One of the sectors that has grown in numbers a lot in recent years has been fund managers which offer investments beyond the typical Australian share market.
When we invest in a listed investment company (LIC) we believe that the fund manager will outperform the market. However, investing in a fund manager is doing so in the belief that it will attract more funds faster than peers and competitors. Of course, outperforming the market also helps generate performance fees.
Here are two fund managers who are growing at a fast rate:
Australian Ethical Investment Limited (ASX: AEF)
Australian Ethical describes itself as Australia's leading ethical wealth manager. Since 1986, the fund manager aims to provide investors with wealth management products that align with their values without compromising returns.
Australian Ethical has over $2 billion in funds under management (FUM) across superannuation and managed funds.
More investors are attracted to an ethical style of investing, which is why the fund manager is experiencing such a large inflow of funds. In FY17 its net inflows increased by 42% to $454 million. Its closing funds under management increased by 38% to finish at $2.145 billion.
Management recently gave an update for the 2018 earning guidance. Net profit after tax (NPAT) for the six months to 21 December 2017 is expected to be between $1.6 million and $2.3 million, a mid-point increase of 245.8% on the six months ended 31 December 2016.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is Australia's best-known overseas-focused fund manager, in-fact it is the main sponsor of The Ashes this year. Magellan offers, through its listed and unlisted funds, investment experience in global equities and global listed infrastructure. It only seeks to invest in outstanding global companies.
Considering the business was only started in 2006, it has done incredibly well. The average FUM during FY17 was $45.7 billion whilst the average FUM in FY16 was $39.4 billion, this represented a 16% rise in one year.
Australians and their advisors will continue looking to the global share market for the best opportunities and I think Magellan is well placed to attract funds at a strong rate over the next few years.
Foolish takeaway
I'd be happy to buy shares of both fund managers today for a long-term buy. Out of the two I'd say Australian Ethical will probably generate higher returns, simply because it's starting from a much smaller FUM base.
