*Increased ETF Competition*Artio announced Q3 earnings in October that
were 15% lower year-over-year with $1.4 billion in net outflows of
assets under administration. This decline prompted Ticonderoga
Securities to issue a "Sell" rating on the stock. Analyst Doug Sipkin
reasons that Artio faces tremendous competitive pressures from
exchange-traded funds (ETFs) and will likely continue to see outflows
in its assets. Maybe so, but this doesn't justify a 45% drop in its
stock price. Canadian mutual fund company *AGF Management*
(TSX:C.AGF.B) has experienced fund outflows in recent years. Yet
during this time, AGF's stock has risen an average 15.4% annually. AGF
proves that it's possible to remain profitable despite a significant
outflow of assets.
*Third Quarter Earnings*While third quarter earnings declined 4%,
nine-month non-GAAP adjusted earnings increased by 10% thanks to a
15% increase in investment management fee revenues. Although the third
quarter wasn't perfect, analysts still expect Artio to earn $1.65 a
share in 2011, which is a forward P/E of 8.8. The company's peers
average 16.1 time's forward earnings or almost double. Should Artio
rebound from a poor third and, likely, fourth quarter, its stock is
definitely the cheapest in the group.
*Artio Global Investors and Peers*
*Company*
*Forward P/E*
*Artio Global Investors* (NYSE:ART)
8.8
*BlackRock* (NYSE:BLK)
16.4
*Franklin Resources* (NYSE:BEN)
12.7
*T. Rowe Price* (Nasdaq:TROW)
21.1
*Invesco* (NYSE:IVZ)
14.1
*Sub-Par Performance*Detractors point to Artio's funds' uneven
performance in recent years as the reason for an outflow of assets.
I don't buy this rationale. It's true that for the year ended
November 30, 2010, four of its nine funds were in the second
quartile or worse, but it's also true that five were in the first
quartile including its US Microcap Fund, which Lipper ranks eighth
out of 794 funds. Since inception, all are either first or second
quartile. That's a great record any way you look at it.
*Bottom Line*Investment management is a fiercely competitive business.
There are going to be ebbs and flows in assets under management. Do I
think what happened to AGF is going to happen to Artio? No. In fact, I
think it's an ideal time to buy.
Source: Investopedia.Com
