Rising equity markets have been a catalyst for massive share price growth in Australia’s listed fund management groups. Long-term investors in the likes of Magellan Flagship Fund Limited (ASX: MFG), Challenger Ltd (ASX: CGF) and BT Investment Management Ltd (ASX: BTT) have been handsomely rewarded over the last 18 months as strength in equity markets has seen steady inflows to retail investor funds.
100% in 12 months
One of the best performances in the sector has been that of UK-based, but ASX-listed, Henderson Group plc (ASX: HGG). Henderson’s share price has jumped 100% over the last 12 months due to the strong performance of the group’s equity funds and terrific sales team, which has boosted client numbers all around the world.
The most recent quarter was no exception as funds under management increased by 5% to over £79 billion. The majority of new client funds were higher-margin retail customers based in Europe and the UK.
The short to medium-term outlook for Henderson Group is looking healthy with the increased risk tolerance of investors resulting in more funds being moved from low-yielding assets into growth assets. Henderson is also set to benefit from the increasing desire of Australian retail investors to gain access to international equities and the persistently strong Australian dollar, making overseas investments ‘cheaper’ in Australian dollar terms.
Over the longer term, when global government stimulus is eventually wound back, Henderson and similar fund managers may see outflows, however this is part of a cycle and shouldn’t be too concerning for investors as long as the funds are outperforming their respective benchmarks.
Too late to buy?
Earnings per share and dividends are forecast to grow by around 10% this year and next, but after such a strong run Henderson is trading on a forecast price to earnings ratio of nearly 18 for FY14 and 17 for FY15. I would imagine it’s priced for perfection now, as are the majority of fund managers, however if the current share market rally continues there appears little to stop Henderson’s share price heading higher.
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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie
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