The asset management industry is well-positioned for long-term growth thanks to the expansion of investable assets, increasing disposable income, the growing popularity of passive investments, digitization, and the adoption of advanced technologies.
Given this backdrop, it could be wise to add fundamentally strong asset management stocks Artisan Partners Asset Management Inc. (APAM), Federated Hermes, Inc. (FHI), and SuRo Capital Corp. (SSSS) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the industry’s prospects.
Last year, asset management companies benefited from the collapse of three regional banks as depositors took out their money from risky banks and invested in instruments yielding better returns. The Dow Jones U.S. Asset Managers Index has risen 7.8% over the past year. The asset management industry is benefiting from the accumulation of savings, growth of wealth and the rise in the number of high-net-worth individuals.
Moreover, a rapidly aging population means there would be increased contributions toward retirement and pension funds. The global assets under management in the wealth management market are forecasted to reach $130.60 trillion in 2024 and grow at a CAGR of 5.9% to reach $155.10 trillion by 2027.
In order to attract a different class of investors, asset managers are diversifying into alternative asset classes. Such diversification is not only helping generate better returns but also reducing the overall risk. Hence, investments are flowing into alternative asset classes, including real estate, private equity, private debt, etc.
Additionally, asset managers are integrating environmental, social, and governance (ESG) investing into their investing processes, helping attract many institutions and individuals who seek to invest in companies or sectors with strong ESG practices.
Furthermore, the asset management industry is set to benefit significantly from the adoption of advanced technologies such as artificial intelligence (AI), machine learning, and big data analytics.
The application of generative AI would help asset managers identify potential risks, assist in decision-making, enhance operational efficiency, provide deeper insights into trends, etc. The use of AI in the asset management market is projected to grow at a CAGR of 24.4% to reach $11.90 billion by 2030.
Considering these conducive trends, let’s assess the fundamentals of the featured Asset Management stocks, beginning with the third choice.
Stock #3: Artisan Partners Asset Management Inc. (APAM)
APAM is a publicly owned investment manager. It provides its services to pension and profit-sharing plans, trusts, endowments, foundations, charitable organizations, government entities, private funds, and non-U.S. funds, as well as mutual funds, non-U.S. funds, and collective trusts. It manages separate client-focused equity and fixed-income portfolios.
In terms of the trailing-12-month EBIT margin, APAM’s 31.36% is 44.8% higher than the 21.65% industry average. Likewise, its 32.31% trailing-12-month EBITDA margin is 45.8% higher than the 22.16% industry average. Furthermore, the stock’s 0.69x trailing-12-month asset turnover ratio is 232.3% higher than the 0.21x industry average.
APAM’s total revenues for the fiscal third quarter ended September 30, 2023, increased 6.1% year-over-year to $248.70 million. Its adjusted net income rose 7.8% over the prior-year quarter to $60.80 million. The company’s adjusted EBITDA increased 7.5% year-over-year to $85.50 million.
In addition, its adjusted operating income rose 4.9% year-over-year to $80.90 million. Also, its adjusted EPS came in at $0.75, representing an increase of 7.1% year-over-year.
Analysts expect APAM’s EPS and revenue for the quarter ended December 31, 2023, to increase 14.2% and 9.7% year-over-year to $0.74 and $247.90 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 27% to close the last trading session at $42.67.
APAM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum and Quality. It is ranked #11 out of 49 stocks in the B-rated Asset Management industry. Click here to see the additional ratings of APAM for Growth, Value, Stability, and Sentiment.
Stock #2: Federated Hermes, Inc. (FHI)
FHI is a publicly owned investment manager. The firm provides its services to individuals, including high-net-worth individuals, banking or thrift institutions, investment companies, pension and profit-sharing plans, pooled investment vehicles, charitable organizations, state or municipal government entities, and registered investment advisors.
On January 4, 2024, FHI announced the launch of the Federated Hermes Total Return Bond ETF (FTRB). The Total Return Bond launch marks FHI’s fourth product.
Federated Advisory Companies’ President and CEO John B. Fisher said, “During times of market volatility, fixed-income securities can be an important part of a diversified portfolio. By offering the rigorously vetted approach used for our recognizable fixed-income products in an ETF structure, Federated Hermes remains well-poised to deliver on investment client mandates in a variety of formats.”
In terms of the trailing-12-month Return on Common Equity, FHI’s 25.13% is 114.3% higher than the 11.72% industry average. Likewise, its 17.98% trailing-12-month levered FCF margin is 2.5% higher than the 17.55% industry average. Furthermore, the stock’s 0.79x trailing-12-month asset turnover ratio is 278.4% higher than the 0.21x industry average.
For the fiscal third quarter, which ended September 30, 2023, FHI’s total revenue increased 5.6% year-over-year to $402.66 million. Its operating income rose 4.8% year-over-year to $101.42 million. The company’s net income increased 8% over the prior-year quarter to $75.03 million. Also, its EPS came in at $0.86, representing an increase of 10.3% year-over-year.
For the quarter ended December 31, 2023, FHI’s EPS and revenue are expected to increase 30.8% and 6.4% year-over-year to $0.82 and $397.63 million, respectively. Over the past month, the stock has gained 4.8% to close the last trading session at $33.98.
FHI’s POWR Ratings reflect solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the same industry, it is ranked #9. It has a B grade for Momentum and Quality. To see the other ratings of FHI for Growth, Value, Stability, and Sentiment, click here.
Stock #1: SuRo Capital Corp. (SSSS)
SSSS is a business development company. The firm seeks to invest in growing, late-stage, venture capital-backed private companies.
In terms of the trailing-12-month gross profit margin, SSSS’ 100% is 65.6% higher than the 60.37% industry average. Likewise, its 32.11% trailing-12-month net income margin is 27.8% higher than the 25.13% industry average.
SSSS’s total investment income for the third quarter ended September 30, 2023, and increased 182.1% year-over-year to $1.47 million. Its interest income from controlled investments rose 3.9% over the prior-year quarter to $400 thousand. The company’s net investment loss narrowed 29.9% year-over-year to $2.67 million. In addition, its net change in net assets resulting from operations came in at $25.19 million.
Street expects SSSS’ revenue for the quarter that ended December 31, 2023, to increase 73% year-over-year to $1.10 million. Its EPS for fiscal 2023 is expected to increase 112% year-over-year to $0.53. Over the past six months, the stock has gained 23.7% to close the last trading session at $4.02.
SSSS’ POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #7 in the Asset Management industry. It has an A grade for Sentiment and a B for Growth, Momentum, and Quality. Click here to see the other ratings of SSSS for Value and Stability.
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FHI shares were unchanged in premarket trading Friday. Year-to-date, FHI has gained 0.35%, versus a 0.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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