If you’re reading this publication, you likely already know how useful exchange-traded funds can be and likely have owned a few mutual funds over the years. But the firms running these funds and the companies that provide the information and systems that keep those gears turning are pretty solid investments themselves.

After a few years of investors taking a churn and burn approach to the sector, fund outfits are once again showing their appeal, prompting the Wall Street Journal to write them up last week.

Growth Stocks

T. Rowe Price (NSDQ: TROW) has long been one of my favorite plays on the industry, and readers of Louis Rukeyser’s Wall Street who took my advice to buy it 18 months ago earned a better than 80 percent return.

Founded in 1937, T. Rowe Price is one of America’s oldest and most respected asset managers. The firm offers a full suite of mutual funds, as well as separate account management and retirement plan services. A reputation for low costs has enabled the firm to grow its assets under management (AUM) to more than $390 billion.

A high percentage of its AUM are in retirement, providing a degree of stickiness that limits outflows.

Despite a $27.9 billion decline in total AUM–most of which stemmed market depreciation, not fund outflows–T. Rowe’s earnings per share reached 61 cents in the second quarter, up from 59 cents in the first quarter and 39 cents a year ago.

Mutual fund advisory fees jumped 38 percent, or $342.8 million, driven largely by huge inflows to the company’s bond funds, offerings that usually command slightly higher fees. And although AUM fell sequentially, average AUM–a major determinant of fee income–was up 4 percent from the prior quarter and 35 percent year over year.

Going forward, the asset manager should continue to grow earnings as it expands its global footprint.

Already boasting operations in the UK, Argentina, Hong Kong, Japan and Singapore, T. Rowe purchased a 26 percent interest in India-based UTI Asset Management earlier this year and launched four new equity funds aimed at Taiwanese investors. Building its presence in key emerging markets is a high priority for the asset manager; demand for investment products tends to increase alongside household incomes.

The domestic outlook is equally rosy. Despite governmental inquiries examining the efficacy of target-date funds, T. Rowe’s target-date retirement products remain extremely popular, attracting net cash inflows of $1.6 billion in the second quarter.

And T. Rowe continues to invest in expanding its domestic investment advisory business. It’s one of a handful of asset managers that has grown its AUM consistently, thanks to the strong performance of its funds and effective advertising that sets it apart from the pack.

With no debt on its balance sheet and $1.4 billion in cash and investment holdings, T. Rowe Price self-finances its growth and has a history of shareholder-friendly moves. The company has already repurchased 3.6 million shares of its common stock in 2010.

Invesco’s (NYSE: IVZ) product lineup includes a family of mutual and closed-end funds as well as separately managed accounts and the third-fastest growing lineup of exchange-traded funds (ETF). All told, the company holds over $557 billion in AUM.

In the second quarter Invesco completed its acquisition of Van Kampen Investments and its other retail asset management businesses from Morgan Stanley (NYSE: MS), bumping up its AUM by more than $100 billion. The deal marks the beginning of a major growth period for Invesco; the pairing of the Van Kampen fund family and distribution channels with Invesco’s ETF offerings creates a midsize powerhouse overnight.

The combined firm leveraged this strength to close a $16 billion deal to run a passive investment strategy in Japan that will use Invesco’s PowerShares ETFs, among other vehicles.

Like T. Rowe Price, Invesco has an extremely sticky client base. After the merger, institutional accounts represent 40 percent of AUM, while private wealth-management services account for 5 percent of AUM. Clients in these business lines tend to be less fickle than retail customers.

Invesco also has a strong global presence, with products available in 13 countries. And management plans to break into several new markets in coming years.

The company’s profits have been spotty in the past, a product of rapid expansion and turbulent markets. After the acquisition, the firm’s profits should get a boost from its improved distribution capabilities.

State Street Corp (NYSE: STT), one of the world’s largest trust banks, straddles the divide between investment servicing and investment management.

Its investment servicing division holds more than $15 trillion in assets under custody (AUC) and provides institutional investors with accounting, daily pricing, custodial services and recordkeeping, as well as a variety of brokerage, foreign exchange and management services.

Given its size State Street Corp has few real competitors, superior economies of scale and the ability run the back-office operations of any asset manager.

State Street’s investment management operations currently have more than $1.5 trillion in AUM and provide investment research. Assets under management include almost $200 billion overseen by its State Street Global Advisors division, which runs the extremely popular SPDR funds.

Although State Street Corp suffered a sizable loss during the financial crisis and market meltdown, the firm managed to grow AUC and AUM 20 percent over the past five years. The company also has grown its international business, particularly in Europe and Asia where ETFs are extremely popular.

Despite the company’s enormous size, State Street has plenty of growth opportunities.

The managers and analysts who make the buy and sell decisions for mutual funds and ETFs play a big role in the success or failure of a particular offering. But this expertise is worthless without timely and relevant information.

MSCI (NYSE: MSCI) and FactSet Research Systems (NYSE: FDS) provide the data and information that enable investment managers to make sound decisions.

MSCI pioneered the development of global equity indexes and now computes the values of more than 120,000 indexes every day. Its operations are the industry’s gold standard, which explains why the firm retained an impressive 85 percent of its subscribers in 2009 and boasted a global market share of roughly 90 percent.

Asset managers and other investment professionals license the use of MSCI’s indexes and risk-management products. That’s generated exceptional revenue growth; in the second quarter top-line sales reached $125 million, a 14 percent increase from a year ago.

Whereas MSCI primarily provides the benchmark data that investors use to gauge their relative performance, FactSet provides the fundamental and economic data that drive investment decisions.

The company’s competitive advantage lies in the quality and breadth of its information, rivaled only by the privately held Bloomberg LP. Not only do its subscriptions included data aggregated from more than 50 vendors and access to over 200 databases, but the company also offers platforms that allow users to dissect the data in myriad ways.

High switching costs and top-quality information translates into a renewal rate of 95 percent.

And FactSet is becoming a leaner and meaner operation, acquiring information providers and expanding its own data-collection initiatives. Although these efforts have increased headcounts and compensation costs, the firm saves money as royalty expenses fall. Shifting its data collection operations to India and the Philippines also lowered costs.

Business took a hit during the market and economic turmoil of 2008 and early 2009, but recent results suggest that the company has regained momentum; in its most recent quarter the firm’s client count, user count and annual subscriptions all ticked up, reflecting improved conditions in the financial sector.

What’s New

No new ETFs were launched last week.