Investing in asset management companies like Jupiter Fund Management (LSE: JUP) can lead you on a rocky ride, as they often tend to be more volatile than the underlying stock markets in which they invest.
When markets are strong, funds flow in, share prices rise… and when markets are weak, folks withdraw their cash, and share prices drop. But I reckon that volatility can work to the advantage of those of us investing long term for our retirement.
FTSE 250 constituent Jupiter has just released first-half figures, and they’re dominated by a net funds outflow of £1.1bn, though that is a significant slowdown from an outflow of £2.3bn in the first half of 2018 and £4.6bn for the full year. And to put it into perspective, assets under management still amounted to £45.9bn at 30 June.
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Profit Dip
Pre-tax profit for the period dropped 16% with EPS down 13%, and the interim dividend was held at a well-covered 7.9p per share. The firm’s operating margin moved up to 47% (from 43% at 31 December), and that looks pretty healthy.
Jupiter Fund Management is one that I think those with a short-term view should avoid, as share price spikes like 2017’s followed by 2018’s slump are, I think, reasonably likely to repeat. But I see it as a good one for those who like to top up at intervals over the course of an investment horizon of a decade or more.
I’d be tempted to dip in whenever the P/E was below the long-term FTSE 100 average of around 14 (as it is now). At the beginning of 2019, Jupiter shares could be had on a P/E of under 10, and I suggested at the time that “when markets are down, that’s the time to be investing more rather than selling out.” The price is up 31% since then.
Top buy?
Right now, I think Investec (LSE: INVP) is one of the best buys in the asset management business. Again, the share price shows volatility. Though Investec is itself in the FTSE 250, I prefer to compare with the FTSE 100, as the world’s biggest indices tend to account for the lion’s share of top asset managers’ holdings.
On that comparison, Investec’s shares have outperformed the Footsie over the past five years when the index has been up, and have underperformed when the index has been down. It certainly looks like one where you’d have done well to buy when the Investec price line fell below the FTSE 100’s.
On actual valuation terms, slowing but still positive earnings growth coupled with a share price that’s been falling since a peak in March 2018, have seen Investec’s forecast P/E decline to 8.6. That’s for the year to March 2020, and a stronger predicted EPS the following year would drop the P/E even lower, to under eight.
Bags of cash
If that’s not enough, Investec’s dividends have been gently progressive in cash terms, with yields gaining strongly on the recent share price weakness. Expected yields are up above 5% now, and around 2.3 times covered by prospective earnings.
In May, my colleague Rupert Hargreaves described Investec as a “dirt-cheap FTSE 250 income champion,” pointing to its global investment strategy as a key strength. I think he was right then, and even more right now.
I’m investing long-term for my retirement, and these are both firmly on my shortlist.
