Platinum Asset Management Limited (ASX: PTM) is one of Australia's largest fund managers with a proud history of consistent performance, rivalling the likes of Argo Investments Limited (ASX: ARG) and BT Investment Management Ltd (ASX: BTT). Founded by billionaire investor and current CEO Kerr Neilson in 1994, Platinum specialises in international equities, investing most of its funds under management (FUM) abroad.
Whilst global market volatility has meant Platinum's investments have been directly affected, I believe this company is a buy at current prices for the following reasons.
Diversified assets
Platinum's investments have undoubtedly been affected by the ongoing slump in global equity markets. In its most recent FUM update, Platinum reported a decrease to FUM of 4.8%, mostly due to the fall in global equity markets. Nonetheless, Chairman Michael Cole remains positive about Platinum's prospects, stating in his November 2015 address that Platinum's well diversified portfolio of company investments should assist in positive net funds flow into Platinum's investment products in the year ahead. Broadly, this means Platinum should benefit from ongoing volatility, given its diversified asset position.
Platinum currently invests in U.S., Asian and European markets, meaning it has diversified international exposure. Whilst this means that offshore events affect its performance more than other Australian fund managers, Platinum's advantage is that it can benefit from favourable exchange rate movements as well. Accordingly, I believe its retail funds are well positioned to withstand ongoing market ructions.
Profitable investing
Platinum has long been a highly profitable fund. It generally earns performance and management fees on every dollar of FUM invested, meaning Platinum can leverage earnings off its large asset base of $25.5 billion (as at January 2015). In the 12 months to 30 June 2015, Platinum did just that, generating approximately $322.1 million in management fees. This was up markedly on its prior corresponding period, largely due to strong FUM growth over the 12 months. Performance fees were down due to market volatility, however the fund still managed to produce a 15.5% increase to net profit before tax.
Whilst higher profits means better returns for shareholders, the drawback can be that its retail fund investors — its largest class of investors — look for cheaper alternatives because they might perceive the manager's fees as eating into the fund's return, leading to lower FUM. Despite this, Platinum's consistent returns over the years mean its fund investors are likely to be indifferent to Platinum's profit, leading to minimal funds outflow. This is a testament to its investment performance.
Fund performance
Platinum's flagship fund, the Platinum International Fund has averaged a 12.7% return per annum, since inception. This compares favourably to the MSCI World Index which has generated half that return, at 6.1% per annum, according to its website. Most of Platinum's other funds tell a similar story, explaining why the fund has been able to consistently attract new investors and grow FUM year-on-year. Despite recent market volatility, I don't expect this to change.
Dividend yield
Finally, Platinum is astute to investors thirst for yield, and doesn't disappoint on that front. Last year, the company paid full-year dividends of 37 cents (fully-franked) as well as a special fully-franked dividend of 10 cents to return excessive cash. Platinum currently has a cash balance of approximately $327 million, indicating last year's ordinary dividends should be repeated, implying a trailing yield of 5.8% (8.3% gross). Whilst not guaranteed, there is also potential for Platinum to pay another special dividend this year.
Foolish takeaway
As the adage goes, if you like the fund, then buy the fund manager and Platinum is no exception to that. With FUM growing annually, Platinum should be well positioned to withstand market volatility with management fees offsetting any fall from performance fee earnings. Given Platinum currently trades near 52-week lows and provides a solid trailing yield of 5.8%, this is one stock which long-term investors should consider buying.
