Amid solid demand for optimal utilization and management of assets, the rising interest in ESG investing, the growing private markets, and the increasing adoption of digital technology, the asset management industry’s outlook appears promising.
Given the industry’s bright prospects, fundamentally strong asset management stocks Sprott Inc. (SII), Diamond Hill Investment Group, Inc. (DHIL), and Silvercrest Asset Management Group Inc. (SAMG) could be ideal buys now.
Despite macroeconomic headwinds like high inflation, rising interest rates, and market volatility, the asset management industry is expected to remain resilient and witness robust growth in the long term, driven by soaring demand for optimal asset utilization, the rising need for efficient tracking and management of assets, and increasing popularity of ESG and alternative investments.
Companies should pursue high-growth alternative investments and private market opportunities. Alternatives represented nearly $20 trillion of global AUM as of year-end 2022, accounting for half of the industry’s global revenues. Alternative assets generated more than $190 billion in revenues, and the solid momentum is expected to prevail with a CAGR of 7% over the next five years.
As per a report by Precedence Research, the global asset management market is projected to reach $7.60 trillion by 2032, growing at a 35.2% CAGR during the forecast period (2023-2032).
Moreover, growing digitalization presents numerous growth opportunities for the asset management industry. Several industry players are increasingly investing in technological advancements, including artificial intelligence (AI), big data, blockchain, augmented reality (AR), and the Internet of Things (IoT), to enhance investment performance.
The implementation of digital technology allows asset managers to streamline operations, optimize the utilization of existing resources, enhance the precision and efficiency of asset tracking and management systems, lower costs, and strengthen customer-centric relationships, propelling the industry’s growth and profitability.
For instance, real-time tracking and monitoring of assets can be achieved using IoT sensors, while AI can be used to analyze data and provide insights into asset performance.
According to a report by Allied Market Research, the global digital asset management market is expected to hit $20.60 billion by 2032, growing at a CAGR of 15.8% from 2023 to 2032.
Given the industry tailwinds, it’s time to examine the fundamentals of the top three stocks to watch in the Asset Management industry, starting with the third in line.
Stock #3: Sprott Inc. (SII)
SII is a publicly owned asset management holding company headquartered in Toronto, Canada. The company offers asset management, portfolio management, wealth management, fund management, and administrative and consulting services. It provides mutual funds, hedge funds, and offshore funds. Also, it offers broker-dealer activities.
On September 6, SII announced that the Sprott Private Resource Streaming and Royalty Annex Fund completed its final closing, raising $310 million. With the Annex Fund’s closing, the total AUM of Sprott Resource Streaming and Royalty Corp. is $1.10 billion within the company’s private strategies segment. The Annex Fund’s final closing should bode well for SII.
On August 8, SII’s Board of Directors declared a quarterly dividend of $0.25 per share. The company pays an annual dividend of $1, which translates to a yield of 2.97% on the current share price. Its four-year average dividend yield is 2.91%. Its dividend payouts have grown at a CAGR of 3.8% over the past three years.
SII’s trailing-12-month EBITDA margin of 38.14% is 89.4% higher than the industry average of 20.13%. Likewise, the stock’s trailing-12-month ROTC and ROTA of 11.66% and 9.37% are favorably higher than the industry averages of 5.78% and 1.15%, respectively.
During the second quarter that ended June 30, 2023, SII’s net revenue grew 102.4% year-over-year to $50.61 million, and its finance income was $1.30 million, an increase of 8% year-over-year. Its adjusted EBITDA was $18.11 million, up 1.1% year-over-year. The company’s net income came in at $17.72 million, compared to $757 thousand in the same quarter of 2022.
Furthermore, the company’s total AUM for the quarter stood at $25.14 billion, compared to $21.94 billion for the second quarter of 2022.
Street expects SII’s revenue to increase by 23.4% year-over-year to $179.35 million for the fiscal year ending December 2023. The company’s revenue for the ongoing year is expected to grow 15.8% from the previous year to $1.59.
SII’s shares have gained 5.4% over the past month to close the last trading session at $33.72.
SII’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SII has a B grade for Momentum, Sentiment, Growth, and Quality. It is ranked #3 in the 53-stock Asset Management industry.
