The asset management sector’s long-term prospects look promising, driven by sustained demand for efficient utilization, tracking, and management of assets. Furthermore, the integration of emerging digital technologies in the asset management space provides several growth opportunities.
Given the industry’s growth potential, it could be wise to invest in fundamentally sound asset management stocks Owl Rock Capital Corporation (ORCC), Affiliated Managers Group, Inc. (AMG), and Federated Hermes, Inc. (FHI) now.
Before delving into the fundamentals of these stocks, let’s take a look at what is happening in the asset management sector.
Asset management is a vital part of the financial industry, assisting individuals, institutions, and governments manage their financial assets, maximize returns, and minimize risk. The asset management sector’s growth prospects look bright, driven by solid demand for optimal asset utilization, and the growing need for efficient tracking and management of assets.
Asset management firms continue to evolve their business models, either by scaling into new asset classes or through mergers and acquisitions (M&A). Furthermore, asset managers have been increasing their investment in digital transformation stimulated by the popularity of remote work, shifting investor preferences toward digital engagement, and opportunity to boost efficiency and growth.
Additionally, rising interest from investors and regulators in sophisticated ESG data and the broader use cases for artificial intelligence (AI), the Internet of Things (IoT), data analytics, and cloud migration are resulting in increased investments in digital technology. For instance, asset management firms can leverage AI to examine data and provide insights into asset performance.
Also, real-time tracking and monitoring of assets can be achieved with the use of IoT sensors. Moreover, asset managers consider entering an alternative space with high-growth opportunities and offering private market products for retail and institutional investments. Alternative investments represented more than $20 trillion of global AUM as of year-end 2022.
According to a report by Precedence Research, the global asset management market is expected to reach $7.55 billion, growing at a 35.1% CAGR. North America dominated the market and generated approximately 34% of the revenue share last year. One of the major growth opportunities for the market lies in the growing demand for asset management solutions in developing nations.
Given the industry tailwinds, investors could consider buying quality asset management stocks ORCC, AMG, and FHI for potential gains.
Let’s discuss the fundamentals of these stocks in detail.
Owl Rock Capital Corporation (ORCC)
ORCC is a business development company. The fund makes investments in senior secured or unsecured loans, subordinated loans, and mezzanine loans; considers equity-related securities including warrants and preferred stocks; and pursues preferred equity investments and common equity investments. ORCC seeks to invest in middle market companies based in the U.S.
ORCC’s trailing-12-month gross profit margin of 100% is 69.8% higher than the 58.91% industry average. And its trailing-12-month EBIT margin of 73.79% is 261.1% higher than the 20.44% industry average. Likewise, the stock’s 47.45% trailing-12-month net income margin is 83% higher than the industry average of 25.93%.
ORCC pays a $1.32 per share dividend annually, which translates to a 9.64% yield on the current price. Its four-year average dividend yield is 8.90%. The company’s dividend payouts have grown at an 11.2% CAGR over the past three years.
For the first quarter that ended March 31, 2023, ORCC’s net investment income grew 45.4% year-over-year to $177.86 million. The company’s net income increased 358.9% from the year-ago value to $201.84, while its net income per share was $0.52, up 372.7% year-over-year.
In addition, the company’s total assets rose 3.6% year-over-year to $13.68 billion and its net asset value per share came in at $15.15, an increase of 1.8% year-over-year.
The consensus revenue estimate of $1.52 billion for the fiscal year (ending December 2023) reflects a 26.5% year-over-year improvement. Likewise, the consensus EPS estimate of $1.82 for the ongoing year indicates a 28.6% rise year-over-year. Moreover, ORCC has surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of ORCC have gained 17.1% over the past six months and 16.3% year-to-date to close the last trading session at $13.69.
ORCC’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ORCC has a grade B for Growth and Momentum. In the 54-stock Asset Management industry, it is ranked #7.
Beyond what we stated above, we also have ORCC’s ratings for Stability, Sentiment, Value, and Quality. Get all ORCC ratings here.
Affiliated Managers Group, Inc. (AMG)
AMG is an investment management company that provides investment management services to mutual funds, institutional clients, retails, high net worth individuals in the U.S. The company offers advisory or sub-advisory services to mutual funds.
In terms of the trailing-12-month EBITDA margin, AMG’s 31.10% is 52.2% higher than the 20.44% industry average. The stock’s 50.65% trailing-12-month net income margin is 95.4% higher than the industry average of 25.93%. Also, its 12.75% trailing-12-month ROTA is significantly higher than the industry average of 1.12%.
During the first quarter that ended March 31, 2023, AMG’s net equity method income increased 20.6% year-over-year to $58.60 million. The company’s earnings per share grew marginally year-over-year to $3.47. As of March 31, 2023, its cash and cash equivalents were $832.80 million, compared to $429.20 million as of December 12, 2022.
Additionally, as of March 31, 2023, the company’s aggregate assets under management were nearly $668 billion across a broad range of differentiated investment strategies.
Analysts expect AMG’s revenue to increase 5.8% year-over-year to $2.32 billion for the fiscal year ending December 2024. The company’s EPS for the same period is expected to grow 14.9% year-over-year to $22.04. In addition, it topped the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 4.3% over the past month and 25.6% over the past year to close the last trading session at $147.77.
AMG’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
AMG has a B grade for Momentum and Quality. It is ranked #8 of 54 stocks in the Asset Management industry.
To see the other ratings of AMG for Growth, Stability, Momentum, and Sentiment, click here.
Federated Hermes, Inc. (FHI)
FHI is a publicly owned investment manager. The firm, through its subsidiaries, offers its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, charitable organizations, and registered investment advisors. In addition, it manages separate client-focused equity, fixed income, and balanced and money market mutual funds.
FHI’s trailing-12-month gross profit margin of 65.70% is 11.5% higher than the 58.91% industry average. In addition, the stock’s 25.42% trailing-12-month EBITDA margin is 23.2% higher than the industry average of 20.63%. Moreover, its trailing-12-month levered FCF margin of 18.67% compares to the 15.36% industry average.
FHI’s current dividend translates to a 2.97% yield annually, while its four-year average dividend yield is 4.40%. Over the last five years, its dividend payouts have grown at an 1.3% CAGR.
For the first quarter that ended March 31, 2023, FHI’s revenue increased 17.7% year-over-year to $382.19 million. The increase in revenue is primarily due to a higher average money market. Its operating income was $85.17 million, up 1.5% year-over-year, and its net nonoperating income came in at $7.31 million, compared to expenses of $11.74 million in the prior-year period.
Furthermore, the company’s net income and EPS rose 24.6% and 17.9% year-over-year to $69.60 million and $0.78, respectively. Also, FHI’s total assets under management reached an all-time high of $701 billion at March 31, 2023, an increase of 11% year-over-year.
“Federated Hermes’ record assets under management were driven by money market asset increases accompanied by further increases across nearly all other long-term asset classes from the previous quarter, demonstrating once again the value of our diversified business mix,” said J. Christopher Donahue, President and CEO of FHI.
Analysts expect FHI’s revenue and EPS for the fiscal year (ending December 2023) to increase 11.2% and 24.8% from the prior year to $1.61 billion and $3.31, respectively. Also, the company’s revenue and EPS for the fiscal year 2024 are expected to grow 6.2% and 10.8% year-over-year to $1.71 billion and $3.66, respectively.
Over the past six months, the stock has gained 6.6% and 25.3% over the past year to close the last trading session at $37.75.
FHI’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
FHI has a B grade for Quality and Momentum. The stock is ranked #6 out of 54 stocks in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see FHI’s ratings for Value, Stability, Growth, and Sentiment here.
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ORCC shares were unchanged in premarket trading Wednesday. Year-to-date, ORCC has gained 22.61%, versus a 15.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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