Guinness Global Money Managers Fund Guinness Global Money Managers Fund A high conviction equity fund managed by Will Riley and Tim Guinness investing in quoted companies in the asset management sector. INVESTMENT COMMENTARY – July 2017 Aim What do the last 5 years tell us The Fund aims to deliver long-term capital about the sector? growth by capturing the strong returns that successful asset management companies In this month’s brief, we look at the 35 largest listed can deliver to shareholders. “pure play” asset managers in the world, to see what we We expect asset managers to outperform the broad can learn from trends developing in the sector over the market over the long term, primarily due to the past five years, and a closer look at their activity so far ability of successful managers to grow their this year. earnings more rapidly than the broad market. We also discuss our Fund performance over the second quarter of 2017 (the fund rose by 10.7% in USD over this 30.06.17 Performance period), and consider the outlook. 110% Guinness Global Money Managers Trends in the sector over the last 5 years 90% IA Global sector The list of the world’s 35 largest listed “pure play” asset FE Offshore financials funds 70% managers companies ranges in AuM terms from the smallest, Manning & Napier, running $32bn of assets, to 50% Blackrock, running $5.7trn of assets. The list is skewed 30% towards the US, with 19 of the 35 being US based, 10 in Europe (including 6 in the UK) and 6 based elsewhere. In 10% reality, of course, the domicile of the business hides the Cumulative total return fact that many of these companies have global -10% from Fund launch (31.12.10), in GBP operations and client bases. -30% 2011 2012 2013 2014 2015 2016 2017 The majority of the list are long-only equity, fixed income and money market specialists, but it does include 6 private equity firms, all listed in the US. Of the firms Index MSCI World Index specialising in equities, 2 (Blackrock and Invesco) have made significant strides into the ETF market, whilst a Financials Index MSCI World Financials Index handful of others are looking to expand in that direction. Fund launch 31.12.10 Our main findings are: Past performance should not be taken as an indicator of future performance. The value of • Assets under management, for many firms, have this investment and any income arising from it can fall as well as rise as a result of market grown well. This has of course been well supported and currency fluctuations. by market appreciation. There is a tail of managers, Source: Financial Express, bid to bid, total return. however, who have seen their businesses decline. • Despite the penetration of passives/ETFs into the market, the majority of companies have achieved net inflows. The rotation from active investments to 2015: BEST FUND OVER 3 YEARS passives/ETFs is mainly affecting the traditional, EQUITY SECTOR BANKS & OTHER FINANCIALS underperforming, low-active share US asset managers, with non-US firms doing better. Tel: +44 (0) 20 7222 5703 Guinness Asset Management Ltd is authorised and regulated by Email: [email protected] the Financial Conduct Authority Web: guinnessfunds.com Guinness Global Money Managers Fund • 2017 has seen a much stronger net inflow picture than 2016. • Net revenue margins have declined, on average, by about 10% since 2012. Operating margins are fairly steady over the period, though have come down a little since 2014. • Cashflow return on investment (CFROI) for the group remains elevated versus the broad market. • The dividend yield for the asset management sector versus the broader market was compressed in 2013, after very strong equity performance, but underperformance in 2015 and 2016 has result in the dividend yield expanding. Sector dividend yield now sits at a 40% premium to the broad market (vs 14% discount in 2013). How have assets under management grown over the last 5 years? Since the start of 2012, the MSCI World (which we use as a proxy for equity returns) has produced a price return of 43% and a total return of 61%, whilst the IBOXX Corporate Bond Index (which we use as a proxy