Trend Follower Man Group Plc Beats Estimates

Man GroupSee page for author [Public domain], via Wikimedia Commons

Managed futures trend follower MAN GROUP PLC (OTCMKTS:MNGPF), one of the world’s largest hedge funds, reported performance that beat estimates.

“At 7.9c (per share), the dividend will be ahead of most expectations we believe, while the company has announced its intention to repurchase $115m of its shares,” a JPMorgan Chase & Co. (NYSE:JPM) report noted. JPMorgan Chase & Co. (NYSE:JPM) retains a cautious outlook of the trend follower among what have been some of the worst managed futures market environments in history. JPMorgan said this “is prudent in our view given the indifferent performance of AHL since year end. While there are aspects of these results that will encourage, we continue to see more compelling opportunities within the sector.”

Man Group assets under management slightly above estimates

With assets under management ending at $54.1 billion, slightly ahead of JPMorgan Chase & Co. (NYSE:JPM)’s estimate, the fund saw net inflows in the 4th quarter totaling nearly +$0.7 billion, while on the year the fund had net outflows of -$3.6 billion. JPMorgan Chase & Co. (NYSE:JPM) has an Underweight rating on the stock, down from a previously Neutral weighting.

An RBC Capital Markets investor report divided MAN GROUP PLC (OTCMKTS:MNGPF)’s stock price potential into three categories, positive, negative and neutral/interesting.

Positives included improving asset flows, large single tickets – meaning large investors were flocking to stock – stable revenue yield, cost reductions ahead of schedule and surplus capital.  Negatives included large financial adjustments in 2013, a large portion of the earnings per share was a result of lower effective tax rates.

Highly profitable “guaranteed” managed futures fund having difficulty in low interest rate environment

Neutral to interesting notes in the RBC report were the revenue decline in 2013 despite the fact performance fees at MAN GROUP PLC (OTCMKTS:MNGPF) had doubled. This was due to the fact that its most profitable product, a guaranteed annuity managed futures program, witnessed continued outflows.  Low interest rates make operating this product difficult. Of the individual Man products, performance fees were produced by GLG (80%), AHL/MSS (16%) and FRM (4%), showing reliance on one product.

RBC analyst Peter Lenardos noted that the outlook for MAN GROUP PLC (OTCMKTS:MNGPF) remains cautious.  Operating environment “continues to be mixed.” Asset flows are “better in places” but are “noticeably more lumpy.” The “single most important component of success” is performance, and management believes MAN GROUP PLC (OTCMKTS:MNGPF)’s overall investment performance is “mixed.”

On a going forward basis, the UBS investor letter said “MAN GROUP PLC (OTCMKTS:MNGPF)’s earnings would benefit from improved performance at its key hedge fund group AHL. This would lead to higher performance fees and potentially increased sales. However, MAN GROUP PLC (OTCMKTS:MNGPF)’s share price could come under pressure if AHL’s investment performance remains weak, if it were to cut its dividend, or if regulatory risks increase.”

None of the analysis letters noted the market environment for managed futures trend following, which could see significant improvement if the US Federal Reserve allows markets to function freely without manipulation.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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