With the S&P/ASX 200 Index (Index: ^AXJO) (XJO.AX) up 8.3% so far in calendar year 2013, investors could be forgiven for being a little surprised at how high the share prices of many financial services firms have gone.
Renowned international investor Kerr Neilsen’s Platinum Asset Management (PTM.AX) has seen its share price rocket 31% higher this year and while we have to wait a little longer until the interim results are released, this week we did get an insight into what is driving the share price performance. Platinum announced that its funds under management (FUM) for the month of January closed at nearly $17.3 billion, up an impressive $691.7 million on December.
Fund managers such as Platinum charge a management fee on their FUM, so the greater the FUM, the greater the fee revenue. Fund managers also generally have a business model with a relatively fixed cost base, which provides them great leverage to increase FUM.
Fellow fund managers BT Investment Management (BTT.AX) and Perpetual Limited (PPT.AX) have also seen their share prices outperform the index since the start of 2013, as the market recognises their potential. Diversified wealth manager IOOF Limited (IOF.AX), stock exchange operator ASX Limited (ASX.AX), and financial information provider Iress Limited (IRE.AX) are also leveraged to an improving stock market; however their share price performance has not been as spectacular.
Companies with profits that are leveraged to an improving cyclical situation, whether that is housing, climate, or the stock market are often good candidates for investment. These companies can look expensive at the bottom of the cycle, so it is important to look past that point and consider how the business will perform over the whole business cycle.
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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in BT, Perpetual, and Iress.