Mutual fund shareholders have seen strong investment gains in recent times; however it is the shareholders of the actual fund companies who should be celebrating, as they are the ones who have really profited, according to MarketWatch.

The stocks of publicly traded asset managers are the hot picks right now, as they are the among the market's best performers.

Companies like T. Rowe Price and Franklin Resources have been doing well all thanks to their broad fund line-ups that are responsible for attracting investors.

Investors have enthusiastically reacted to deals like the Legg Mason swap of its brokerage operation for the asset management arm of Citigroup, and BlackRock's acquisition of Merrill Lynch's investment management unit.

Steven Pierson, head of investment banking at Putnam Lovell NBF Securities, believes more synergy will take place in the future, as firms are competing for assets of Baby Boomers and company-sponsored retirement plans.

However, Pierson says investment management firms face ongoing challenges: "All firms, both large and small, face challenges selling product unless they can differentiate themselves with performance and a stellar sales force or real innovation that will attract distributors," Pierson said. "Performance is absolutely key. Good performance will always find dollars flowing into the product. But with as many product options as there are, having a terrific brand, distribution force and wholesaling force is just as important."

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