It may be well known that fund manager stocks do well in rising markets, but scratch below the surface and industry trends and stock specifics suggest a variety of reasons why now could be the time to invest in the asset management industry.
Despite recent setbacks seen in markets over the last few weeks, FE Analytics data shows asset managers remain ahead between the start of the year and 11 June. Schroders is up 29.9 per cent since the start of the year, while Jupiter Asset Management has gained 14.9 per cent and Aberdeen Asset Management has advanced 9.2 per cent.
Jupiter fund manager Guy de Blonay describes asset managers as an “important component” of the financials sector in the current market environment.
He says: “We have got some asset managers in the fund because we do believe that some markets will continue to progress. If you believe that we are in a bull market, they are a very geared sub-sector to a decent stock market.”
The manager of the £514m Jupiter Financial Opportunities fund currently holds asset managers UBS, Invesco and GAM Holdings within his top 10 holdings.
De Blonay (pictured) explains that many asset managers have already re-rated from approximately 12x-15x. This has prompted him to look now for restructuring stories that have prospects for future growth.
He highlights UBS as an example of a stock that is planning a restructure to move into private banking between 2013/15.
He says: “I would be more inclined now to look at asset managers such as UBS rather than Julius Baer for example, which is trading on 3x book and mostly acquiring their businesses instead of showing organic growth.
“UBS has the advantage of being a restructuring story that will become a growth stock, once it has executed its plan by 2015.”
De Blonay also notes the possibility for UBS to release and redistribute cash to shareholders during this process, which could potentially see the yield rise to 8-10 per cent.
De Blonay was similarly attracted to GAM Holdings for its ability to redistribute cash, coupled with the fact that it also had no debt.
He adds: “They are still in discussion of how to deploy this cash. This is more likely to be redistributed to shareholders, so here again you have got a good potential yield stock combined with a geared operation toward rising markets.”
SVM fund manager Margaret Lawson also notes that asset management businesses can show sustained growth as a result of their operational gearing. She says: “There are niche industries that are growing regardless of the economic background.
“Fund management is a good area to be in. It is an industry that has an operational gearing effect. They don’t have to increase their number of fund managers as a result of more funds coming in, because these are remunerated under a process of funds under management. So profit falls to the bottom line.”
The manager of the £73m SVM UK Growth fund currently has a 3.1 per cent holding in Aberdeen and a 0.9 per cent holding in Jupiter.
Elsewhere, City Financial fund manager Leigh Himsworth indicates merger and acquisition activity within the industry, as his reason for taking a new position in Ashcourt Rowan.
The manager of the £41m CF Eden UK Select Opportunities fund also lifted his position in F&C Asset Management to ninth place in the fund’s top 10 holdings.
The £616m Old Mutual UK Smaller Companies manager Dan Nickols also recently topped up holdings in Jupiter and Close Brothers during March and April, “in response to positive prospects for asset managers and an improving environment for specialist lenders”.