Should you buy shares in Platinum Asset Management Limited?

Credit: Ken Teegardin

Platinum Asset Management Limited (ASX: PTM) is one of Australia’s largest fund managers with a proud history of consistent performance, rivalling the likes of Argo Investments Limited (ASX: ARG) and BT Investment Management Ltd (ASX: BTT). Founded by billionaire investor and current CEO Kerr Neilson in 1994, Platinum specialises in international equities, investing most of its funds under management (FUM) abroad.

Whilst global market volatility has meant Platinum’s investments have been directly affected, I believe this company is a buy at current prices for the following reasons.

Diversified assets

Platinum’s investments have undoubtedly been affected by the ongoing slump in global equity markets. In its most recent FUM update, Platinum reported a decrease to FUM of 4.8%, mostly due to the fall in global equity markets. Nonetheless, Chairman Michael Cole remains positive about Platinum’s prospects, stating in his November 2015 address that Platinum’s well diversified portfolio of company investments should assist in positive net funds flow into Platinum’s investment products in the year ahead. Broadly, this means Platinum should benefit from ongoing volatility, given its diversified asset position.

Platinum currently invests in U.S., Asian and European markets, meaning it has diversified international exposure. Whilst this means that offshore events affect its performance more than other Australian fund managers, Platinum’s advantage is that it can benefit from favourable exchange rate movements as well. Accordingly, I believe its retail funds are well positioned to withstand ongoing market ructions.

Profitable investing

Platinum has long been a highly profitable fund. It generally earns performance and management fees on every dollar of FUM invested, meaning Platinum can leverage earnings off its large asset base of $25.5 billion (as at January 2015). In the 12 months to 30 June 2015, Platinum did just that, generating approximately $322.1 million in management fees. This was up markedly on its prior corresponding period, largely due to strong FUM growth over the 12 months. Performance fees were down due to market volatility, however the fund still managed to produce a 15.5% increase to net profit before tax.

Whilst higher profits means better returns for shareholders, the drawback can be that its retail fund investors — its largest class of investors — look for cheaper alternatives because they might perceive the manager’s fees as eating into the fund’s return, leading to lower FUM. Despite this, Platinum’s consistent returns over the years mean its fund investors are likely to be indifferent to Platinum’s profit, leading to minimal funds outflow. This is a testament to its investment performance.

Fund performance

Platinum’s flagship fund, the Platinum International Fund has averaged a 12.7% return per annum, since inception. This compares favourably to the MSCI World Index which has generated half that return, at 6.1% per annum, according to its website. Most of Platinum’s other funds tell a similar story, explaining why the fund has been able to consistently attract new investors and grow FUM year-on-year. Despite recent market volatility, I don’t expect this to change.

Dividend yield

Finally, Platinum is astute to investors thirst for yield, and doesn’t disappoint on that front. Last year, the company paid full-year dividends of 37 cents (fully-franked) as well as a special fully-franked dividend of 10 cents to return excessive cash. Platinum currently has a cash balance of approximately $327 million, indicating last year’s ordinary dividends should be repeated, implying a trailing yield of 5.8% (8.3% gross). Whilst not guaranteed, there is also potential for Platinum to pay another special dividend this year.

Foolish takeaway

As the adage goes, if you like the fund, then buy the fund manager and Platinum is no exception to that. With FUM growing annually, Platinum should be well positioned to withstand market volatility with management fees offsetting any fall from performance fee earnings. Given Platinum currently trades near 52-week lows and provides a solid trailing yield of 5.8%, this is one stock which long-term investors should consider buying.

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor Rachit Dudhwala has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.