Here is an interesting one - AJ Bell is a great platform player but from a standing start they have pretty much built an asset management business with about 6b AuM over the last two years utilising the expertise of their research team. Shows the utility of convenience for people as they make investment decisions.
on your video with Paul Hill re: MPAC thought I'd raise a couple of points that came up that may be of interest.
Historically the company has had two things thrown at it
1) lumpy order book and
2) as a consequence mixed cashflow (ie used in working capital and recovered in following periods)
Addressing the first point 30% of revenues now come from its service book which are regular by nature removing some of the lumpiness.
However, scale is also an important factor in smoothing the other 70% and that is why they have done the two recent deals. Those businesses mean they now not only offer a full suite of assembly line but also have the scale that should ensure less lumpiness in the overall business in future.
Secondly the recent major acquisition has a negative working capital model so that smooths the cashflow much better too, so we should see a highly cash generative business but one with much smoother/predictable progression of the cash.
Evidence of these changes in the financials should lead to a much better multiple rating and be earnings accretive which is why I like and own it.
I just happened to be catching up on my investments that I've had for several years and was listening to the half-year Next results webcast just yesterday. I have always loved how they consider Internal Rate of Return when they look at share buybacks and are very prudent with capital, and it is good to see they still have that philosophy today. And I'm very impressed with how they are doing internationally, and this made me think about comparing their overseas experience with a certain Tesco some years ago. Anyway I'm looking forward to their results.
Also, tech. I have avoided tech because I know they are doing well, and without looking at them closely I just expected tech-bubble valuations: P/E's in the 100s. But 20s to 30s, though a little high for a value-minded investor, is not crazy at all.
Anyone interested may research platinum asset mgt asx: ptm - manager offered original products, real alternatives, backed with good research. To no avail
Paul, as usual great balanced content! I think a few weeks ago you gave an update on the age range of your subscribers.. great to get that every so often if possible! Something like 7% were under 39?! I’m 32, and was initially surprised at the low number of under 40’s? (But probably shouldn’t be all that Suprised thinking about it!!)
hi Paul - just on Asset managers, it is all a bit more nuanced as there are multiple factors in play in the fund management space
1) institutional versus retail (pension funds etc. use AM's extensively and less ETFs) : Consultants tend to guide pension fund allocations
2) product mix - fixed income / absolute return / Equities / Niche areas
3) margin mix and platform offerings
Then you have environment. ETFs have done well because the US indices have had a good run and currently investors think double digit beta gains will go on indefinitely every year. Goldman Sachs however, think gains are likely to be closer to 3% compound over the next few years. If that proves to be the case then expect ETF outflows as you may as well put money in the bank at that rate, which will likely drive a revisit towards seeking Alpha and therefore active asset management. It may even cause a flash crash in my opinion as the ETF algo's could quite easily culminate in a self perpetuating cycle of downward moves if ETF outflows are aggressive enough.
I think certain AM's will likely start to perform again at some point in the cycle whereas others less so. Important to understand what each offers and what levers they have to pull as some will be very retail equity focused whereas others may have a broader product mix more institutionally focused. Mainstream articles sounding the death knell of active asset management are a bit sensationalist and lazy in my view. Once those start to appear in the media I'd almost be inclined to call the bottom personally!!
I completely agree David - you really need to differentiate between retail and institutional facing managers. I think fund managers offer a decent opportunity at current levels. If you don’t mind me asking, which do you find of most interest currently?
I already hold Man Group in the context of a largely institutional specialised manager i.e. absolute return, hedge funds etc. and it looks pretty cheap when you take into account the strong EPS growth forecasts for the next couple of years and a 6.5% dividend covered 1.5x by FCF. I can’t see any reason not to add to my position.
My view on REITs are they are really an act of financial engineering and therefore very responsive to interest rates. The argument that innovative management can be a significant return factor I just don't buy. I see it a lot like fund managers, there is a lot of luck involved. If only right place right time. So my view is it is largely an interest rate play. Given interest rates were falling pretty much from the eighties through to early noughties I can see why property was such a play. I also believe in the view that all things return to the mean, which is what they are doing now. You might have guessed I am not a buyer of REITs unless they have a solid property base, in a favourable sector, strong balance sheet and high yield. I just think there are more attractive sectors.
Paul, a couple of points in passing. Movements in short term rates are basically irrelevant for REITS and the property sector generally. They are driven by movements in longer term rates which have risen recently. We are currently floating around the Truss highs in yields, which may ultimately turn out to be a double top. The other factor that we all need to take into consideration is the ultimate demand for the properties owned by the REITS. If we are pushed into a recession, defaults may well increase, creating bad debts and reducing demand. This in turn will drive yields on properties owned higher and prices lower. Refinancing costs are a further issue if current higher long term rates exist for an extended period of time. Obviously if longer term rates start to fall later in the year, its a different story.
Here is an interesting one - AJ Bell is a great platform player but from a standing start they have pretty much built an asset management business with about 6b AuM over the last two years utilising the expertise of their research team. Shows the utility of convenience for people as they make investment decisions.
