On Wednesday, Deutsche Bank (ETR:) has downgraded Federated Hermes Inc. (NYSE:NYSE: (TSX:)) stock rating from Buy to Hold and adjusted the price target to $43 from the previous target of $45.
The revision reflects the bank’s perspective that the positive trend in money market fund inflows, which has been a key driver for the company’s asset under management (AUM) growth, is likely to decelerate.
Analysts at Deutsche Bank noted that the strong performance of Federated Hermes’ money market AUM during the 2023-24 period is expected to moderate. This is partly due to the anticipated end of the Federal Reserve’s easing cycle, which could diminish the attractiveness of money funds for institutional clients as the yield advantage over short-term treasury instruments narrows.
Despite Federated Hermes showing robust money fund data in the fourth quarter of 2024, with an estimated increase of approximately $30 billion from the third quarter, Deutsche Bank forecasts a slowdown. The bank projects a mid-single digit growth rate of around 5% for 2025, which is anticipated to further slow to about 3% in the years 2026-27.
The bank’s downgrade stems from the belief that the significant double-digit growth profile of Federated Hermes’ money market AUM is unlikely to be sustained moving forward.
“While there can be wide variability around these forecasts, we do not expect substantial money fund growth from here, which had been a differentiating positive aspect for FHI,” the analysts added.
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