for fixed income returns) has produced a total return of 17%. Unsurprisingly then, average growth in assets under management over this period has been strong, with assets rising on average by 47%. However, this statistic masks a very wide range of outcomes for the 35 participants, with some managers doubling their assets, others seeing declines of up to 30%. Growth in AuM: end-2012 to 2017 (%) 140% 120% 100% 80% 60% 40% 20% 0% -20% Anima Jupiter Artisan Invesco Amundi Ashmore KKR & Co Blackrock -40% Schroders Fiera Corp Blackstone CI FinancialCI Man Group Legg Mason Eaton Vance T Rowe Price Standard Life GAM Holding Carlyle Group Cohen & Steers Oaktree Capital Waddell & Reed Janus Henderson GAMCO Investors Manning & Napier Ares Management Franklin Resources Federated Investors Partners Group Holding Affiliated Managers Group Coronation Fund Managers Apollo Global Management BT Investment Management Aberdeen Asset Management Source: Bernstein; company reports; Guinness Funds How does this compare to net flows? Given that the level of assets being managed by each firm has enjoyed the tailwind of rising markets, analysis of the underlying flows of each business (being the net of subscriptions and redemptions) is perhaps more instructive. Past performance should not be taken as an indicator of future performance. The value of investments and any income arising from them can fall as well as rise. July 2017 guinnessfunds.com 2 Guinness Global Money Managers Fund Looking first at the group as a whole, we can see that in each of the four years from 2012 to 2015, around two- thirds to three-quarters of the top 35 firms experienced net inflows. 2016 was then an unusual year, with the number of firms enjoying net inflows falling to about half of the group. This worsening of flows for the sector clearly spooked the market, with asset management firms generally de-rating and underperforming the broader equity sector. However, 2017 has so far seen a return to 2012-2015 behaviour, with 71% of the top 35 enjoying net inflows. Asset managers: net inflows as % of closing AuM, 2012 to 2017 Net inflow as % of closing AuM Company 2012 2013 2014 2015 2016 2017 Average Partners Group Holding 17.4% 13.9% 12.5% 15.8% 14.3% 13.7% 14.6% Blackstone 19.3% 14.2% 9.2% 14.5% 10.6% 3.6% 11.9% KKR & Co 18.3% 25.2% 2.7% 1.4% 12.8% 3.0% 10.6% Anima -0.7% 8.3% 16.2% 15.1% 6.9% 2.3% 8.0% Ares Management 16.7% 9.4% 2.6% 9.4% 2.0% 6.6% 7.8% Apollo Global Management 2.1% 15.4% -2.6% 6.7% 8.5% 2.0% 5.3% Eaton Vance 0.1% 12.4% 1.0% 5.6% 6.2% 6.0% 5.2% Amundi 2.6% 1.5% 4.1% 9.1% 6.3% 3.0% 4.4% Schroders 5.0% 3.7% 9.4% 4.3% 0.4% 2.1% 4.2% BT Investment Management -1.8% 3.2% 4.3% 8.6% 5.6% 4.0% 4.0% Jupiter 4.2% 4.6% 2.8% 5.9% 2.8% 3.2% 3.9% Affiliated Managers Group 9.2% 9.4% 4.0% -0.5% 1.2% -0.2% 3.9% Coronation Fund Managers 16.8% 15.9% 6.5% -2.6% -12.3% -5.0% 3.2% Blackrock -0.1% 3.2% 4.5% 3.2% 4.3% 3.3% 3.1% Cohen & Steers -6.3% -4.3% -0.2% 5.1% 12.6% 3.7% 1.8% Artisan 10.2% 9.7% 0.8% -5.4% -4.8% -0.3% 1.7% Standard Life 2.7% 6.4% 0.5% 2.1% -0.8% -0.7% 1.7% Invesco 1.8% 5.2% -1.1% 0.3% 3.0% 0.6% 1.6% CI Financial 1.4% 4.9% 4.3% 3.3% -5.3% -0.3% 1.4% Federated Investors 1.2% -0.8% 1.4% 0.5% 1.1% -0.5% 0.5% T Rowe Price 3.5% -2.1% 0.5% 0.2% -0.4% 0.6% 0.4% Fiera Corp 0.0% 0.9% -0.5% 0.3% -2.1% 1.1% 0.0% GAM Holding 1.6% -3.2% 1.1% 2.4% -5.4% 2.3% -0.2% Franklin Resources 2.4% 6.1% 2.0% -2.3% -8.2% -1.5% -0.2% Carlyle Group -4.8% 9.8% -1.8% -0.4% -7.9% 2.6% -0.4% Man Group -12.5% -6.3% 6.1% 0.4% 2.4% 3.7% -1.0% Oaktree Capital -10.3% -5.7% 3.3% 10.4% -4.8% 0.0% -1.2% Ashmore 2.0% 20.9% -9.7% -12.7% -12.7% 4.9% -1.2% Legg Mason -1.8% 1.2% -0.8% -3.7% -3.6% 0.5% -1.4% Janus Henderson -7.1% -7.7% 0.9% 2.2% -2.5% 1.7% -2.1% GAMCO Investors -5.0% 3.1% -4.1% -12.2% -8.7% 0.3% -4.4% Virtus n/a n/a -2.1% -11.1% -10.0% 2.2% -5.2% Waddell & Reed 2.8% 8.9% -2.8% -11.1% -24.3% -7.7% -5.7% Aberdeen Asset Management 0.0% -1.3% -8.0% -10.5% -11.5% -4.3% -5.9% Manning & Napier -1.9% -5.6% -6.5% -22.9% -23.1% -6.3% -11.0% Source: company reports; Guinness Funds Past performance should not be taken as an indicator of future performance.