Platinum Asset Management (ASX: PTM) is a listed boutique funds manager. It runs 10 Australian and two American funds, all of which specialise in equities.
Platinum invests in companies it perceives to be undervalued rather than by reference to macro-economic modelling. It focuses on out-of-favour stocks and sectors from around the world, searching for deep value. Management of these funds also uses short selling of shares and indices. When undervalued stocks cannot be found, funds may be invested in cash.
Most of the shares in Platinum itself are owned by key members of the management team. With such a large stake in Platinum, its management is strongly motivated to perform. Revenue is derived from funds management, including fees for success. Growth is obtained by high net wealth customers subscribing to funds and by those funds increasing as the equities they hold increase in value. Platinum actively manages its portfolio and takes positions in currencies, as well as specific equities.
Platinum achieved a return on equity of 37.5% for the year ending June, 2013, which compares favourably with its competitors. Challenger (ASX: CGF) returned 15.8% for the period; Perpetual (ASX: PPT) returned 24.0%; AMP (ASX: AMP) came in at 13.0%; and Henderson (ASX: HGG) produced 10.4%. Unlike its competitors, Platinum carries no debt and only invests in equities and cash, not other asset classes. The dividend yield for Platinum is 3.7%, fully franked, which is matched by Challenger, except that the latter is not franked. AMP, Perpetual and Henderson have slightly lower dividend yields than Platinum.
Using its so called "DNA" methodology, a rigorous combination of logic and team agreed long term outlook, Platinum has consistently performed remarkably well. For example, $1,000 invested in the International Fund over the last 19 years would be worth $9,000 today, compared to the MSCI World Index which would be worth $2,500.
Foolish takeaway
To invest in Platinum is to ride on the back of a funds manager that specialises in equities, both Australian and overseas. These funds have significantly outperformed indices over the last 10 years. Importantly it is the strong cash flow of fees for funds management that generate earnings. Therefore, considered as a long-term holding, Platinum is one to purchase for 2014.
