When it comes to the best-performing fund manager by share price appreciation on the ASX over the last 5 years most investors will probably think of Macquarie Group Ltd (ASX: MQG) or Magellan Financial Group Ltd (ASX: MFG). They are up around 155% and 210% over the past 5 years.
However those returns look pathetic compared to Australian Ethical Investments Limited (ASX: AEF) that is up nearly 7x adjusting for a share consolidation from the equivalent of 36 cents per share to $2.31 per share. It’s also paid some healthy dividends along the way similar to Magellan and Macquarie.
Australian Ethical is a business I’ve also regularly recommended to investors over the past 4 years, although I foolishly sold my own holding in 2015 to help purchase a property.
Today the fund manager updated the market to expect an adjusted net profit after tax between $5.7 million and $6.2 million for fiscal 2019, which at the mid-point would represent growth of 19% on the prior year.
For the quarter ending March 31 2019 funds under management (FUM) grew 10% to $3.13 billion, with $1.89 billion of that amount via superannuation investors.
I’ve pointed out dozens of times some of the bullish points for AEF’s outlook including the trend towards ethical investing, for example AEF might even have a competitive advantage here as an independent manager, rather than one attached to a larger financial services group that elsewhere rides roughshod over the environment. While the fact that superannuation is compulsory in Australia and exponentially growing is also a positive.
Moreover, as I’ve highlighted before as a junior fund manager AEF also has potential to scale up and try to win large institutional mandates that could add $500 million or $1 billion to FUM in one stroke.
As such we can see the sky is the limit for a junior fund manager and if you invest in the right one you could be onto blockbuster gains over the long term. However, there’s a lot of risk around execution (FUM can come and go), management, markets, and investment performance, so AEF remains in the high-risk bucket.
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Tom Richardson owns shares of Macquarie Group Limited and Magellan Financial Group.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia has recommended Macquarie Group Limited. 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 Scott Phillips.