We've often said that Fools shouldn't entrust their savings to fund managers, but investing in fund management companies is a different story.
The Motley Fool has always been sceptical about the value of actively managed investment funds. Often the performance isn't great, and the charges are typically much higher than for a tracker fund.
That said, fund managers can still make you money. That's if you invest in successful fund management companies. Aberdeen Asset Management
(LSE: AND)
, for example, has soared 124% since the beginning of 2005 while Liontrust Asset Management
(LSE: LIO)
has delivered a very respectable 20% rise over the same period.*
Indeed I think Liontrust could have further to go in the medium term. Its P/E ratio of 15 doesn't look cheap at first glance, but significant investment in launching new European funds may start to deliver earnings growth in 2008. It's certainly one to watch.
Europe, however, isn't the sexiest investment area in the world right now. I reckon that accolade should go to emerging markets such as China, India and Russia. And my colleague, Champion Shares editor Maynard Paton, has found a fund management company that concentrates primarily on young developing economies.
It looks like an attractive share to me and I think it has the potential to be a stock market winner.
Granted, investing in emerging markets is clearly riskier than buying solid blue chip shares such as National Grid
(LSE: NG)
or Lloyds TSB
(LSE: LLOY)
. Stock markets in developing countries have seen lots of volatility in recent years.
What's more, all fund management companies, regardless of their geographical focus, would probably suffer if stock markets crashed. That's because private investors tend to buy shares and funds when they're expensive and sell them when they're cheap.
That said, I think the long-term prospects for stock market investment are good and that means that fund management companies should have lots of opportunities to prosper too.
And I believe that the emerging market focus of Maynard's favourite fund management company may enable this share to do even better than many of its rivals. Along with the higher risk, comes a potentially higher reward.
Other pluses include rising profits, a debt-free balance sheet, and an experienced management team. What's more, the chief executive owns a 14% holding. Large management stakes are always a good sign in my view.
Sign up for a free 30-day trial to Champion Shares and you can find out the name of this company. You'll also be able to read Maynard's latest tip as soon as it's published next week. On top of all that, we've slashed the annual subscription price for our service to just £99 -- for a limited period only.
* Shares in Aberdeen Asset Management closed at 76.9p on 31/12/2004. They closed at 172p on 1/12/06. Shares in Liontrust Asset Management closed at 296p on 31/12/04, they closed at 356p on 1/12/06.
Risk Warning
You run the risk of losing money when investing in shares. Prices may change quickly, they may go down as well as up and you may not get back the full amount invested. You should not invest using money you cannot afford to lose. We have taken all reasonable care to ensure that all statements of fact and opinion contained in this publication are fair and accurate in all material aspects. Investors should seek appropriate professional advice from their stockbroker or other adviser if any points are unclear. Champion Shares gives general advice only, and the investments mentioned may not necessarily be suitable for any individual.
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