The Netwealth Group Ltd (ASX: NWL) share price is surging today, up 6.78% to $17.02 at the time of writing. Netwealth shares had closed at $15.88 a share yesterday, and opened at $16.25 this morning, climbing as high as $17.17 before settling at their current level.
At this level, the Netwealth share price has delivered a year-to-date return of more than 110% to investors, making it one of the best performing ASX financials shares of 2020 so far.
In fact, coming off the 52-week low of $4.80 we saw back in March, Netwealth is up more than 220%. In saying that, the company is still not at its 52-week high at these levels. Netwealth shares hit $18.67 back in mid-October, and remain almost 10% off that level even after today's gains.
So what is this high-flying company? And why are its shares climbing today?
What is Netwealth?
Netwealth is a $4.05 billion company that plays in the wealth management space. It offers a 'platform' service that allows individuals and financial advisors to access and manage a range of financial products and services.
Managing a portfolio of different assets can be difficult for ordinary 'retail investors' like you and me. Different investment classes and assets like individual ASX shares, internationally-listed shares, managed funds, foreign currencies, bonds and fixed-interest investments, term deposits, exchange-traded funds (ETFs) and superannuation accounts (not to mention tax records) are usually held through different providers or brokers. Thus, it can be difficult to 'keep track' of these different investments for many people.
That's where Netwealth's market lies. Its flagship 'Wealth Accelerator' platform offers a place to keep track of all of these assets, as well as other services like pensions, self-managed super funds (SMSFs), and insurance. Users can also use tools like dollar-cost averaging and income reinvestment as well as researching reports on companies and investments.
Financial advisors can also use the platform on behalf of their clients.
Why has the Netwealth share price had such a good day, and year?
Unfortunately, there is no obvious reason why Netwealth shares are outperforming today. The last market announcement the company made to the ASX was back in early November. As a case in point though, Netwealth shares are up almost 7% today, whereas the S&P/ASX 200 Index (ASX: XJO) is up just 0.87%.
However, another company in Netwealth's space is also experiencing outsized gains. Hub24 Ltd (ASX: HUB) shares (a Netwealth competitor) are up 3.25% at the time of writing.
So, it's possible that today's moves are just some optimism over the objectively fantastic year the company has had. Back in August, Netwealth released its earnings report for the 2020 financial year. In this report, the company outlined how revenues were up 25.9%, net income rose 25.5% and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 24.8%
ASX data shows that trading volume for Netwealth shares has ticked significantly higher over both today and yesterday – both days coming in far above Netwealth's average volume over the past five days.
The competition scored an own goal
Another possible reason investors are appreciating Netwealth shares of late could be the disruption the financial services industry as a whole has been experiencing since 2018.
The 2018 banking royal commission was heavily critical of the big four ASX banks and their wealth management arms. Especially the level of 'vertical integration' that was going on (i.e. how the banks' financial advisors were recommending their own products and services to customers). This has since resulted in Commonwealth Bank of Australia (ASX: CBA) selling a stake in Colonial First State, and National Australia Bank Ltd (ASX: NAB) deciding to offload MLC. Other wealth managers like AMP Ltd (ASX: AMP) and IOOF Holdings Limited (ASX: IFL) didn't come out unscathed either.
These companies are all more or less direct competitors to both Netwealth and Hub24. According to reporting in the Australian Financial Review (AFR) earlier this year, retail customers did not fail to notice those companies' tarnished reputations, providing Netwealth with a healthy tailwind going into 2020. It seems this tailwind has paid off over the year, if the company's earnings numbers are anything to go by. Perhaps investors are today betting this will continue into the new year.
