There are a variety of ways of making an investment into shares. You can buy a share of a company, you can buy part of an exchange traded fund, or you can buy into an unlisted fund.
There are a number of investment managers which are listed on the ASX that offer investors the chance to invest directly into one of their funds. This relationship means that the performance of the unlisted fund won't necessarily match the performance of the manager's shares.
Here are three of the biggest investment managers on the ASX:
Perpetual Limited (ASX: PPT)
Perpetual has a market capitalisation of $2.45 billion. It operates a number of different funds that are domestic or internationally focussed.
In its latest results to 31 December 2016 it revealed that its earnings per share decreased by 3% compared to the six months to 30 June 2016, however it grew by 2% when compared to the six months to 31 December 2015.
The Perpetual share price has grown by 21.6% over the last year but it remains to be seen if it can grow any further. It's currently trading at 18.4x FY17's estimated earnings with a grossed-up dividend yield of 7.08%.
Platinum Asset Management Limited (ASX: PTM)
Platinum has a market capitalisation of $2.88 billion. It is seen as one of Australia's leading overseas-focussed investment managers. This is a good market to be operating in as more Australians look overseas for more investment opportunities.
In its latest results to 31 December 2016 it revealed that its net outflows were $1.7 billion and the earnings per share declined by 20% on the prior year, but were 15% up on the June 2016 half-year. Platinum could be losing potential funds to both passive funds run by Vanguard and its major competitor (below).
Platinum is currently trading at 16x FY17's estimated earnings with a grossed-up dividend yield of 9.02%.
Magellan Financial Group Ltd (ASX: MFG)
Magellan has a market capitalisation of $4.08 billion. This fund manager is widely seen as providing the best returns for investors who have used one of its funds over the last few years.
Being the top performer obviously creates a good chance of outperformance fees and also means it attracts a lot of new funds from investors. It reported that average funds under management (FUM) grew by 10% and underlying profit before tax (excluding performance fees) grew by 9% in its report to 31 December 2016.
Magellan is currently trading at 20.5x FY16's earnings with a grossed-up dividend yield of 4.6%.
Foolish takeaway
I think Magellan is the clear choice for any investor due to its likelihood of outperforming the market and attracting more funds from investors. The rise of cheap passive funds makes it imperative that fund managers outperform to justify their fees.
