The past decade has been a great one for shareholders of asset manager Schroders (LSE: SDR) as the company’s stock has risen 270% in value, well ahead of the 21.6% return posted by its FTSE 100 index.
And with a 3.35% dividend yield and forward valuation of just 14.9 earnings, I think long-term investors may find now an opportune moment to snap up a great company at an attractive price. Of course, with its market cap nearing £9bn, it will be much more difficult for Schroders to nearly quadruple in size in the next decade. But with the founding family still steering the company on a path of conservative, long-term-oriented growth, I don’t think it’s impossible.
In fact, judging by the group’s results for 2017, it’s well on its way. During the period, assets under management (AuM), the lifeblood of asset managers, rose a fantastic 13% to £2,068bn due to good performance from its funds and net inflows of £9.6bn. Rising AuM boosted pre-tax profits from £644m to £800m, which provided the firepower to increase dividends from 93p per share to 113p per share while maintaining adjusted earnings cover at 2 times.
Looking to the future, I still see considerable scope for Schroders to grow. Part of the reason is its steady-as-she-goes business model that is attractive to both investors in the company’s stock and investors looking for someone to effectively manage their money. On top of this, the group is actively expanding into new asset classes and pushing into regions such as the US, China and Japan that provide exciting long-term potential.
While asset managers are facing pressure from passive investing, I believe the strongest active managers such as Schroders will still have a role to play for decades to come. For those who are willing to ride the bumps that come with investing in such a cyclical industry, I reckon Schroders could be a great long-term option.
And one with more room to grow
Another asset manager that is still pulling in net inflows from clients while bigger competitors struggle is River and Mercantile (LSE: RIV). The £265m market cap firm reported a solid set of H1 results this morning that showed £800m of net inflows and positive performance from its funds helped boost AuM 13% year-on-year to £32.6bn.
In turn, rising AuM led to a 17% rise in post-tax profits to £9.6m thanks to ongoing fund charges and performance fees. Adjusted earnings per share came in a bit higher and led management to offer shareholders a 7.6p interim dividend. This goes some way towards meeting analysts’ consensus expectations for a 17.7p full year payout that would yield 5.5% at today’s share price.
With this half year continuing the company’s track record of high performance, it’s little surprise that its shares have risen 70% since going public in 2014. While the company has run into some trouble in recent months, including a star fund manager being sacked for conduct issues and an FCA investigation into a possible breach of competition rules, River and Mercantile is still a relatively small firm with a loyal following that could have plenty of room to grow in the future.
