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.”
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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.