Bank of America is bullish on U.S. brokers, asset managers and exchanges heading into 2025, raising price targets across the sector by an average of 14%, citing strong tailwinds from deregulation, rising retail investor engagement and solid U.S. GDP growth projected at 2%-2.5%.

In a new report released Wednesday, analyst Craig Siegenthaler dubbed 2025 as the year of “extensions” of ongoing trends, amid a fresh boost from a red political sweep and deregulation efforts under a Trump presidency.

According to Bank of America, the red wave of the 2024 elections is also set to open new doors for crypto and alternative investments (Alts) and give brokers and asset managers room to shine.

The report highlights three top Buy-rated stocks — Blue Owl Capital Inc. (NYSE:OWL), Interactive Brokers Group Inc. (NASDAQ:IBKR), and Tradeweb Markets Inc. (NASDAQ:TW) — and two key Underperformers: Charles Schwab Corp. (NYSE:SCHW) and Carlyle Group Inc. (NASDAQ:CG).

Alts: Blue Owl Leads The Charge

Alternative asset managers (Alts) are primed for a strong year, with Blue Owl Capital emerging as the standout pick.

• Buy Rating and $33 price target. Bank of America expects a four-fold earnings per share (EPS) growth by 2027.
• Valuation: Blue Owl trades at just 16x its 2027 EPS, offering a 4% dividend yield.
• Earnings Quality: Remarkably, 100% of Blue Owl's EPS is Fee-Related Earnings (FRE), and nearly all of its asset under management (AUM) is locked in either permanently or long-term capital.
• Secular Growth Drivers: Key tailwinds include retail access to Alts (via RIAs), insurance partnerships, and consolidation among general partners.

Siegenthaler highlighted Blue Owl's unique position: "Under-owned, undervalued and underappreciated.”

Brokers: Interactive Brokers In A “Goldilocks” Setup

Interactive Brokers is Bank of America’s top broker pick for 2025, as solid U.S. GDP growth (2.0%-2.5%) and sticky inflation (>2.5%) create a "Goldilocks" environment for brokers.

Bank of America is also bullish on Robinhood Markets Inc. (NASDAQ:HOOD), seen as “best-positioned given high tech/low legacy cost models with strong innovation track records.”

Interactive Brokers

• Buy Rating and $288 price target
• Fundamentals: Interactive Brokers boasts an operating margin of over 70%, with incremental margins exceeding 80%. It also holds $7 billion in excess capital, which supports reinvestment and growth.
• Competitive Edge: The broker's tech-first approach, including investments in R&D and innovative tools like its Global Trader app, has spurred 20-40% annual account growth.
• Valuation: “Undervalued due to unique set of factors — float, voting rights/control, capital retention.”

Exchanges: Tradeweb Offers Long-Term Growth

Tradeweb Markets is Bank of America's top pick among exchanges due to its wide product breadth, first-mover innovation, and long-term visibility.

• Buy Rating and $205 price target
• Competitive advantages: Tradeweb Markets offers a diverse menu spanning fixed income, ETFs and money markets, appealing to a broad client base, including market makers, financial advisors, and corporate treasurers.
• Innovation edge: Tradeweb Market’s portfolio trading and session trading protocols have driven consistent market share gains.
• Long-term growth visibility: The secular shift from voice to electronic bond trading provides a long runway for growth.

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