I’ve never been interested in handing my money over for someone else to invest for me, as their own profits are their top priority. But that’s the very same reason I’m a fan of buying shares in the fund managers themselves, especially as I’m investing for my retirement and can easily handle the short-term volatility that can come with them.
FTSE 250 hedge fund manager Man Group (LSE: EMG) shows the typical volatility of the sector, with a five-year record of severe ups and downs — and an overall gain of 57%. Add to that dividend yields averaging around 4%, and that’s a very desirable result, if you can stand the short-term heat.
With a bullish year on the cards, first-half funds under management have risen 5% to $114bn, and that’s due to the firm’s investment movement of $6.8bn which more than overcame a net outflow of $1.1bn. Adjusted pre-tax profit rose 3% to $157m, with adjusted EPS up 6% to 8.6 cents.
Chief executive Luke Ellis said: “We enter the second half of 2019 with good performance fee earning potential with 90% of Man AHL strategies at high water mark,” adding that the company’s priority is “long-term value for our shareholders.”
The stock’s P/E is nudging up a little as the shares have appreciated this year, and stands at 13 on 2019 forecasts. I’d generally prefer to buy at slightly lower valuations than that, but 2020 forecasts would drop it to under 11 — and dividends are expected to yield 4.5% this year and 5.3% next.
Man’s short-term unpredictability might turn away a lot of investors, but for those of use with at least a 10-year retirement horizon, I think its long-term track record makes it an attractive buy.
FTSE 100 wealth manager St James’s Place (LSE: STJ) is another I’ve always liked. It also has a solid dividend track record — with very similar forecast yields to Man Group at 4.7% and 5.3% for the next two years.
St James’s Place also put out first-half results Wednesday, though the shares fell 6% in response. The company took in a net funds inflow of £4.4bn, though gross inflows were down a bit, taking funds under management to a record £109.3bn. Pre-tax profit did fall, though, with an underlying figure down 29% to £81.5m.
The business puts a lot of importance on the quality of its investment advice, as that’s what it reckons its customers need in economically uncertain times. To that end, it has taken its number of fully qualified advisers up to 4,096, with more coming through the training process.
The only real downside for me is valuation. I see the shares as a bit toppy on a forward P/E of nearly 27 — close to twice the FTSE 100’s long-term average. And with a fall in earnings on the cards for the full year, it looks like the big investors might be turning away a little. The shares have gained 24% over five years, but they’re 23% down on their January 2018 peak.
If the dividends keep up (and I’ve no reason to think they won’t), St James’s Place still looks like an attractive long-term income investment. But I suspect the price will fall further, and I prefer the lower valuation and what I see as greater potential of Man Group, despite its shorter-term volatility risk.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.