Platinum Asset Management Limited (ASX: PTM) shares are tipped to pay a 6.5% fully franked dividend in the year ahead.
Platinum Share Price
As can be seen in the chart above, Platinum shareholders have had a very tough run lately. The next chart shows the Magellan Financial Group Ltd (ASX: MFG) share price, a rival of Platinum. I would have compared both companies on the same chart — but Platinum's performance was almost impossible to see next to Magellan's!
Magellan Share Price
As can be seen above, the five-year performance of these two funds management companies has been very different. Magellan has sailed 970% higher, before dividends. Meanwhile, Platinum has returned largely to the level it was five years ago.
Who is platinum?
Platinum is a global fund manager, specialising in shares. Its largest fund is its 'International Fund', investing in shares across the globe; while its Asian Fund remains one of the most compelling Asia-centric managed funds in Australia.
Here's how Platinum's funds under management were split across its different funds at the end of March.
Platinum makes money by charging either a flat management fee (1.35%) or a management fee (1.1%) plus performance fee (15% of benchmark outperformance).
What's going wrong?
In 2014, some of Platinum's key investment personnel departed the business in favour of a start-up boutique investment company called Antipodes Partners. Ultimately, a big chunk of Platinum's analyst team walked out.
As can be seen in the chart above, Platinum's funds under management (FUM) declined sharply, from a peak of around $29 billion in early 2015 the company now manages around $23 billion.
Looking ahead
Platinum recently lowered its fees (see above) from a flat 1.5% management fee. Additionally, it made a number of internal changes to prepare its investment team for the future.
However, while all the share price volatility and falling FUM numbers took the news headlines, Platinum's investment performance has remained strong. Here are the annualised performances of Platinum's key funds over five years:
- International Fund – 14.1%
- Asia Fund – 13.1%
- Japan Fund – 22.4%
- Brands Fund – 12.9%
- MLC Platinum Global Fund – 13.3%
Over the past 12 months, the funds' performances are even better.
While the performance is good in absolute terms, over five years, the benchmark MSCI all-world index has returned around 15.2% per year while the Asian index is up 11.4% per year.
Part of the reason behind the benchmark underperformance could be explained by Platinum's relatively small exposure to the United States. Moreover, strategies with a true-to-label 'value' focus traditionally underperform during a bull market.
Buy, Hold or Sell
In my opinion, Platinum shares look cheap at today's prices. With an earnings yield of 7.4% and dividend yield of 6.5%, there is room for error. Meaning, even if the company earns lower fees and pays a lesser dividend, it is still a wonderful business with great economics.
Don't get me wrong the business is cyclical — with steep rises and falls in profits and dividends to be expected. And there are operational risks, such as either of its two senior managers departing, or significant investing underperformance leading to an investor exodus.
However, with cheap shares against a backdrop of rising superannuation balances, I think this internationally-focused fund manager is well-placed to return capital to shareholders over the long-term.
