One of the easiest ways for investors to gain leverage to the share market is by investing in a fund manager.
These businesses are usually very attractive as they are easily scalable and operate on very healthy margins.
Fortunately for Australian investors, the ASX has a number of well known fund managers that also provide exposure to a number of different markets around the world.
Some of the best known managers are highlighted in the table below (figures sourced from CommSec and company reports):
| Company | Market Capitalisation | P/E Ratio | Dividend Yield | 5-Yr Total Shareholder Return |
|
Magellan Financial Group Ltd (ASX: MFG)
|
$4.1 billion | 20.6 | 3.7% | 78.9% |
|
BT Investment Management Ltd (ASX: BTT)
|
$3.3 billion | 18.9 | 4.2% | 48.5% |
|
Platinum Asset Management Limited (ASX: PTM)
|
$3.1 billion | 16.1 | 5.9% | 15.3% |
|
Perpetual Limited (ASX: PPT)
|
$2.3 billion | 17.7 | 5.1% | 24.6% |
| Company | FUM | Operating Margin | Employee expense ratio | Main Geographic Exposure |
|
Magellan Financial Group Ltd (ASX: MFG)
|
$44.9 billion | 77.8% | 58.8% | North America |
|
BT Investment Management Ltd (ASX: BTT)
|
$84 billion | 39.9% | 76.6% | Australia & UK |
|
Platinum Asset Management Limited (ASX: PTM)
|
$23.1 billion | 81.9% | 49.6% | Asia and Europe |
|
Perpetual Limited (ASX: PPT)
|
$30.7 billion | 36.0% | 54.2% | Australia |
One important factor that is not highlighted in the tables above is the key-person risk. This is most likely to be an issue for Magellan and Platinum as both companies are still founder-led.
Another important point to consider when it comes to investing in fund managers is the trend of their funds under management (FUM). In this case, Magellan and BT are the clear winners with both managers enjoying buoyant fund inflows over the past couple of years. Unfortunately, the same can't be said for Platinum and Perpetual, who have both struggled to attract new inflows resulting from lengthy periods of underperformance.
Is there a clear buy?
From the table above, there doesn't appear to be any short-term bargains.
Although Platinum and Perpetual trade on fairly conservative earnings multiples and attractive dividend yields, I would be inclined to wait on the sidelines until they begin to deliver an uptrend in fund inflows. Until this occurs, it will be extremely difficult for either company to boost their bottom line.
Magellan and BT on the other hand are far more attractive businesses, but I believe this is appropriately reflected in their higher valuations. As a result, I would be inclined to wait for a pull-back in the share price before loading up the truck with shares.
