In the late 1980s and through the 1990s, active mutual funds and their managers dominated in the halcyon era. Managers like Peter Lynch and Bill Miller beat the market benchmarks year after year and money poured in. Those days are over, and closed end funds and exchange trade funds (ETFs) are now ruling the roost. A new research report from Jefferies points out that active management struggled badly in 2014, with only 26% of managers able to beat their benchmarks.
While the active managers are suffering, companies with closed end funds and ETF products have done outstanding. In fact ETF trading flows are gigantic and have signaled a new trend in management and investing.
The Jefferies team is very positive on Invesco Ltd. (NYSE: IVZ), Janus Capital Group Inc. (NYSE: JNS) and WisdomTree Investments Inc. (NASDAQ: WETF).
This financial services company has strong positions in both equity ETFs and actively managed equity and debt mutual funds. The company looks to be very well-positioned to capitalize on inflows into both segments, as well as higher asset prices, as many on Wall Street see a continuation of the six-year bull market.
Invesco PowerShares is the boutique investment management firm that manages a family of ETFs. The company has been part of Invesco, which markets the PowerShares product, since 2006. The incredible growth and popularity of the product is why many on Wall Street remain so bullish on the stock. The Jefferies analysts see the company as one best positioned to compete for share, given its product offerings and attractive relative performance.
Invesco investors are paid a 2.5% dividend. The Jefferies price target is $46. The Thomson/First Call consensus target is a touch lower at $45.69. The shares closed Tuesday at $39.76.
One of the poster boys for the high-flying 1990s mutual funds, the company lost a ton of assets after the tech crash of 2000 and 2001. It scored a big coup in luring famed fixed income manager Bill Gross to the company after his less than friendly departure from the company he founded, Pimco. Gross has investing stature that drew an immediate influx of assets to the company and put the company back in the game from a recognition standpoint.
The Jefferies team also think the company is well set with the right product mix, decent performance and, of course, the name recognition of having a legend like Gross join the firm.
Janus investors are paid a 1.8% dividend. The Jefferies price objective is $21, and the consensus target is $19.67. The stock closed Tuesday at $17.26.
This real up-and-comer in the ETF business is carving itself out an outstanding share with many specialized offerings. The Jefferies team points out in the research reports that the company continues to benefit from the movement toward ETFs. This is especially true with the specialized currency hedged products, with the potential for significant uptake in interest rate hedged products.
Wisdom Tree is run by Jonathan Steinberg, the son of famous Wall Street financier Saul Steinberg. He is also married to Maria Bartiromo who became very famous on CNBC and now works for the Fox Business Network. Steinberg has a long and very distinguished ETF background, going back to the infancy of these products.
Wisdom Tree investors are paid a 1.5% divided. The Jefferies price target is $23, and the consensus estimate is at $24.07. Shares closed Tuesday at $20.59.
While the days of super-hot mutual funds may be gone, there are always innovative new products. Plain and simple, Wall Street needs things to sell, and somebody always supplies them.