Deutsche Bank upgraded BlackRock and Eaton Vance shares to a Buy, citing “powerful” demand for sustainable investing that could bring a tide of cash to the asset-management companies,
Asset growth at both firms can average “5% or better,” beating their peers, the bank said. That would allow both stocks to trade at premiums to the asset-management group, according to Deutsche analysts led by Brian Bedell.
Asset managers “have an opportunity to substantially enhance organic growth” by developing products focused on offering a positive impact in terms of ESG, or environmental, social and governance factors, Deutsche Bank wrote. Many asset managers have been embedding ESG into their investment processes, it said, but strategies specifically focused on ESG are doing far better at attracting assets.
That trend is expected to continue “given rising awareness of ESG issues globally and the greater importance younger generations place on investing for ESG impact,” the bank said. This year, growth in sustainable investing jumped as concern over climate change mounted and the Covid-19 pandemic highlighted the importance of social issues, it said.
According to one survey from Federated Hermes Investors, nearly two-thirds of respondents now consider social factors as part of their investment process.
In the past, one hurdle for ESG investing was a perception that such funds underperform relative to others, or that investing with a social purpose would violate fiduciary responsibility. That has been the position of the Labor Department, which is weighing an unpopular proposal to curb ESG options in 401(k) retirement plans.
Those concerns are unfounded, Deutsche Bank suggested, because investors don’t appear to be sacrificing performance by buying ESG funds. Funds not explicitly identified as ESG, but ranked as highly sustainable by Morningstar, also perform well.
BlackRock (ticker: BLK) has said it will put sustainable investing at the heart of its investment process. Calvert Research & Management, a unit of Eaton Vance (EV), is a prominent practitioner of sustainable investing.
Most asset managers can probably use existing capabilities to create ESG-focused products, but the two managers that are best positioned are BlackRock and Eaton Vance, Deutsche Bank said.
Deutsche raised its price target on BlackRock to $654 a share, up from $576. It raised its price target for Eaton Vance to $45 from $38.
Eaton Vance was trading at $39.28 in mid morning, while BlackRock was at $573.81.
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