Asset management outfits have faced severe headwinds over the past three years as volatile markets have eaten into assets under management and cut into fee income. These concerns have kept investors wary, preventing this firm from getting due credit for a recent transformative deal. -The Editors
I nvesco's ( IVZ ) product lineup includes a family of mutual and closed-end funds as well as separately managed accounts and the third-fastest growing lineup of exchange-traded funds ( ETF ). All told, the company holds over $557 billion in assets under management (AUM).
In the second quarter Invesco completed its acquisition of Van Kampen Investments and its other retail asset management businesses from Morgan Stanley ( MS ), bumping up its AUM by more than $100 billion.
The deal marks the beginning of a major growth period for Invesco; the pairing of the Van Kampen fund family and distribution channels with Invesco's ETF offerings creates a midsize powerhouse overnight.
The combined firm leveraged this strength to close a $16 billion deal to run a passive investment strategy inJapan that will use Invesco's PowerShares ETFs, among other vehicles.
Although Invesco has made its fair share of acquisitions, management doesn't take a willy-nilly approach, instead focusing on businesses that complement existing operations.
The Van Kampen deal is a case in point. In addition to deeper distribution channels, the transaction also adds teams focused on equity-value investing and municipal bonds, a gap in the company's existing lineup. The deal also brought along Van Kampen's strong presence in closed-end funds and unit investment trusts, new product lines with sticky assets.
Management was also wise to advise its fund managers to avoid riskier investment strategies over the years; most of the firms' investment products have outperform their peers, a key to maintaining AUM.
More than 75 percent of Invesco's offerings are ranked in the top half of their peer groups on a 3-year basis. Over the trailing five years, that percentage increases to 79.
Like T. Rowe Price ( TROW ), a name we covered in May 2009, Invesco has an extremely sticky client base. After the merger, institutional accounts represent 40 percent of AUM, while private wealth-management services account for 5 percent of AUM. Clients in these business lines tend to be less fickle than retail customers.
Invesco also has a strong global presence, with products available in 13 countries. Plans to expand offerings in emerging markets also bode well for future growth; as the middle class inBrazil,China and other countries expands, so does demand for investment services.
Earnings may be choppy over the next few quarters as the company merges or liquidates duplicate offerings, but at this valuation the shares are attractive given the firm's prospects for revenue growth.
Lumpy earnings aside, the market hasn't given Invesco much credit for its acquisition of Van Kampen; in fact, the stock is down over 18 percent since the deal was announced. Savvy investors seeking long-term growth should take advantage of this buying opportunity.- Benjamin Shepherd