Hopefully you guys will be able to cover Litigation Capital Management - small cap about 100m.
hi Paul,
on your video with Paul Hill re: MPAC thought I'd raise a couple of points that came up that may be of interest.
Historically the company has had two things thrown at it
1) lumpy order book and
2) as a consequence mixed cashflow (ie used in working capital and recovered in following periods)
Addressing the first point 30% of revenues now come from its service book which are regular by nature removing some of the lumpiness.
However, scale is also an important factor in smoothing the other 70% and that is why they have done the two recent deals. Those businesses mean they now not only offer a full suite of assembly line but also have the scale that should ensure less lumpiness in the overall business in future.
Secondly the recent major acquisition has a negative working capital model so that smooths the cashflow much better too, so we should see a highly cash generative business but one with much smoother/predictable progression of the cash.
Evidence of these changes in the financials should lead to a much better multiple rating and be earnings accretive which is why I like and own it.
best
David
I just happened to be catching up on my investments that I've had for several years and was listening to the half-year Next results webcast just yesterday. I have always loved how they consider Internal Rate of Return when they look at share buybacks and are very prudent with capital, and it is good to see they still have that philosophy today. And I'm very impressed with how they are doing internationally, and this made me think about comparing their overseas experience with a certain Tesco some years ago. Anyway I'm looking forward to their results.
Also, tech. I have avoided tech because I know they are doing well, and without looking at them closely I just expected tech-bubble valuations: P/E's in the 100s. But 20s to 30s, though a little high for a value-minded investor, is not crazy at all.
Ad asset managers.
Anyone interested may research platinum asset mgt asx: ptm - manager offered original products, real alternatives, backed with good research. To no avail
Paul, as usual great balanced content! I think a few weeks ago you gave an update on the age range of your subscribers.. great to get that every so often if possible! Something like 7% were under 39?! I’m 32, and was initially surprised at the low number of under 40’s? (But probably shouldn’t be all that Suprised thinking about it!!)
hi Paul - just on Asset managers, it is all a bit more nuanced as there are multiple factors in play in the fund management space
1) institutional versus retail (pension funds etc. use AM's extensively and less ETFs) : Consultants tend to guide pension fund allocations
2) product mix - fixed income / absolute return / Equities / Niche areas
3) margin mix and platform offerings
Then you have environment. ETFs have done well because the US indices have had a good run and currently investors think double digit beta gains will go on indefinitely every year. Goldman Sachs however, think gains are likely to be closer to 3% compound over the next few years. If that proves to be the case then expect ETF outflows as you may as well put money in the bank at that rate, which will likely drive a revisit towards seeking Alpha and therefore active asset management. It may even cause a flash crash in my opinion as the ETF algo's could quite easily culminate in a self perpetuating cycle of downward moves if ETF outflows are aggressive enough.
I think certain AM's will likely start to perform again at some point in the cycle whereas others less so. Important to understand what each offers and what levers they have to pull as some will be very retail equity focused whereas others may have a broader product mix more institutionally focused. Mainstream articles sounding the death knell of active asset management are a bit sensationalist and lazy in my view. Once those start to appear in the media I'd almost be inclined to call the bottom personally!!
I completely agree David - you really need to differentiate between retail and institutional facing managers. I think fund managers offer a decent opportunity at current levels. If you don’t mind me asking, which do you find of most interest currently?
I already hold Man Group in the context of a largely institutional specialised manager i.e. absolute return, hedge funds etc. and it looks pretty cheap when you take into account the strong EPS growth forecasts for the next couple of years and a 6.5% dividend covered 1.5x by FCF. I can’t see any reason not to add to my position.
My view on REITs are they are really an act of financial engineering and therefore very responsive to interest rates. The argument that innovative management can be a significant return factor I just don't buy. I see it a lot like fund managers, there is a lot of luck involved. If only right place right time. So my view is it is largely an interest rate play. Given interest rates were falling pretty much from the eighties through to early noughties I can see why property was such a play. I also believe in the view that all things return to the mean, which is what they are doing now. You might have guessed I am not a buyer of REITs unless they have a solid property base, in a favourable sector, strong balance sheet and high yield. I just think there are more attractive sectors.
Fund manager with inflow of funds - Polar Capital
Paul, a couple of points in passing. Movements in short term rates are basically irrelevant for REITS and the property sector generally. They are driven by movements in longer term rates which have risen recently. We are currently floating around the Truss highs in yields, which may ultimately turn out to be a double top. The other factor that we all need to take into consideration is the ultimate demand for the properties owned by the REITS. If we are pushed into a recession, defaults may well increase, creating bad debts and reducing demand. This in turn will drive yields on properties owned higher and prices lower. Refinancing costs are a further issue if current higher long term rates exist for an extended period of time. Obviously if longer term rates start to fall later in the year, its a different story.
Paul, I am interested in learning about REITS too. Could you do a review for premium subscribers please? I am a novice but do see the appeal in them.
Do your best Simon Cowell impression when judging Paul Hill’s top 20 for 2025! 🤣