With the onset of the omicron variant of Covid-19, volatility has ratcheted up heading into the final days of 2021. But one of the best reasons to own well-run asset management stocks is that they tend to make money in both good times and bad.
Take GQG Partners for example. Recently, I happened to read an article about Florida-based portfolio manager Rajiv Jain and the growth of this firm since its founding in 2016. Back in October, GQG sold 20% of its business to Australian investors.
This might seem like a strange place to go public for a U.S.-based company. However, CEO Tim Carver — (Jain handles the investment side of things and owns the majority of the business) — ran an Australian investment firm before his time at the firm. As such, he understands the regulatory process.
Although GQG has around $90 billion in assets under management (AUM), I don’t believe you can buy its shares over the counter. Otherwise, I would have included it on my list. But maybe next time.
In the meantime, though, there are plenty of other great stocks to consider amid the volatility. Here are 10 asset management stocks to buy to ride out omicron.
- Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B)
- BlackRock (NYSE:BLK)
- Brookfield Asset Management (NYSE:BAM)
- MSCI (NYSE:MSCI)
- T. Rowe Price (NASDAQ:TROW)
- SVB Financial (NASDAQ:SIVB)
- Ameriprise (NYSE:AMP)
- Loews (NYSE:L)
- Blue Owl Capital (NYSE:OWL)
- StepStone (NASDAQ:STEP)
Asset Management Stocks to Buy: Berkshire Hathaway (BRK-A)
When it comes to asset management stocks, you can’t get much bigger than Warren Buffett’s holding company. Berkshire Hathaway trades as both BRK-A and BRK-B stock. At the end of September, the firm had $921 billion in assets. Approximately one-third of that was invested in stocks such as Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC), its top two holdings.
In many ways, this name is the ultimate mutual fund. It performs reasonably well, doesn’t charge a fee for its services and its CEO is paid less than some politicians.
Berkshire appointed two new directors in late October: Susan Buffett and Christopher Davis. Susan Buffett is the famed CEO’s daughter, while Davis runs an investment management firm that owns Berkshire shares and manages approximately $25 billion.
With this, Buffett now has both a daughter and son (Howard) on the board. His other son, Peter, is in the music business and unlikely to join the board.
Finally, as a Canadian myself, I like that Greg Abel — who’s currently in charge of Berkshire’s non-insurance operations — will become CEO when Buffett dies or retires. He’s from Edmonton.
Next up on this list of asset management stocks is BLK stock. In 2009, CEO Larry Fink transformed BlackRock when he paid $13.5 billion for the exchange-traded fund (ETF) unit of U.K.-based Barclays (NYSE:BCS). At the time, iShares had $1.9 trillion in assets under management. Its ETF business at the end of September had more than $3 trillion in assets under management.
Interestingly, the company believes the good times for ETF providers are likely to continue for years to come. ETFs account for just 5% of the global equity market and 1% of the global bond market (Page 18). The company estimates that the global ETF assets under management will hit $15 trillion by 2025. That’s up from $1 trillion in 2010 and $8 trillion in 2020.
Larry Fink writes two letters every year — one to CEOs and another to clients. The CEOs letter gets far more personal. You can read it here. Fink remarked the following in his letter this year:
“In the past year, people have seen the mounting physical toll of climate change in fires, droughts, flooding and hurricanes. They have begun to see the direct financial impact as energy companies take billions in climate-related write-downs on stranded assets and regulators focus on climate risk in the global financial system. They are also increasingly focused on the significant economic opportunity that the transition will create, as well as how to execute it in a just and fair manner. No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day.”
Well said. Clearly this name has solid leadership as well.
Asset Management Stocks to Buy: Brookfield Asset Management (BAM)
Next up on this list is Brookfield Asset Management. There is no question that this Canadian alternative asset manager is having a good year in the markets. Currently, BAM stock is up around 40% year-to-date (YTD) through Dec. 13.
According to the asset manager, one of its present opportunities is renewable energy. As the world transitions from fossil fuels to cleaner forms of energy, Brookfield plans on being there to invest some of its $650 billion in AUM. Connor Teskey, the head of its renewable power business, recently spoke about this opportunity at the Bloomberg Sustainable Business Summit: “The market opportunity is truly massive.”
