My wife and I have been on a prolonged share-buying spree since June last year. In our three main buying phases, we bought seven new US mega-cap stocks, 15 cheap FTSE 100 shares and five new FTSE 250 holdings. And one of our most recent acquisitions was in the exciting, mysterious and secretive world of hedge funds.
What are they?
Hedge funds are pooled investment funds that often employ complex techniques to trade global financial markets. Usually, they gear up (that is, magnify) their returns by using borrowed money and/or financial derivatives. Typically, these alternative investments cater solely to high-net-worth individuals, with minimum contributions often exceeding £1m.
I’ve met a number of hedge-fund managers and they all seem incredibly smart, driven and talented. But my family isn’t wealthy enough to afford to hand over £1m+ to a single fund manager. Hence, we’ve done the next best thing, which is to buy the shares of a leading UK-listed hedge-fund operator.
Long history
Earlier this month, my wife bought the cheap shares of Man Group (LSE: EMG) for our newest family portfolio. Man is the world’s largest listed hedge-fund firm, with origins dating back to 1783.
In its early years, Man was a commodities trader, notably in sugar, rum, coffee and cocoa. For example, its contract to supply rum to the Royal Navy ran from 1784 to 1970. That’s a remarkable history.
Today, it’s a leading UK-based alternative-asset manager, employing highly sophisticated algorithms and systematic-trading strategies across a wide range of financial markets. Currently, it employs around 1,400 people worldwide and managed total assets of $143.3bn for individual and institutional clients at the end of 2022.
Here’s how this FTSE 250 firm’s share fundamentals stack up today:
| Share price | 203.6p |
| Market value | £2.5bn |
| Earnings multiple | 8.6 |
| Dividend yield | 5.9% |
| Dividend cover | 2.0 |
| One-year change | -17.6% |
| Five-year change | +19.0% |
A single-digit earnings yield below nine means that these shares currently offer an attractive earnings yield of over 11.6% a year. That beats the FTSE 100’s earnings yield of around 9.3% a year.
What’s more, the above figures exclude cash dividends, which are very generous from this financial firm. And it’s worth noting that Man’s near-6% yearly cash yield is covered almost twice by historic earnings. This margin of safety looks good to me.
Man Group’s shares are well below their 52-week high of 293.8p, hit on 3 March (just before a US regional-banking crisis sent financial stocks plunging). And while they’re down more than a sixth over 12 months, the shares have risen by nearly a fifth over five years.
Of course, Man’s future success largely depends on the direction of global financial markets. For example, both stock and bond prices were highly volatile in 2022 — and markets have a habit of melting down. Even so, I see its shares as a long-term buy and hold, both for dividends and capital growth.
