James Moore: Fund-lovers can prosper but must choose carefully

Investment View: Rathbone's mainstay is people with at least half a million or so sitting around

Fund managers aren't bankers, but the accusation that they behaved as "absentee landlords", sitting by while bank bosses blew their businesses up, means they aren't winning any popularity contests right now.

One reason why they've done little to resist some outrageous City pay deals is because it could be argued that they are part of the problem. An awful lot of actively managed funds fail to beat their benchmarks, and yet fund managers are usually richly rewarded for failing.

That is an issue for investors. Compensation ratios at fund management firms – the amount of revenue taken by staff – can look remarkably similar to those at investment banks.

And the markets are tough. Even with the pitiful returns available from cash and bonds, investors are wary of committing their cash to their equity funds (which offer the best margins), preferring to sit on their hands.

External shareholders (fund managers tend to own big chunks of their employers) need to be very sure that their interests are being served just as well as the interests of the golden circle of top staff before investing. And they need to pick carefully.

One company that this column has backed for a while as a recovery play is Aberdeen Asset Management. Its role in the split-capital investment trust scandal is a black mark – that nearly broke the company. But Aberdeen took the hit, paid out compensation and has emerged a dramatically different, and more successful business.

It is no longer a screaming bargain, having recovered much of the ground lost in August.

However, even though shares outperformed last year they still trade on only 8.6 times this year's prospective earnings, with a solid forecast yield of 4.3 per cent. They're a buy.

Jupiter is another company that will repay long-term investors. At 11.4 times full-year earnings, yielding 3.5 per cent, it trades at a premium to Aberdeen, but the shares are still way off last year's highs.

What works about the company from an investment standpoint is that it is sensibly run and unlikely to indulge in deals that could destroy value. It also has net cash on the balance sheet, and achieved this well ahead of forecasts. We'd suggest holding for the long haul.

Henderson trades at 10 times 2012 earnings but with a prospective yield of 6.9 per cent. It is one of the largest independently listed UK fund managers, having rescued rival Gartmore.

That was not expensive, but there's always a risk with deals involving fund managers that the assets under management you have bought will head for the door. This has been happening. Henderson also faces a potentially embarrassing lawsuit from investors in one of its infrastructure funds.

The financials look reasonably attractive, partly because Henderson shares performed badly last year, but we'd be inclined to maintain a watching brief for the moment. Avoid.

F&C Asset Management presents an interesting conundrum. This column is a big fan of its corporate governance unit, led by George Dallas, who once actually voted against F&C's own remuneration report. But the company has been underperforming, and critics have said that it spent too much buying into hedge funds. That prompted the activist investor Ed Bramson to grab control after a brief, but entertaining, struggle.

Mr Bramson's fund management experience is rather limited and his record as a turnaround specialist is mixed. So far he hasn't been able to do much to address F&C's declining share price. But F&C trades on just 7.8 times forecast 2012 earnings, with a 5 per cent yield. Not for the faint of heart, but worthy of a buy.

Schroders is undoubtedly the sector heavyweight. The blue-blooded firm might have some appeal to those who value a safety-first approach. But these shares come at a hefty price tag of 14 times 2012 forecast earnings while yielding just 2.9 per cent. There are better and cheaper opportunities.

Another that might interest conservative investors is Rathbone. Its mainstay is people with at least half a million or so sitting around. They hand over their money, pay a chunky fee, and leave Rathbone to look after it. The company is rather stuffy and complacent, although its formula has served it well.

However, at 14 times 2012 earnings, yielding 4 per cent, the shares are over-priced after a good run.

Ashmore also isn't cheap but is focused on emerging markets; hence its premium rating of 15 times 2012 earnings (yielding just over 4 per cent). Its exposure to a part of the world that is actually growing makes it worth a look. Buy. This column has already mentioned the hedge fund manager Man Group as a result of its astonishing yield (now 12 per cent). The shares trade on just 9 times 2012 forecast earnings, but the company is losing clients and its funds have hit trouble. Steer clear.

Start your day with The Independent, sign up for daily news emails
house + home
Arts and Entertainment
tvGame of Thrones season 5 ep 4, review - WARNING: contains major spoiliers!
Life and Style
Bats detect and react to wind speed and direction through sensors on their wings
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
Tiger Woods and Lindsey Vonn are breaking up after nearly three years together
peopleFormer couple announce separation in posts on their websites
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
Arts and Entertainment
Haunted looks: Matthew Macfadyen and Timothy Spall star in ‘The Enfield Haunting’
tvThe Enfield Haunting, TV review
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living