting outflows for the foreseeable future,” says analyst Chris Bailey.

Pressures aside, the fund industry remains solidly profitable. Since companies charge fees based on assets they oversee, in a rising stock market they’ve managed to grow their bottom lines even as they lose customers.

With share prices low, the sector looks ripe for bargain hunting. “It’s about market share—how do you capture new markets, new ideas, new investors,” says Erich Patten, co-manager of the dividend-focused Cutler Equity fund, which owns BlackRock among its top five holdings.

BlackRock has become the world’s largest asset manager, in part by continually transforming itself. Originally a bond shop, the company acquired iShares for $13.5 billion in 2009, just as ETFs were going mainstream. While iShares has lost ETF market share, it remains the largest player in the business with $4.7 trillion in ETF assets, nearly 40% of BlackRock’s $12.5 trillion total as of June 30.

BlackRock has moved into alternatives, acquiring Global Infrastructure Partners for $12.5 billion last year and private credit manager HPS Investment Partners for $12 billion in July. BlackRock now oversees about $600 billion in alternative assets. To put that in context, KKR , one of the industry’s major stand-alone players, oversees about $680 billion.

BlackRock’s size and iShares brand have helped the company muscle into the crypto market. Last year, when the SEC approved spot Bitcoin ETFs, nearly a dozen funds launched on the same day. BlackRock’s marketing muscle helped its iShares Bitcoin ETF amass nearly $90 billion in assets, three times its next-largest competitor.

Along with its Bitcoin ETF and a similar fund tracking Ethereum, BlackRock recently launched its first Bitcoin exchange-traded product in Europe and has a partnership with stablecoin company Circle Internet Group.

These crypto initiatives are flowing to its bottom line. The iShares Bitcoin ETF alone may be generating $225 million in annual revenue, based on an annual expense ratio of 0.25%. Nearly a third of investors who came to BlackRock through the Bitcoin ETF went on to purchase other iShares products, the company noted on its recent conference call.

BlackRock isn’t without its misses. CEO Larry Fink tried to push it into ESG (environmental, social, and governance) funds and stewardship with limited success. In the Trump era, Fink has largely let the issues drop. BlackRock hasn’t named a successor to Fink, 72, and it’s unclear how long he’ll stay CEO. (A BlackRock spokesman declined to comment.)

BlackRock stock would suffer if markets veered into a downturn, pressuring assets under management and fees. The stock isn’t cheap at 23.5 times forward earnings, in line with the S&P 500.

Still, investors may not be factoring in its growth potential. Wall Street analysts forecast earnings growth of 9% to 10% in 2025 and 2026. BlackRock’s PEG ratio—which compares a stock’s forward price/earnings ratio to its projected growth rate—is 1.6, below the market average of 2.0.

The company is steadily returning cash to shareholders. BlackRock’s 1.8% dividend yield isn’t as high as some rivals, but compares favorably to the S&P 500’s 1.1%. In the past year, it’s spent $1.5 billion on share repurchases.

Given the company’s history of attracting inflows and success in the alternative space, “the shares merit a premium” relative to peers, according to CFRA analyst Cathy Seifert, who rates the stock a Buy. She thinks the stock’s multiple can expand to 26 times 2025 earnings, which implies gains of about 10% from recent prices.

Invesco is another fund manager that has transformed itself with ETFs. Like BlackRock, Invesco bought into the game, acquiring ETF provider PowerShares in 2006 and Guggenheim’s ETF business in 2017. Today Invesco is the fourth-largest ETF player with around $940 billion in ETF assets, including more than $380 billion in the mammoth Nasdaq 100-tracking Invesco QQQ.

The ETFs, which account for about half Invesco’s $2 trillion in global assets, have helped the company attract new investor dollars at a time when competitors have seen them leach away. Invesco’s overseas operations, especially in India and a joint venture in China, have also contributed. All in all, investors poured a net $33 billion into Invesco’s funds during the first six months of the year, more or less on pace to match last year’s $65 billion.

One knock against ETFs is that, while they excel at collecting assets, their minuscule fees translate into skimpy profits for fund firms. Invesco may have found a way to make QQQ, its crown jewel, more lucrative while also lowering fees investors pay. The plan is to convert the ETF’s legal structure from a unit investment trust to a structure used by most ETFs.

The change, which should slightly lower the fund’s annual fees, will require fundholder approval later this year. For Invesco, it could lead to an extra $150 million in annual revenue by allowing the company to keep a greater share of investor fees, much of which would drop straight to the bottom line, since there would be few additional costs involved.

Invesco trades at about 13 times 2025 earnings, about half the market average. Argus Research analyst Stephen Biggar thinks it can ratchet up to 14 times in the next 12 months, implying upside of about 10%.

TD Cowen’s Bill Katz is more optimistic. He sees 30% upside on the stock, arguing it should trade at 11 times his estimate for annualized fourth-quarter 2026 earnings thanks to a “superior” outlook for long-term inflows.

T. Rowe may be the deepest value and riskiest bet. At just 11 times forward earnings, it’s one of the cheapest fund managers on the market. It’s cheap for a reason: Assets keep draining away. The company reported $24 billion in net outflows in the first half of 2025 after seeing $43 billion depart in 2024.

While the company has around two dozen ETFs, they have enjoyed only modest uptake. The largest, T. Rowe Price Capital Appreciation Equity, has garnered around $5.7 billion. It remains a minnow compared with the $70 billion traditional mutual fund that serves as a counterpart in T. Rowe’s line up.

There have been some bright spots. One is target-date funds. These are the all-in-one funds that have become popular as default investments in 401(k) plans. T. Rowe Price’s highly regarded lineup has grown to $500 billion, helping offset outflows elsewhere.

Another potential growth area is alternative assets. T. Rowe launched a private credit fund over the summer and now manages $55 billion in alternatives, about 3% of its total assets under management. Goldman may help expand that. The idea is to create a range of new products that combine T. Rowe Price’s stock-bond expertise with Goldman’s strength in private assets. The companies aim to market the products to both of their client bases.

To win over investors, T. Rowe will have vie with a different set of asset managers, such as Ares Management, Apollo Global Management, and KKR. Still, the public and private asset industries are melding, as alternative managers attempt to “democratize” access to real estate, private credit, and more. The Trump administration is even pushing for these assets to find their way into 401(k)s, providing opportunities for fund companies to build partnerships—or better yet, steal from the private-asset playbook.

T. Rowe still benefits from a strong brand, and while some funds have underperformed recently, that will likely improve, according to Morningstar analyst Greggory Warren. The company has a “consistent record of active fund outperformance,” along with reasonable fees, both of which should help distinguish it from rivals, he wrote in a recent report.

Even with its struggles, T. Rowe could have appeal as yield play. Its dividend looks safe. The company, expected to generate $2 billion in net profit for 2025, has no debt and $3 billion in cash on its balance sheet. The dividend costs just $1.1 billion a year. T. Rowe also spent around $470 million on share buybacks in the past 12 months.

T. Rowe also has history on its side—it’s a so-called Dividend Aristocrat, a club of companies that has paid and raised dividends consistently for at least 25 years. Its challenge, like many proud but faded aristocrats, is how to fit into a changed world. Investors can earn 5% while waiting for T. Rowe to figure it out.

Write to Ian Salisbury at ian.salisbury@barrons.com