Investment View: When it comes to fund managers, deal size matters

Asset managers are people businesses reliant on the money managers they employ

Getting excited about the markets again? When the likes of Goldman Sachs' guru Jim O'Neill starts talking up equities it pays to keep at least one ear open. And that's what he has been doing, arguing that big investors are poised to desert government bonds and their pitiful yields for the stock market. That could fuel a sustained rally.

You actually don't need to worry too much about the UK economy – the FTSE 100 is dominated by multinational companies that make lots of their money abroad. However, America's and the eurozone's economic problems could yet knock his thesis off course.

Which brings us to fund managers. Shares in the sector's constituents have done rather well over the last year or so, but if Mr O'Neill is right, their good performance ought to continue.

Asset managers are people businesses, highly reliant on the skills and reputations of the money managers they employ, so they have to be approached with some caution.

As a rule, if you're considering the sector, it would pay to be invested in stable, dependable firms with solid cultures that are unlikely to be tempted by big-ticket deals. These can be very disruptive to this sort of business. Smaller deals, by contrast, are OK.

I last ran the slide rule over this sector on 23 January (published on 24 January) and I said Aberdeen Asset Management was one to hold for the long term. The phoenix-like company (it nearly burnt up during the split capital investment trust scandal) is in the FTSE 100 and has rewarded holders, surging up above 370p from 238p. It has outperformed most rivals since my last look.

The company trades on 15 times forecast earnings for the year ending 30 September, with a solid prospective yield of 3.5 per cent. It's looking pricey. Nonetheless, long term, I would be a holder of this stock, and I think the company will repay those who stick with it. So hold.

Jupiter is a slightly different beast, being much more weighted toward retail fund management. It hasn't had quite the run Aberdeen has enjoyed, standing at 220.9p when I last looked, although with the shares breaking through the 300p barrier it hasn't done badly.

The shares trade on a multiple of 15.6 times this year's earnings, with a forecast yield of 2.6 per cent. Again, this is a business that where I would be a long-term holder, and although it has a different profile to Aberdeen, the reasons are largely similar: Jupiter is well managed. It appears to be stable, and it boasts some good fund managers.

Henderson I tagged as one to avoid, although it has traded more or less in line with Jupiter since then. The group's most recent financial statements showed assets under management rising, but the company continuing to suffer a net outflow of money. In other words, clients are withdrawing their cash, but what's left went up because the markets rose.

At 12 times forecast earnings Henderson is cheap, although that's largely because it has a lot to prove. There's a decent forecast yield of 5.6 per cent. I'm beginning to think it might just be worth rolling the dice on this one, although I'd only make it a speculative buy. Tread carefully.

I'd be more wary of F&C Asset Management. I've always liked the fact that the company has spoken out on corporate governance and used its votes where they count. But I'm not a fan of the fact that it doesn't obey best practice in the way it is run. Edward Bramson, the activist investor who seized control a couple of years back, recently stepped down as chief executive, but he's still chairman. And a chairman ought to be independent so they can represent the interests of all investors.

Mr Bramson has had an impact on a share price that was struggling before his arrival, and of the big UK fund managers, only Aberdeen betters F&C's performance over the last year. However, he's also managed to kick some good people out of the door. At 11 times forecast earnings for 2013, with a forecast yield of 3 per cent, the shares are not all that expensive. But I'd still steer clear.

The blue-blooded Schroders satisfies my desire for stable companies. It's just very pricey at 16 times forecast earnings, yielding a shade over 2 per cent. The same goes for Rathbone Brothers, which targets wealthy investors who are willing to hand their money over to the firm's discretionary managers and leave it with them for a sizeable fee. The formula works well but the shares, on 15.5 times this year's forecast earnings, have been on a very good run recently, although the 3.7 per cent forecast yield is OK.

Ashmore, with its focus on emerging markets, deserves a premium, and at 16 times forecast earnings for the year to 30 June it has one. However, it offers a 4 per cent yield and exposure to parts of the world that are still growing. The shares aren't much above the 355p at which I said buy last year, and the company had a bit of a bumpy ride last year. It can bounce back. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable