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3 Asset Managers Set to Continue Their Winning Streak in 2022
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Asset management/investment management stocks continue to be the bellwethers of Wall Street, with the Dow Jones U.S. Asset Managers Index gaining 37.8% to date (as of Dec 30) for 2021 and 11.7% in 2020. The index also outperformed the S&P 500 Index, which has rallied almost 28% so far this year.
Hence, today we bring to you three asset management stocks – BrightSphere Investment Group Inc. (BSIG - Free Report) , Federated Hermes, Inc. (FHI - Free Report) and Victory Capital Holdings, Inc. (VCTR - Free Report) . These stocks have jumped more than 25% year to date and are expected to continue performing well in 2022 as well.
Like 2020, the asset management industry this year too continued to grapple with margin squeeze from lower fees, a shift toward passive investment strategies, rising capital expenditure to support digital transformation efforts and increased compliance costs. Despite facing the pandemic-driven market volatility, the industry emerged stronger, with assets under management (AUM) balance reaching a record $115 trillion in 2020 (per a McKinsey report).
On similar lines, the asset management industry has been witnessing a steady improvement in AUM balance this year on growing optimism over robust economic recovery. Though asset managers will have to deal with the above-mentioned headwinds, including inflation as we head into 2022, there’s a lot of opportunities driven by rising demand for the Environmental, Social, and Governance (ESG) and digital assets.
Thus, driven by rising inflows, growth in AUM is expected to continue well into next year. Asset managers’ revenues are expected to keep rising, supported by higher performance fees and investment advisory fees, which constitute the majority of their revenues. So, the overall outlook for the Investment Management industry looks fairly positive.
Also, the industry currently carries a Zacks Industry Rank #40, which places it at the top 16% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Our Choices
The above-mentioned three stocks have a market capitalization of not less than $2 billion and a positive earnings estimate revision of 1% or more for 2022 over the past 30 days. Also, all the stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our three picks year to date.
Image Source: Zacks Investment Research
BrightSphere Investment: Based in Boston, MA, BSIG is a global asset management company offering more than 60 investment strategies, with roughly $114 billion of AUM as of Sep 30, 2021. The company, which has a market cap of $2.1 billion, provides services to individuals and institutions, and invests in public equity, fixed income and alternative investment markets.
During the third quarter 2021, BrightSphere Investment concluded the previously announced divestiture of three of its affiliates – TWS, ICM and Campbell Global. Going forward, the company’s sole operating affiliate will be Acadian Asset Management. Suren Rana, BrightSphere’s president and CEO said noted that “The completion of these divestitures now provides our investors pure-play exposure to Acadian’s highly differentiated business.”
As of Sep 30, 2021, BSIG had cash and cash equivalents of $1.42 billion and debt of $427 million (including $33 million in revolving credit facility). In the third-quarter earnings presentation, the company noted that it expects to repay the revolving credit facility by this year-end. Also, BrightSphere Investment intends to buy back shares worth $1 billion during the fourth quarter.
The Zacks Consensus Estimate for BrightSphere Investment's 2022 earnings has moved 4.5% north over the past 30 days.
Federated Hermes: Headquartered in Pittsburgh, PA, FHI is a $634-billion global asset manager, formed following the merger between Federated Investors and Hermes Investment Management. The company has a market cap of $3.7 billion.
Federated Hermes offers world-class active investment management and engagement services across a wide range of asset classes for investors. Acquiring money market assets depicts the resilience of the company in the money market business. In September 2021, it completed the buyout of certain investment management-related assets of Horizon Advisers, and the changeover of equity and fixed-income fund assets worth nearly $562 million. Earlier in August, it acquired the remaining 29.5% interest in London-based Hermes Fund Managers Limited from BT Pension Scheme (BTPS). In 2018, Federated Hermes had acquired a controlling interest (60%) in Hermes Fund Managers Limited.
FHI continues to seek alliances and acquisitions to expand its operations in Europe and the Asia-Pacific region as well as in the United States and the rest of the Americas. It witnessed a four-year (ended 2020) AUM compound annual growth rate (CAGR) of 19.1%, with the uptrend continuing in the first nine months of 2021. Driven by the company’s inorganic growth efforts, this momentum will likely continue in the upcoming period as well.
Federated Hermes has a robust balance sheet. As of Sep 30, 2021, the company had total debt worth $102.2 million along with cash and other investments of $345 million. The company’s 2022 earnings estimates have been revised upward by 1.8% over the past 30 days.
Victory Capital: San Antonio, TX-based VCTR offers investment management, fund administration, fund compliance, fund transfer agent and fund distribution services across the globe. As of Nov 30, 2021, the company had $160.5 billion of AUM.
Victory Capital has been expanding inorganically. In November, the company announced a deal to acquire 100% of WestEnd Advisors, LLC for an upfront payment of $480 million on closing “with deferred earnout payments over a number of years upon the satisfaction of certain revenue growth targets.” In the same month, VCTR closed the previously announced transaction to buy New Energy Capital Partners for $65 million. Both deals will be immediately accretive to the company’s earnings.
The company has been efficiently managing capital. In the first nine months of 2021, VCTR had paid down debt worth $142 million and lowered the cost of debt.
Further, the company has been enhancing shareholder value through solid capital deployments. In November, it announced a 13.3% hike in quarterly dividend to 17 cents per share. Victory Capital also has a share repurchase authorization program in place. In December 2021, it announced a new share repurchase program authorizing it to buy back up to $15 million worth of shares. The plan, which replaces the earlier program announced in May, expires on Dec 31, 2023.
VCTR has a market cap of $2.5 billion. The company’s earnings estimates for 2022 have been revised 2% upward over the past month.
