MoneyTalks: Why Morningstar reckons there is good value in these asset managers
MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Morningstar equity research analyst Shaun Ler.
Ler said there is good value in most asset managers and while there are inflationary challenges, the higher rate environment is not expected to materially impact diversified and better-performing asset managers.
“If equity markets appreciate, select asset managers such as Pinnacle and GQG, are likely to see their earnings recover faster than peers, partly from new flows as investor appetite for listed assets returns,” Ler said.
“Equity markets are currently at a cyclical low point and markets go through cycles and this cycle will recover.”
He said large asset managers with big funds have strong compounding power.
“They may get some outflows and redemptions but because their fund is so huge when they compound the upside will be very strong,” he said.
“For example 9% compounding on $1 million will be different to 9% compounding on $100 million.”
Ler said the current economic cycle is seeing selldowns across asset classes, which is where the value of asset managers with a diversified asset class offering comes into play.
“Where you don’t just sell one asset class but different asset classes although investors might redeem money from equities, there might be some inflows into other asset classes like private assets or ESG,” he said.
“Diversified fund managers are relatively more insulated.”
Ler said diversified fund manager PNI is an attractive investment proposition.
“In our view, the market underestimates Pinnacle’s growing asset class diversity – spanning both public and private asset classes – which provides a wider choice for investors and helps attract/retain assets through market cycles,” he said.
“Most of Pinnacle’s affiliates have solid long-term track records, a wide investment universe, and capacity for new money given their boutique structure and modest fees.”
Ler said another diversified fund manager well positioned in the challenged markets is PPT.
“Perpetual has diversified its business from being an active manager of Australian equities to deriving more earnings from the acquisitions of other asset managers, alongside its moat trustee services and private wealth businesses,” he said.
“We think both the private wealth and corporate trust segments can better withstand the threat of competition, are subject to less fee pressure and can generate more predictable growth relative to its funds management operations.
Ler also likes boutique fund manager GQG Partners and said it resembles some of Australia’s most successful fund managers in their heyday.
“The business continues to attract investor money and has a strong long-term performance track record,” he said.
“While it is a boutique manager, its sheer scale – close to $99 billion – means it is capable of growing earnings from the compounding of portfolio returns even if investor inflows cease.
Ler said the business does have risks, however, notably key person risk and exposure to less-sticky institutional money.
“This means elevated downside risks if GQG underperforms for an extended period, or if its key investment staff leave.”