Buying into an investment fund is one way investors can buy into good quality stocks, without having to decide on each stock individually by yourself. The fund's managers, analysts and administrators are out there surveying the stock market already, so it saves you a lot of effort if you don't have time to do the research yourself.
Since the funds usually don't produce products, their revenue is generated mostly by the returns they receive from their own investments. They themselves ride the waves of market trends, and when the companies that are in their portfolio begin rising, returns on a large percentage of stocks in their portfolio, make for one big increase in earnings for the fund.
Many of these funds got hammered during the GFC. Conversely, when the market and economy are recovering, they begin to rise, and some have soared from market expectations. Here are 4 investment funds to watch out for.
Platinum Management (ASX: PTM), a holding company of Platinum Investment Management that specialises in international equities investments. It has about $17.4 billion of funds under management. Revenue hit a bottom of $214 million in 2012, likewise earnings dropped to $126 million. This year with earnings up, the share price has gone from approximately $3 to $6 since Oct 2012. Its price-earnings (PE) ratio is 26.
Magellan Financial Group (ASX: MFG) had a phenomenal run up in share price, from $1.24 to $10.94 in the past 12 months. Net earnings after tax went from $13.6 million to $66 million. The share price surpassed the earnings multiple increase, so the market has driven the price possibly too high for now. It has a PE ratio of 27, which is high if they can't sustain the high rates of earnings growth.
Perpetual (ASX: PPT) is working back up from an earnings bottom in 2011 when the share price sank to about $20. Since then earnings have risen about 20%, but share price more than doubled to approximately $45. It has some $25 billion of funds under management, and would definitely stand to gain, when the Australian market is firing on all cylinders. Currently it has a PE of 24, so the market is pricing in higher earnings growth than we have seen in the past two years.
IOOF Holdings (ASX: IFL) has $120.2 billion of funds under management, and had net profit after tax of $109.4 billion, up 13% from 2012. Its share price has risen from about $6 to $9 since 0ct 2012, and its PE is 19. Its long-term strong earnings history took a few hits from larger than average write-downs over the past two years. This usually comes from marking investment values down based on current market valuations. With a rising economic environment, earnings can blossom as newer, potentially higher revaluations are realised.
The Foolish Takeaway
Investing in funds can take the pressure off of an investor with limited time for company research, and it can keep a steady pace of growth and earnings for your portfolio. They can be cyclical in nature because they ride the general business cycle, so the best returns from them come when the economy is picking up.
The Australian economy still has some obstacles to overcome, before it will be in full growth mode. This is good for you as an investor because you have more time to consider and weigh different stocks and funds, before they become too expensive.
Think about your own total return and find out about companies with good dividends. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.