Pure-play mutual fund companies tend to be small or large, but usually not in between. However, Federated Investors (NYSE:FII) is a good candidate because of its business model, and the fact that its stock seems reasonably cheap despite being up 79% since the end of 2011.
Federated offers 137 funds to clients, including 50 of the money market variety, 52 fixed-income and 35 equity funds. At the end of March, its mutual fund AUM was $310 billion, or 83% of its total.
If you’re looking for excitement, this isn’t your investment. Sixty-six percent of its AUM are in money market funds; another 11% in fixed-income. However, while equity funds account for only 6% of AUM, they did generate 27% of the firm’s revenue in the quarter. Its Federated Kaufmann Fund (MUTF:KAUAX) alone is responsible for 10% of its overall revenue. Although Morningstar gives it just two stars, its long-term performance has been decent, if not spectacular.
Still, this is a case where it makes more sense to buy the mutual fund manager rather than the mutual fund.