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3 Asset Managers Set to Continue Their Winning Streak in 2022
Asset management/investment management stocks continue to be the bellwethers of Wall Street, with the Dow Jones U.S. Asset Managers Index gaining 37.8% to date (as of Dec 30) for 2021 and 11.7% in 2020. The index also outperformed the S&P 500 Index, which has rallied almost 28% so far this year.
Hence, today we bring to you three asset management stocks – BrightSphere Investment Group Inc. (BSIG - Free Report) , Federated Hermes, Inc. (FHI - Free Report) and Victory Capital Holdings, Inc. (VCTR - Free Report) . These stocks have jumped more than 25% year to date and are expected to continue performing well in 2022 as well.
Like 2020, the asset management industry this year too continued to grapple with margin squeeze from lower fees, a shift toward passive investment strategies, rising capital expenditure to support digital transformation efforts and increased compliance costs. Despite facing the pandemic-driven market volatility, the industry emerged stronger, with assets under management (AUM) balance reaching a record $115 trillion in 2020 (per a McKinsey report).
On similar lines, the asset management industry has been witnessing a steady improvement in AUM balance this year on growing optimism over robust economic recovery. Though asset managers will have to deal with the above-mentioned headwinds, including inflation as we head into 2022, there’s a lot of opportunities driven by rising demand for the Environmental, Social, and Governance (ESG) and digital assets.
Thus, driven by rising inflows, growth in AUM is expected to continue well into next year. Asset managers’ revenues are expected to keep rising, supported by higher performance fees and investment advisory fees, which constitute the majority of their revenues. So, the overall outlook for the Investment Management industry looks fairly positive.
Also, the industry currently carries a Zacks Industry Rank #40, which places it at the top 16% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Our Choices
The above-mentioned three stocks have a market capitalization of not less than $2 billion and a positive earnings estimate revision of 1% or more for 2022 over the past 30 days. Also, all the stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our three picks year to date.
BrightSphere Investment: Based in Boston, MA, BSIG is a global asset management company offering more than 60 investment strategies, with roughly $114 billion of AUM as of Sep 30, 2021. The company, which has a market cap of $2.1 billion, provides services to individuals and institutions, and invests in public equity, fixed income and alternative investment markets.
During the third quarter 2021, BrightSphere Investment concluded the previously announced divestiture of three of its affiliates – TWS, ICM and Campbell Global. Going forward, the company’s sole operating affiliate will be Acadian Asset Management. Suren Rana, BrightSphere’s president and CEO said noted that “The completion of these divestitures now provides our investors pure-play exposure to Acadian’s highly differentiated business.”
As of Sep 30, 2021, BSIG had cash and cash equivalents of $1.42 billion and debt of $427 million (including $33 million in revolving credit facility). In the third-quarter earnings presentation, the company noted that it expects to repay the revolving credit facility by this year-end. Also, BrightSphere Investment intends to buy back shares worth $1 billion during the fourth quarter.
The Zacks Consensus Estimate for BrightSphere Investment's 2022 earnings has moved 4.5% north over the past 30 days.
Federated Hermes: Headquartered in Pittsburgh, PA, FHI is a $634-billion global asset manager, formed following the merger between Federated Investors and Hermes Investment Management. The company has a market cap of $3.7 billion.
Federated Hermes offers world-class active investment management and engagement services across a wide range of asset classes for investors. Acquiring money market assets depicts the resilience of the company in the money market business. In September 2021, it completed the buyout of certain investment management-related assets of Horizon Advisers, and the changeover of equity and fixed-income fund assets worth nearly $562 million. Earlier in August, it acquired the remaining 29.5% interest in London-based Hermes Fund Managers Limited from BT Pension Scheme (BTPS). In 2018, Federated Hermes had acquired a controlling interest (60%) in Hermes Fund Managers Limited.
FHI continues to seek alliances and acquisitions to expand its operations in Europe and the Asia-Pacific region as well as in the United States and the rest of the Americas. It witnessed a four-year (ended 2020) AUM compound annual growth rate (CAGR) of 19.1%, with the uptrend continuing in the first nine months of 2021. Driven by the company’s inorganic growth efforts, this momentum will likely continue in the upcoming period as well.
Federated Hermes has a robust balance sheet. As of Sep 30, 2021, the company had total debt worth $102.2 million along with cash and other investments of $345 million. The company’s 2022 earnings estimates have been revised upward by 1.8% over the past 30 days.
Victory Capital: San Antonio, TX-based VCTR offers investment management, fund administration, fund compliance, fund transfer agent and fund distribution services across the globe. As of Nov 30, 2021, the company had $160.5 billion of AUM.
Victory Capital has been expanding inorganically. In November, the company announced a deal to acquire 100% of WestEnd Advisors, LLC for an upfront payment of $480 million on closing “with deferred earnout payments over a number of years upon the satisfaction of certain revenue growth targets.” In the same month, VCTR closed the previously announced transaction to buy New Energy Capital Partners for $65 million. Both deals will be immediately accretive to the company’s earnings.
The company has been efficiently managing capital. In the first nine months of 2021, VCTR had paid down debt worth $142 million and lowered the cost of debt.
Further, the company has been enhancing shareholder value through solid capital deployments. In November, it announced a 13.3% hike in quarterly dividend to 17 cents per share. Victory Capital also has a share repurchase authorization program in place. In December 2021, it announced a new share repurchase program authorizing it to buy back up to $15 million worth of shares. The plan, which replaces the earlier program announced in May, expires on Dec 31, 2023.
VCTR has a market cap of $2.5 billion. The company’s earnings estimates for 2022 have been revised 2% upward over the past month.