Should you [Quantitatively] ease into this growth story?
Back in March we asked the question; Which Aussie Stock will benefit from European QE? It wasn’t a particularly inspiring question and we have to admit that we could have come up with something much more engaging like; “Are you missing out on this stock?” or, “Is this the one stock you should own?” But investing was never meant to be exciting and we aren’t a tipsheet.
The article was about a company called Henderson (ASX: HGG) – a global asset manager with GBP81.2 billion of Funds Under Management (FUM) ($AUD159 billion), and bigger than Westpac’s BT investment management business with $70 billion of FUM.
We noted on March 13 2015, that the share price of $5.26 implied FUM growth would be through market growth – essentially implying no new net flows. We noted; “This is surely conservative and would very much buck the recent trend of strong flows.” A month later the share price had rallied over 11 per cent and traded at $5.86. It has since pulled back to $5.55 but the company’s latest trading update after today’s market close suggests the price is once again implying lower than actual FUM growth rates.
The key points from the update for us are as follows:
- Assets Under Management (AUM) jumped +10 per cent in a quarter to GBP 89.4 billion. AUM is growing significantly faster than we were assuming.
- Of the GBP3.6 billion in quarterly net flows, the manager had appealed to a significantly larger portion of retail investors.
- Investment performance also improved, which is positive for future fund inflows. Funds outperforming over the trailing twelve months increased from 66 per cent to 75 per cent.
If a lower rate environment continues, beyond Euro quantitative easing, there is a real risk that a generational avalanche of retirees will seriously consider equities as a proper source of income for the long term. This means a sustained period of growth for fund managers even if there are bumps in the market along the way.
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Kelvin Ng
:
Hi Roger, thanks. That all makes sense. The thing is that because fund managers are leveraged plays on the markets, if the markets have a bit of a wobble, the fund managers will have a wobble x2. The European indices have been on a tear since January when Draghi announced QE, and now they’re consolidating/ retracing some of those gains. The key to this investment is to have an iron clad stomach to be able to ride out those bumps that you referred to. Not everyone has those types of stomachs.
Kelvin
Sean Taylor
:
Hi Roger. Thank you for the article. I went to Skaffold to research HGG but am unable to do so. I understand the data has been requested and when available will be uploaded. Can you tell me in the interim what it’s intrinsic value is?
Roger Montgomery
:
That depends entirely on your assumptions. Our current thinking is between $6 and $7 but that could change overnight if the market corrected and inflows halted.