Estimates suggest as much as $150 trillion is needed to eliminate harmful greenhouse gas emissions over the next few decades. Most of this capital will come from private capital sources such as Brookfield.
Back in May 2017, I said that this pick of the asset management stocks was one of the best Canadian large-cap stocks to buy. Nothing has changed. Brookfield is still one of the best.
While MSCI might not be considered an asset manager in the truest sense, the products and services it provides asset managers are invaluable to their success. Without it, many industry participants would be scrambling for answers. That clearly lands MSCI stock on this list of asset management stocks to buy.
This company’s Index business generates 62% of its overall revenue. Within the Index segment itself, most of its revenue comes from recurring subscriptions. Asset managers account for two-thirds of the division’s revenue, while banks are the second-largest contributor accounting for 18% (Page 24).
When one thinks of indexes, they think of MSCI. As of Jun. 30, $16.3 trillion was tied to MSCI Indexes. These indexes generated $2.1 billion in total run-rate revenue. Further, not only does this name provide ready-made indexes like the MSCI ACWI Index — which tracks large-cap stocks from 23 developed countries and 25 emerging markets — but it also provides customized indexes which allow investors to overlay custom screens to its existing indexes.
MSCI’s performance over the past five years has been impressive. It has an annualized total return of 51%, almost three times better than the entire U.S. market.
Asset Management Stocks to Buy: T. Rowe Price (TROW)
Next up on this list of asset management stocks is TROW stock. T. Rowe Price has been around for 84 years. Founded in 1937, it has more than $1.6 trillion in assets under management.
This name’s latest addition is the acquisition of Oak Hill Advisors (OHA) for $4.2 billion. The company is paying 74% in cash and 26% in TROW stock. Oak Hill has $53 billion in AUM, with $19 billion gathered since January 2020. Further, OHA specializes in private markets. It will become T. Rowe Price’s private markets platform.
On Dec. 8, T. Rowe Price also appointed its current president, Rob Sharps, as its new CEO. Sharps starts his new role on Jan. 1 and replaces Bill Stromberg, who is retiring after six years in the top job.
TROW stock doesn’t get a ringing endorsement from the 13 analysts who cover it. Only one analyst rates it a buy while two give it a sell rating. The rest say hold. Nevertheless, its target price is $212.20, suggesting roughly 8% upside from the Dec. 10 close.
I like this name because it has very little debt ($140 million), generates a ton of free cash flow ($2.85 billion in the trailing 12 months ended Sept. 30) and continues to grow at a reasonable rate. In recent years, it has also outperformed the markets. I expect this stock will continue to do so.
SVB Financial (SIVB)
Like MSCI, SVB Financial is not an asset manager in the truest sense. However, this pick likes to call itself “The Bank of the Innovation Economy.” The last time I checked, good asset managers are also good capital allocators and good evaluators of risk, which is precisely what SVB Financial does to make money for its shareholders.
The truth is, I think SIVB stock is the best bank stock in North America. I’ve consistently recommended it over the years and it has never let me down.
Back in August 2017, I suggested that Berkshire Hathaway buy the entire bank, not just the stock. Before that, on Dec. 13, 2013, I said it was one of the five best stocks to buy for the next 20 years. Exactly eight years into its 20-year stint, it’s up 608%. Bank of America is up 179% over the same period.
In Canada, Silicon Valley Bank just announced it’s opening of an office in Montreal, the third since obtaining a lending license in early 2019. It also has offices in Toronto and Vancouver. I look forward to the day when it can break out its Canadian operations in its U.S. Securities and Exchange Commission (SEC) filings.
As for asset management, the company acquired Boston Private Bank on Jul. 1. That increased its assets under management to almost $20 billion. This move also accelerates its plans for SVB Private Bank, one of its four reportable segments.
All told, this pick of the asset management stocks remains a banking gem.
Asset Management Stocks to Buy: Ameriprise (AMP)
Although I don’t believe I’ve recommended this next financial planner’s stock recently — (it was spun out of American Express (NYSE:AXP) in September 2005) — I haven’t had a problem recommending AMP stock over the years.
In December 2011, I suggested that Ameriprise was perfectly positioned to benefit from demographic trends. At the time, it had $600 billion in AUM. Today, Ameriprise has $1.2 trillion and growing. In 2011, it also had $1.23 billion in operating earnings. In 2020, that figure had grown to $2.12 billion.
