Reasons for investing in asset managers include the fact they are genuinely long-term businesses and a leveraged play on improving investor sentiment and economic growth. However, they do carry dangers, such as the ‘key man’ risk that comes with relying on a star manager for assets under management (AUM) and more volatile share prices.
Given the interest in the sector, analysts at Numis Securities have compiled a list of five management firms they think are well positioned to benefit from the long-term trends playing out in the industry.
Numis chooses Schroders as its diversified asset management pick, labelling the group as “the sector in a single stock”.
The group runs £276.2bn for institutional and retail investors, financial institutions and high net worth clients. Its fund ranges cover equities, fixed income, multi-asset and alternatives, with around 75 unit trusts domiciled in the UK alone and more than 100 registered in Luxembourg.
The Schroder family founded the company in 1804 and still controls 47.5 per cent of its voting equity.
“In our view, Schroders is by far the most diversified asset manager (by asset class, geography, client type), has one of the strongest balance sheets and its unique ownership helps foster genuine long-term management decision making,” the analysts said.
“While it is a little dull and boring, we see this as a positive for long-term investors. We think growth in line with or slightly better than the sector average is reasonable over the long term. We prefer Schroders to Henderson or Aberdeen, who are striving to become diversified but are currently nowhere near as diversified as Schroders.”
Schroders’ shares have had a good run in recent years, in common with most asset managers as they are seen a way to capitalise on stronger investor sentiment. Since the start of 2007, Schroders is up 196.53 against a rise in the FTSE All Share of 43.91 per cent.
Performance of stock vs index since 2007
Source: FE Analytics
When picking an asset management house positioned for structural retail growth, Numis opts for Jupiter.
“We believe retail asset management will see its share of industry AUM grow significantly over the long run, driven by the shift in pensions from an institutional product [defined benefit] to a retail one [defined contribution]. We believe Jupiter, as a pure play on UK/European mutual funds,… are best positioned,” the analysts explain.
The asset management house runs a number of successful UK offerings, including Ben Whitmore's £1.3bn Jupiter UK Special Situations fund, which holds five FE Crowns, and the £2bn Jupiter Income Trust. In the European equity space, FE Alpha Manager Alexander Darwall runs the £2.6bn Jupiter European fund, which is also five FE Crown rated and is first decile over one, three and five years.
Jupiter was founded in 1985 as a specialist boutique and listed on the London Stock Exchange in June 2010, although a culture of employee ownerships means its staff hold “substantial interests” in the firm’s shares. Since floating the company’s share are up 115.74 per cent.
Performance of stock vs index since Jun 2010
Source: FE Analytics
Investors looking to capitalise on the growth in investing in emerging market equities are steered in the direction of Ashmore Investment Management not Aberdeen, which is seen as the asset class’ powerhouse.
Numis said: “Ashmore is the purest play on emerging market growth (100 per cent of AUM). Whilst Aberdeen still derives a significant proportion of profit from emerging markets, management are striving to become more diverse, it has a weaker balance sheet, offers less value and carries more acquisition risk in our view. We believe Ashmore is well run.”
Ashmore has 20 offshore funds, ranging from single country equity to emerging market debt to global EM equity. Its largest are Ashmore Emerging Market Corporate Debt fund, which only launched at the start of 2013, and Ashmore Emerging Market Local Currency Bond, both of which have assets of around $3.2bn.
The firm was founded in 1992 as part of the Australia and New Zealand Banking Group then became independent in 199 and runs a total $71.3bn. It’s up 60.49 per cent since the start of 2007 but the stock has traded in a range over recent years as investor sentiment towards emerging markets waned.
Performance of stock vs index since 2007
Source: FE Analytics
When it comes to long-term asset management plays at the smaller end of the cap spectrum, Numis offers two choices - Liontrust and River & Mercantile Group R&M).
“We highlight Liontrust as the company where we expect the highest rate of earnings growth potential at a reasonable price. R&M offers both decent growth potential and yield,” according to the analysts.
Liontrust has a stable of nine funds including the £1.4bn Liontrust Special Situations fund and employs four FE Alpha Managers - Anthony Cross, Julian Fosh, Jan Luthman and Stephen Bailey. The firm has an AUM of £3.8bn and recently announced that it had double first-half profit before tax to £3.2m.
R&M has an AUM of £18.5bn and only listed on the London Stock Exchange this year. Its asset management arm has 11 funds and has FE Alpha Managers Daniel Hanbury and Philip Rodrigs running some of its products.
However, the research offers no recommendations when it comes to growth in the alternatives and passives spaces. Although it believes both areas will be long-term growth themes for the industry, Numis can’t find any pure plays to back with conviction.
