Nine asset managers are represented in the S&P 500, and none will deliver positive returns in 2011. As of Dec. 20, the average loss year-to-date is 23%, while the median loss is 20.7%. Two of the moderate losers are Ameriprise Financial (NYSE:AMP) and Invesco (NYSE:IVZ), down 18.1% and 20.7% respectively.
Out with the old and in with the new (year), I say! I’ll tell you why both will do much better in 2012.
Ameriprise CEO Jim Cracchiolo made a presentation Dec. 7 at Goldman Sachs’ US Financial Services Conference. Cracchiolo pointed out to those in attendance that Ameriprise’s revenues and earnings grew 42% and 94%, respectively, between 2005 and 2011. Assets under management in 2005 were $428 billion, and today they are 40% higher at $600 billion.
That’s pretty impressive when you consider the S&P 500 during this time was basically flat, suggesting most of its growth resulted from market share gains. And that’s likely to continue with U.S. household investable assets for those older than 55 expected to double by 2020.
With the largest financial planning practice in the U.S., Ameriprise’s business model is perfectly positioned to exploit demographic trends. However, the greatest Christmas gift AMP could give to shareholders was its announcement Dec. 7 that it was hiking its quarterly dividend 22% to 28 cents per share, which works out to $1.12 annually. It’s the fifth consecutive increase since going public in 2005.
Craccchiolo’s presentation highlights the fact that Ameriprise’s pretax operating earnings are far more diverse than those of its insurance industry peers, yet it’s still valued like an insurer instead of a wealth manager or asset manager. As much as 52% of Ameriprise’s pretax operating earnings through the third quarter of 2011 were generated from wealth or asset management activities, compared to 9% for its insurance brethren. And despite having higher margins, Ameriprise’s forward P/E ratio of 7.8 is only marginally higher than its insurance peers. Meanwhile, asset managers have a forward P/E of 13.1 and wealth managers are 80 basis points better at 13.9. Invesco, which I discuss below, has a forward P/E of 11.
Ameriprise definitely is not trading at fair value relative to its competition. That will change in 2012.
Depending on how you see things, Invesco’s preliminary November month-end assets under management were either a bump in the road or a serious setback. I tend to view the 2.1% decrease of AUM to $622.4 billion as a blip given the relative strength of its PowerShares ETFs and Premia Plus balanced-risk funds. The latter group of funds, despite an awkward name, averaged close to $500 million in net inflows monthly between July and October.
Overall, analysts like Invesco’s long-term investment record and product positioning and expect it to pick up market share in the future. Therefore, trading at 11 times 2012 earnings, IVZ stock is cheaper than many of its peers — and unlike Ameriprise, its only role is that of investment manager.
Invesco’s long-term net flows in the third quarter ended Sept. 30 increased $3.3 billion, with 82% of the gain coming from exchange-traded funds, unit investment trusts and other passive investment vehicles. In the running to acquire Guggenheim’s (formerly Claymore) Canadian ETF business, a successful bid over the Bank of Montreal (NYSE:BMO) would make it more competitive with BlackRock‘s (NYSE:BLK) Canadian iShares unit.
Ameriprise is one of 50 potential candidates bidding for Deutsche Bank‘s (NYSE:DB) asset management unit, which is up for sale for $2.6 billion. Acquiring this plum asset would put its assets under management over the $1 trillion mark. Regardless of its success there, Ameriprise has a balanced business that is going to do very well in the long term.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned stocks.