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3 Asset Managers Set to Continue Their Winning Streak in 2024

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Despite the relatively subdued market volatility in 2023, the performance of the asset management/investment management industry has been decent so far this year.

The Dow Jones U.S. Asset Managers Index has risen 17.1% so far this year. This compares with the 23.1% rally of the S&P 500 Index over the same period.

Year 2023 witnessed a volatile trend in asset flows. While most asset managers recorded net outflows in the third quarter, most industry players recorded net asset inflows in the second quarter, partly supported by the deposit flight into money markets that took place as a result of the collapse of the three major regional banks in the United States.

Thus, most investment managers recorded year-over-year increases in their assets under management (AUM) balances in the nine months ended Sep 30, 2023, driven by a positive trend in flows and decent client activities.

Higher AUM balances resulted in increases in asset managers’ top lines. Most players recorded a rise in performance fees and investment advisory fees, which constitute the majority of their revenues.

While the continued shift to lower-cost passive investment strategies from active investment managers resulted in contractions in asset managers’ margins, the higher interest rate environment supported margin growth to an extent this year.

Thus, despite the current challenging operating environment (concerns over inflation, elevated costs due to investments in technology and hiring, increasing regulations, subdued volatility, and other geopolitical issues), the performance of asset managers are expected to remain decent heading into 2024, supported by the impressive performance of active exchange-traded funds (ETFs) and product innovation, with focus on the development of investor-centric products.

Moreover, there are a lot of opportunities for asset managers in 2024, driven by the rising demand for environmental, social and governance, and digital assets.

Thus, we bring you three stocks from the asset management industry that have performed well in 2023 and are poised to continue their winning streaks in 2024.

Share prices of these three companies have increased more than 25% so far this year. The companies have a market capitalization of more than $2 billion. Their earnings and sales for the next year are expected to witness year-over-year increases.

Stocks in Focus

KKR & Co. Inc. (KKR - Free Report) : Based in New York, NY, the company has a market cap of $72 billion. KKR is a private equity and real estate investment firm that specializes in direct and fund-of-fund investments, acquisitions, leveraged buyouts, management buyouts, credit special situations, growth equity, mature, mezzanine, and distressed investments.

As of Sep 30, 2023, KKR managed $528 billion of assets for its clients. The company has consistently been a leader in the private equity industry, completing 725 private equity investments in portfolio companies with a transaction value of more than $705 billion.

In the first nine months of 2023, the company’s total revenues witnessed a significant year-over-year rise. The increase was largely driven by an upsurge in net premiums and net investment income within the Insurance segment. Also, the Asset Management segment recorded a rise in capital allocation-based income.

So far in 2023, KKR shares have gained 76.3%.

In November 2023, the company announced an agreement to acquire the remaining 37% stake in the leading insurance company — Global Atlantic Financial. The deal is expected to close in the first quarter of 2024.

Notably, since 2021, KKR has served as Global Atlantic’s asset manager, offering access to its global investment and origination capabilities for the benefit of Global Atlantic’s policyholders. Global Atlantic has been a key element of KKR’s growing real estate credit and asset-based financing businesses.

KKR announced a series of strategic initiatives, contingent upon the closing of the above-mentioned deal. The company expects the initiatives, along with the expanded ownership of Global Atlantic, to be accretive to earnings per share.

In 2024, KKR’s earnings are expected to witness year-over-year growth of 41.2%, while its revenues are projected to grow 19.8%. Currently, the company carries a Zacks Rank #3 (Hold).

Apollo Global Management, Inc. (APO - Free Report) : APO, with a market cap of $52 billion, also carries a Zacks Rank #3 at present.

Headquartered in New York, NY, the company is a high-growth, global alternative asset manager and a retirement service provider, which conducts its business through the Asset Management, Retirement Services and Principal Investing segments.

As of Sep 30, 2023, the company had total AUM of $631.2 billion, which increased 15.2% from the Dec 31, 2022 level. The increase was primarily driven by Atlas, growth of its retirement services AUM and subscriptions across its platform, partly offset by distributions and redemptions.

In the nine months ended Sep 30, 2023, APO’s total revenues increased significantly year over year. The rise was primarily driven by an increase in net advisory and transaction fees, and investment income within the Asset Management segment, along with higher net investment income within the Retirement Services segment.

Year to date, APO shares have gained 43.9%. In 2024, its earnings are projected to grow 19.7% and revenues are expected to increase 15.4% year over year.

Victory Capital Holdings, Inc. (VCTR - Free Report) : This San Antonio, TX-based company offers investment management, fund administration, fund compliance, fund transfer agent and fund distribution services across the globe. As of Sep 30, 2023, the company had $153.5 billion of AUM.

As of the same date, it offered 116 investment strategies through 11 autonomous investment franchises and solutions platforms.

Supported by a solid balance sheet, Victory Capital has been undertaking inorganic growth efforts. In December 2021, VCTR completed the acquisition of WestEnd Advisors for $716.1 million. WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or a complementary source of alpha.

On Nov 1, 2021, it acquired New Energy Capital Partners, an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies. These deals have been earnings accretive and are expected to support VCTR’s growth.

VCTR has been enhancing shareholder value through solid capital distributions. In March 2023, the company’s board of directors approved a new share repurchase program, authorizing the repurchase of up to $100 million worth of shares through Mar 31, 2025. As of Sep 30, 2023, $51.9 million worth of repurchase authorization was left. Moreover, on Nov 2, 2023, VCTR announced a regular quarterly cash dividend of 32 cents per share, scheduled to be paid out on Dec 22, 2023, to shareholders of record as of Dec 11.

Having a Zacks Rank of 3, VCTR has a market cap of $2.3 billion. So far this year, shares of the company have gained 27.5%. Its earnings are projected to grow 6.2% in 2024, while its revenues are expected to witness year-over-year growth of 0.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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