Investing.com -- Morgan Stanley is urging caution on traditional asset managers into the first-quarter earnings season in mid-April, trimming estimates across the group and warning that recent outperformance may have left valuations vulnerable.

Analyst Michael Cyprys cut first-quarter EPS estimates by an average of 0.7%, leaving his forecasts approximately 1.2% above consensus, and lowered full-year 2026 and 2027 EPS estimates by 3% each.

While those figures now sit broadly in line with consensus, Morgan Stanley noted its operating income forecasts run 1% to 2% below the Street.

The largest first-quarter downward revision fell on BlackRock, where Cyprys cut his EPS estimate by 11.9%, citing lower expected performance fees.

Morgan Stanley trimmed BlackRock's price target to $1,368 from $1,550, though the firm maintained its overweight rating. WisdomTree Investments saw the biggest upward revision at 4.2%.

Virtus Investment Partners drew the sharpest price target cut, down 19% to $125, reflecting implied outflows that Morgan Stanley said run at an annualized decay rate of roughly 26% in the first quarter.

Despite the cautious tone, Morgan Stanley flagged that industry mutual fund and ETF flows of $309 billion quarter-to-date are more than double the comparable period a year ago, driven largely by ETFs.

"Lean cautious on the trads with sharp 14% points outperformance YTD vs rest of coverage, with market pricing in relatively more good news for trads. Yet we see risks" Cyprys wrote.