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
PROMOTED VIDEO
Sport
Two christmas trees ,Moonbeam (2L), Moonchester (2R) and Santa Claus outside the Etihad Stadium
footballAll the action from today's games
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
News
i100
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas