UBS Warburg kicked off its coverage of the fund industry on a lukewarm note this week. Glenn Schorr, the UBS Warbarg analyst now covering the industry, gave out his first grades to three fund firms and the sector overall. He is neutral.

Schorr, who joined UBS from Deutsche Bank in March, assigned a "neutral" rating to both the fund industry and to the short-term outlooks for Franklin Resources, Janus Capital and T. Rowe Price, reports Dow Jones Newswires. He believes that the stocks of brokerage firms are currently better positioned than asset managers to outperform.

He assigned a 12-month price target of $38 to Franklin Resources, $31 to T. Rowe Price and $14 for Janus. In the case of Janus, the price target is below the current price of the shares. His target for Franklin is roughly 8 percent above that stock's current price and T. Rowe is trading within pennies of his target.

He pointed to competition, market saturation, margin compression, limited expense flexibility, negative shift in asset mix, rising power of distributors, regulatory scrutiny and alternative products as reasons for his cautious outlook over the short-term.

Yet he believes that global demographic trends as well as the industry's strong cash flow and return on equity bode favorably for the industry over the long-term.  

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