ii view: Funds under management retreat at Man Group

Hedge fund manager Man Group disappoints investors but extends its share buyback programme. 

Third-quarter trading update

• Funds under management (FUM) down 1.5% to $112.7 billion
• Share buyback programme extended by $100 million

Chief executive Luke Ellis said:

"In the third quarter, we saw a continuation of the trends experienced in the first half of the year with strong absolute performance and inflows into our quant alternative strategies, and outflows from our long only equity strategies. FX moves were negative in the quarter, which led to an overall dip in FUM to $112.7 billion, but year to date assets are up 4%.

"As we look ahead, we are encouraged by our good performance fee earning potential, although uncertain economic conditions mean the outlook for flows remains mixed. The diversified nature of the business means that we remain well positioned and, given our continued strong cash generation, we are pleased to announce a further return of capital."

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ii round-up:

A move out of more traditional long-only equity funds and foreign exchange movements weighed on total Funds Under Management (FUM), partially offset by further inflows into its quant alternative strategy funds. 

The fund management, whose clients are around 80% institutional, reported a marginal (1.5%) decline in FUM to $112.7 billion. 

Despite the fall in FUM, overall investment performance proved positive, with losses for its long only funds more than offset by gains across its alternative strategy funds. 

The share price retreated by a nearly 3% in mid-morning UK stock market trading. 

Man Group (LSE:EMG), which manages funds across five core strategies including quantitative, numeric and discretionary, added a further $100 million to its share buy-back programme. 

The London-headquartered company also highlighted its openness to further potential acquisition opportunities. 

ii view:

With a history dating back to 1783, Man Group today has 15 international offices outside of its London HQ. It operates across multiple jurisdictions. In 2018, the Cayman Islands generated nearly 40% of group revenues, followed by Ireland at 21%. 

An ultra-low interest rate environment pushing investors away from cash and into other assets looks to provide a supportive backdrop for all asset managers. Man's differing styles of management have helped set it apart from other asset managers. 

For investors, a prospective dividend yield of over 4% and covered twice by earnings generates attraction. A forward price/earnings (PE) ratio below both the three and 10-year averages also adds appeal, although the asset management industry's broad correlation with stock market movements is also worth remembering. 

Positives: 

• Managing costs and diversifying product offering
• Ongoing share buyback programme

Negatives:

• Factors outside of its control such as foreign exchange movements can hinder performance 
• Dividend payment linked to adjusted management fee EPS which can fluctuate

The average rating of stock market analysts:

Buy