AMP stock has been on fire in recent times. Up 50.6% YTD and 40% on an annualized basis over the past 36 months, its wealth and management business continues to generate approximately 80% of its profitability.
The company targets clients with assets between $500,000 and $5 million. This group’s financial assets total $20.5 trillion, growing at 3.1% annually with growth also expected to accelerate.
Further, in the past two years, its wealth management business has grown total client assets by 26%, from $643 billion in 2019 to $811 billion in 2021. What’s more, between 2016 and 2021, Ameriprise returned $9.9 billion in capital to its shareholders in dividends and share repurchases. Over the past five years, buybacks have reduced its share count by 27%.
Back in 2019, I called this one the asset management stocks a “baby boomer” pick to buy and retire wealthy with. I still feel this way.
Next up on this list of asset management stocks is L stock. It’s good to see Loews stock outperforming the markets in 2021. Up until this year, the holding company had been a major disappointment for long-time shareholders.
So, why am I picking this particular asset manager? Reversion to the mean.
Loews performed ridiculously well for years. As the returns show, it has been in a funk in the past decade. But all things must come to an end.
One November 2021 presentation from the company pointed out how the sum-of-its-parts was worth more than its roughly $14 billion market capitalization. First, CNA Financial (NYSE:CNA) — the publicly traded property and casualty insurer it controls — was worth $10.9 billion at the time. That leaves $3.3 billion. After subtracting net cash, there was only a little over $2 billion in market cap accounting for its three privately held subsidiaries: Boardwalk Pipelines (energy infrastructure), Loews Hotels (hospitality) and Altium Packaging (packaging).
On Apr. 1, Loews sold 47% of its stake in Altium for $555 million. That values the entire business at $1.18 billion, with Loews’ 53% stake worth around $626 million. This leaves a little over $1 billion in market cap for two companies that will typically generate over $1 billion in annual adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
At the very least, Loews should have a market cap of $17 billion, probably more. So, consider this the value play of the bunch.
Asset Management Stocks to Buy: Blue Owl Capital (OWL)
Blue Owl Capital, the next alternative asset manager on this list, has more than $70 billion in AUM as of the end of September. It has existed since May 2020 when Owl Rock Capital and Dyal Capital Partners merged to form a one-stop shop that provides public investors with credit investments as well as minority investments in asset managers. At the time of the merger, co-President Marc Lipschultz noted:
“We’ve really assembled a business that allows us to provide a one-stop shop for all of the financing services, capital services that an alternatives manager needs.”
On Dec. 9, Blue Owl also announced that it had acquired Hong Kong-based Ascentium Group, giving it a second office in Asia. It now has nine offices around the world, including its head office in New York.
What’s more, in October, Blue Owl acquired Oak Street Real Estate Capital. The company paid $950 million in cash and OWL stock to buy the Chicago-based real estate investor. Oak Street has $10.8 billion in AUM. The transaction will closed by the end of the year.
During the third quarter, Blue Owl’s assets under management increased by 13% from Q2 2021. All told, this pick of the asset management stocks is an excellent growth name.
The last entry on this list of asset management stocks is STEP stock. If you’re looking for an asset manager specializing in private markets, StepStone is an excellent option. It has $519 billion in AUM or advisement.
This asset manager’s four reportable segments are Private Equity (58% of AUM), Infrastructure (18%), Private Debt (17%) and Real Estate (7%). It generates advisory and management fees on a global basis. North America accounts for 28%, Asia and Australia for 25% and Europe for 24. Additionally, the Middle East comes in at 20% while Central and South America are at 3%.
Further, in the last 12 months ended Sept. 30, the company’s management and advisory fees increased 14% to $308 million. In the first six months of fiscal 2022, it also had an adjusted net income of $80.6 million, which was 139% higher than the prior year.
Lastly, in September, the company acquired Greenspring Associates, a venture capital and growth equity solutions provider. As a result, it brought $22.5 billion in AUM to the table, about 50% of which was fee-earning.
Over the past three-and-a-half years, STEP has more than doubled its management and advisory fees. Sure, it’s the company on this list that I’m least familiar with. Nevertheless, I’ll continue to follow StepStone with interest.
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.