Key statistics: ASX: BTT
Closing share price 14.11.17: $10.850
52-week high: $13.260
52-week low: $9.060
Most recent dividend: 26c
Annual dividend yield: 4.16%
When considering an investment, you need to consider the tide and the swimmer. When the tide is against you, even the strongest swimmer is going to go backwards.
The tide has been flowing with the active funds management industry for a long time, with the wall of money coming from superannuation providing an ever-growing pool of assets. But now the tide may be changing.
Passive investment vehicles such as exchange traded funds (ETFs) and index funds have been increasing in popularity due to their low fees.
This is having a twofold impact on fund managers. One is that some managers are seeing net fund outflows and the other is increasing pressure to reduce fees.
The question is, has the tide turned such that even the strongest of swimmers in funds management will struggle to make any progress, or will some of the more outstanding businesses be able to differentiate themselves sufficiently to continue to build a strong business?
There are a number of ASX-listed fund managers that investors can buy shares in, including Platinum Asset Management, Magellan Financial Group, Perpetual and BT Investment Management.
BT Investment Management (BTIM) released its full-year results last week and demonstrated that it is still making good progress despite the forces rallying against it.
The key metric for a fund manager – funds under management (FUM) – has been growing at 13%pa over the past five years, reaching $96 billion by September 2017. Importantly, BTIM had net fund inflows of $4.7 billion for the year. Both Perpetual and Platinum had net outflows.
In addition to net inflows, and positive performance contributing to an increase in FUM, BTIM has managed to increase its average fees despite the overall industry pressure to reduce them. Over the past five years average base management fees have increased from 0.41% to 0.50%.
This has been achieved by gradually shifting the mix of its portfolio away from low-fee-paying products and into higher-fee products.
Performance fees halved in the 2017 financial year, resulting in a slight decline in total revenue. Performance fees by their nature are volatile from year to year but encouragingly BTIM has managed to outperform its benchmarks on 95% of its funds under management over the past five years.
All of this has resulted in earnings per share increasing from 8.5c in 2012 to 54.8c in 2017; they are forecast to increase to 70c by 2019. The share price has also increased fivefold over that time.
The upshot of this is that the stock is not cheap, but nor is it outrageously expensive.
It is currently trading on a forecast price-earnings ratio of 17.5, with earnings per share forecast to grow at 13%. To justify this valuation it will have to deliver on growth, which will not be easy given the headwinds. However, based on its track record there is a good chance it will continue to deliver.