Beyond what we stated above, we also have SII’s ratings for Stability and Value. Get all SII ratings here.
Stock #2: Silvercrest Asset Management Group Inc. (SAMG)
SAMG is a wealth management firm that provides financial advisory and related family office services. The company serves ultra-high-net-worth individuals and families and their trusts, endowments, foundations, and other institutional investors. In addition, it manages funds of funds and additional investment funds.
On September 15, SAMG paid a quarterly dividend of $0.19 per share of Class A common stock to shareholders of record as of the close of business on September 8, 2023. It pays an annual dividend of $0.76, which translates to a yield of 4.36% on the prevailing share price.
SAMG’s four-year average dividend yield is 4.36%. Its dividend payouts have grown at a CAGR of 6.2% over the past five years. The company has raised its dividend for five consecutive years.
SAMG’s trailing-12-month EBITDA margin of 23.14% is 14.9% higher than the industry average of 20.13%. The stock’s trailing-12-month ROCE, ROTC, and ROTA of 13.57%, 8.94%, and 6.45% compared to the respective industry averages of 11.30%, 5.78%, and 1.15%.
For the second quarter that ended on June 30, 2023, SAMG reported Discretionary AUM, which primarily drives revenue of $21.50 billion, an increase of 5.4% year-over-year. The company’s total AUM grew 11.2% over the second quarter of 2022 to $31.90 billion. SAM’s revenue came in at $29.70 million.
In addition, the company’s adjusted EBITDA amounted to $8.10 million. The company reported an adjusted net income and adjusted earnings per share of $4.90 million and $0.34, respectively.
Analysts expect SAMG’s EPS and revenue for the third quarter (ending September 2023) to increase 8.8% and 6.4% year-over-year to $0.37 and $30.89 million, respectively. For the fiscal year 2024, the company’s EPS and revenue are expected to grow 22.5% and 8.9% from the prior year to $1.77 and $133.12 million, respectively.
Shares of SAMG have gained 4.1% over the past six months to close the last trading session at $17.42.
SAMG’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has a B grade for Momentum, Stability, and Quality. It is ranked #2 of 53 stocks in the Asset Management industry.
Click here to access additional SAMG ratings for Growth, Value, and Sentiment.
Stock #1: Diamond Hill Investment Group, Inc. (DHIL)
DHIL offers investment advisory and fund administration services. The company sponsors, distributes, and provides investment advisory and related services to its clients through pooled investment vehicles such as the Diamond Hill Funds, separately managed accounts, and model delivery programs. Also, it provides fund administration services.
During the second quarter of 2023, the company returned $14.70 million to shareholders, including $10.30 million through the repurchase of 62,584 shares and $4.40 million through a quarterly cash dividend of $1.50 per share. DHIL paid a quarterly dividend of $1.50 per share on September 15 to its shareholders of record as of August 31.
The company’s annual dividend of $6 per share translates to a 3.31% yield on current share prices. In addition, its four-year average dividend yield is 9.44%.
DHIL’s trailing-12-month EBITDA margin of 39.35% is 90.8% higher than the 20.63% industry average. Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 25.02%,17.87%, and 18.77% are considerably higher than the industry averages of 11.15%, 5.25%, and 1.12%, respectively.
For the second quarter that ended June 30, 2023, DHIL’s net investment income was $6.28 million, compared to a net investment loss of $17.68 million for the second quarter of 2022. The company’s net income grew 736.4% year-over-year to $10.17 million. Also, its earnings per share attributable to common shareholders were $3.18, up 127.1% year-over-year.
As of June 30, 2023, the company’s Assets Under Management (AUM) and Assets Under Advisement (AUA) combined were $27.90 billion, compared to $26.60 billion as of December 31, 2022.
Over the past six months, the stock has gained 3.3% to close the last trading session at $165.69.
DHIL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
DHIL has an A grade for Quality and a B for Momentum and Growth. Within the Asset Management industry, it is ranked first among 53 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see DHIL’s ratings for Value, Stability, and Sentiment here.
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SII shares were unchanged in premarket trading Tuesday. Year-to-date, SII has gained 4.14%, versus a 16.88% 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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