Asset management is a growing global sector – the value of assets under management globally has grown faster than the performance of equity markets.
Since 1990, new investable companies and increasing household wealth have helped conventional assets under management rise tenfold, versus a fivefold return from world equities, and we expect this to continue.
Asset managers offer the chance for financials exposure with lower balance sheet risk.
Amid concerns about the fragility of bank balance sheets, we believe asset managers give exposure to the financial sector’s attractive growth attributes with lower balance sheet risk. The average gearing of the companies we hold has normally been less than zero – that is, overall net cash.
Asset managers often deliver high, free cashflow, which translates into higher dividend yields on average than the broad market. The yield on our universe of asset managers has been consistently higher than the MSCI World index.
Higher beta
In periods of rising equity markets, equity-focused asset managers can enjoy rising income without adding any new customers. They effectively provide geared exposure to rising equity markets.
A portfolio of asset managers will capture higher beta during periods of market strength, particularly in equities.
We believe that, long term, asset managers can grow their earnings faster than equity markets in general, and can deliver attractive shareholder returns.
Of course, there are risks. The reverse applies in times of falling equity markets and poor underlying fund performance.
But, longer term, the combination of these positive characteristics means overall shareholder returns could be very impressive.
