Listed asset managers have been among the top performing equities over the past year, with returns in many cases far outstripping those achieved by any of the underlying funds they run.
Liontrust has led the way, with its share price up 80.62% over the past 12 months, closely followed by Aberdeen, up 79.35%. As fears of a global recession recede in many investors’ eyes, the appeal of fund groups as a geared play on stock markets continuing to trend higher is apparent. But with virtually every group trading at or close to a 12-month high, is there really any value left in the sector?
A number of analysts believe the answer is yes as a long-term investment, but investors who have enjoyed their recent strong run should consider locking in some of those gains.
Jupiter is a case in point, up 53.82% over 12 months to 17 January and by 33% since the start of the fourth quarter. It is trading at a significant premium to its peer group on a price/earnings ratio (P/E) of 24.8x and despite better than expected asset growth in a trading update last week, Jupiter shed 4% on the day.
RBC analyst Peter Lenardos said the round of profit taking was no great surprise given Jupiter’s valuation is ‘generous’ in his view, and although he is neutral on the stock, he says the mini sell-off was overdone.
‘We believe that profit-taking rather than anything negative and company-specific was the main cause of Jupiter’s share price reaction,’ he said. ‘We believe that Jupiter will likely achieve our forecasts when it reports results on 28 February.’
However, he warns if the company delivers a strong set of results next month, there is a risk that its private equity backer TA Associates, which owns 19% of Jupiter, could be tempted into a share placing at a discount to the market.
Lenardos is more bullish on Aberdeen Asset Management, which he rates ‘outperform’, saying ‘consensus forecasts are too light in our opinion and we expect upgrades.’
The fund group last week reported £10.8 billion of new business wins with its asset mix continuing to see strong flows into higher margin equity products.
As with Jupiter, this prompted a near 2% sell-off in its shares, which had risen by just over 80% in the preceding 12 months.
Aberdeen’s earnings and balance sheet strength lead Lenardos to expect a special dividend or share buybacks in the second half of the year, which would be very supportive of the share price.
Schroders is Invesco Perpetual UK Aggressive fund manager Martin Walker’s top pick in the sector. He favours the non-voting shares, which are trading at a discount to the ordinary shares, and points out that if the £1 billion plus cash on Schroders’ ‘extremely low risk’ balance sheet is stripped out, the stock is trading on a P/E of 9.5x 2013 earnings, a significant discount to the 12.9x sector average.
He believes the firm can grow its earnings above the stock market average over the long term, given its operational gearing.
N+1 Singer analyst Andrew Watson singles out Liontrust, despite it being the top performer over the last 12 months, saying the valuation ‘remains attractive’. Liontrust’s latest update showed it grew its assets under management by 12.6% in the third quarter leaving it well-placed for the fourth and traditionally strongest quarter for inflows.
He points to its below peer 11.6x P/E and the opportunities arising from its forthcoming Global Strategic Bond fund launch.
‘With considerable growth prospects remaining in our opinion, the valuation is compelling,’ he said. ‘This implies an indicative valuation of between 145-175p -an upside of 12-35% to the current price.