BlackRock, Inc. (BLK), Charles Schwab Corp (SCHW): Is it Time to Sell Brokerages in Favor of Fund Managers?

Overall, the brokerages appear to be more sensitive to general market uncertainty. Indeed, over the period, BlackRock and Invesco ended with gains of around 10% (5% per year), E TRADE Financial Corporation (NASDAQ:ETFC) and Charles Schwab Corp (NYSE:SCHW), on the other hand, ended the period with losses and a maximum decline of nearly 60%.

Of course, historical performance is not always an indicator of future performance and some factors need to be taken into account when considering how these companies will perform in the future. As the world’s biggest fund managers, BlackRock, Inc. (NYSE:BLK) and Invesco are well placed for future growth, the companies are attracting huge investor inflows and, as I have already mentioned, these companies will continue to attract inflows and fees even during periods of market turbulence. So, they are a good long-term investment play.

On the other hand, the outlook for E*TRADE and Schwab is slightly more cloudy. Both companies have noted rising earnings over the first half of this year as private investors return to the market, trading more, generating more commission and borrowing to trade on leverage. However, in periods of market turbulence, which may or may not be around the corner, these companies might lose money as investors jump ship. And the more severe the turbulence, the longer it takes for investors to come back, extending losses.

Foolish summary

All in all, discount brokerages have had a good run so far this year, but attractive valuations and stronger cash returns are on offer in the fund managers sector. Invesco Ltd. (NYSE:IVZ) and BlackRock offer a better long-term investing outlook as these fund managers will always be collecting income from managing investors’ assets while discount brokerages will only profit when there is a positive tone in the market.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends BlackRock, Inc. (NYSE:BLK).

The article Is it Time to Sell Brokerages in Favor of Fund Managers? originally appeared on Fool.com and is written by Rupert Hargreaves.

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