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Time to sell the RDR rally?
by David Campbell on Oct 08, 2013 at 07:44
‘It is a good fit with RDR changes. It is business with strong recurring income. It has strong [intellectual property], good distribution, and strong management culture. But above all, it is a matter of strong and recurring income.’
Others may consider that premium quite well embedded, however. In an asset management peer group split between the three largest wealth managers and five fund groups respectively, the difference in P/E ratios stands out like a sore thumb.
Compared to the broader FTSE Financials index trading at a value of 12.55 times, that premium is even more marked.
Among those who appear to be hedging their bets on market valuation is Adam McConkey, head of small caps at Henderson and manager of its UK & Irish Smaller Companies fund . He has more than halved his holding in sector pick Ashcourt Rowan in recent weeks, from 14% to 6.9%.
The company has become something of a poster-child for the RDR under new chief executive Jonathan Polin, who has said he explicitly moved from his previous role at fund provider Ignis to a distributor to exploit the changing pricing power in the industry.
McConkey sold into a rally that has lifted the company 25.1% over the last quarter alone, elevating its 12-month gain to 30%.
Among those buying into the relative strength of the wealth management sector is Quilter Cheviot Discovery Balanced manager William Buckhurst, who rotated out of Henderson and into Investec in August, pointing to the more diversified business model of the latter, particularly its strength in the UK.
‘The company’s strategy is to grow the capital light asset management and wealth management businesses, moving away from the current strong focus on banking,’ Buckhurst said.
‘The asset management and wealth management businesses have delivered persistently strong growth in assets under management. The asset management business is showing good momentum and, as bank impairments reduce, the recovery should also come through in a higher valuation accorded to the stock.’
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