The Platinum Asset Management Ltd (ASX: PTM) share price is on fire today, rising 6.71% at the time of writing to $3.89 a share. Platinum shares closed at $3.66 yesterday afternoon before opening at $3.79 this morning and climbed as high as $3.94 today before settling at their current level. By comparison, the S&P/ASX 200 Index (ASX: XJO) is also up today, but only by 0.73% to 6,692.8 points.
Today’s move caps off what has been a stellar week and month for the company. Platinum shares are up more than 11% over the past 5 trading days, and up more than 26% since the start of November.
Who is Platinum Asset Management?
Platinum is one of the most famous asset managers on the ASX, despite only starting out in 1994. Platinum made a name for itself by focusing on companies listed outside Australia’s ASX, one of the first ASX fundies to do so.
Platinum was co-founded by ASX investor and billionaire Kerr Neilson, with financial backing from the famous American billionaire (and the ‘man who broke the Bank of England’) George Soros.
Mr. Neilson sat at the helm of the company for almost 2 decades before stepping down as chief investment officer in 2013. He remained the chief executive officer of Platinum until 2018, when he handed the role to the current occupant Andrew Clifford. Mr. Clifford also serves as the current chief investment officer. Mr. Neilson remains at Platinum in the capacity of executive director though, and, according to the company, “remains fully engaged in the business and continues to work on the generation of investment ideas”.
Despite this blue-blooded reputation, Platinum has been struggling in recent years. The company’s shares were trading as high as $9 back in 2015, and as high as $8.72 as recently as 2018. That means Platinum shares are down almost 56% from these 2018 highs on current levels. That doesn’t compare well with other large ASX fund managers.
As an example, take another ASX fund manager, run by another famous billionaire investor in Hamish Douglass, and with a similar focus on global shares to Platinum – the Magellan Financial Group Ltd (ASX: MFG). The Magellan share price has risen close to 150% over the same period Platinum shares have fallen almost 56%.
So why has Platinum been underperforming so drastically in recent years?
Underperformance dogs Platinum
The company describes its methodology as a “contrarian, long-term investing philosophy”, seeking out “companies whose true worth and prospects are yet to be fully recognised by the market”. Platinum tells investors that “we look beyond short-term market turbulence caused by events of a transient nature to seek out ‘unfashionable’ companies whose actual worth is greater than the value implied in their present share price.”
Value investing not so valuable
However, value investing has faced many problems in recent years, having to navigate a market that has been more willing to reward a ‘growth investing style’, especially in the tech space.
We can see this reflected in the performance of some of Platinum’s flagship funds. For example, the Platinum Capital Ltd (ASX: PMC) LIC has returned an average of just 4.3% per annum over the past 5 years, compared with 8.5% p.a. for its benchmark, the MSCI AC World Net Index. The unlisted Platinum International Fund has fared even worse against the same benchmark, delivering just 0.1% in returns per annum over the past 5 years.
This underperformance is likely the reason why Platinum has been dealing with fund outflows for a while now, and presently manages just under $22 billion in assets. In contrast, Magellan now manages more than $100 billion.
My Fool colleague Tony Yoo reported on this phenomenon of value underperformance in September, and quoted Betashares senior investment specialist Cameron Gleeson:
Falling rates increase the present value of future cash flows, and this typically will have an especially positive impact for companies with strongly growing earnings… with the benefit of hindsight it’s perhaps not surprising that we have seen growth outperform value for over 10 years now.
What about the recent gains?
Although Platinum has evidently been struggling in recent years, the company’s recent share price performance would certainly be encouraging for investors.
In the company’s recent annual general meeting, Platinum reported that its funds under management had increased by 1.9% between 30 June and 31 October 2020. This was on the back of some recent good performance from its funds, as well as a rising tide on global share markets. Thus, it’s likely that investors who are watching the markets climb higher and higher this week are assuming the benefits will disproportionally benefit Platinum.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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 Scott Phillips.
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