As volatility picks up and funds start flowing into equities, several financials are becoming more interesting as investment options. During 2013, money has started flowing into equity funds after years of massive outflows into fixed income funds. Some interesting stocks to follow are Interactive Brokers Group, Inc. (NASDAQ:IBKR), Janus Capital Group Inc (NYSE:JNS), and Virtus Investment Partners Inc (NASDAQ:VRTS).
After a record $38 billion flowed into equity mutual funds in January, the fund flows have been mostly lumpy in the last few months. Conversely, bond funds have held steady inflows for the year until June with a smashing $28 billion pulled out of mostly taxable funds in the week ending June 26 alone. A total of over $60 billion was pulled out of bond funds for the last four weeks of June. Unfortunately, the money didn’t pile into equity funds, but that could only be a matter of time. The below stocks could benefit greatly from that eventual shift.
See chart below for the five-year returns:
The stock of Interactive Brokers Group, Inc. (NASDAQ:IBKR) has gone virtually nowhere over the last five years. The company should benefit from the surging stock market as funds that moved out of bonds eventually find a suitable equity fund or move into a separately managed account.
For June, the company reported 531,000 daily average revenue trades (DARTs) compared to only 460,000 DARTs for January. Also, customer accounts have increased from 212,000 to 224,000 thousand during that period. The biggest issue has been the market-making unit that was crushed during Q1 due to low volatility and currency losses. Stabilization in the market-making unit and continued growth in trading accounts should lead to substantial earnings growth.
Mutual fund from the past
As with Interactive Brokers Group, Inc. (NASDAQ:IBKR), Janus Capital Group Inc (NYSE:JNS) performed horribly over the last five years as the market soared. Undoubtedly, the 18% loss during that period was one of the worst by any investment-related financial stocks considering the bull market during that period. Janus was a leading growth equity mutual fund back in the late 1990s that hasn’t seen a rebound since that period.
For Q1 2013, Janus Capital Group Inc (NYSE:JNS) reported that AUM slightly declined year-over-year to $163.8 billion. Revenues as well declined, suggesting Janus has not yet recovered from the post-2000 collapse. As assets flow into equity funds in the next few years, Janus could be a huge beneficiary though currently the company is struggling to attract investors clearly turned off from the company’s connection with the collapse of Internet investments.
The stock has a reasonable earnings multiple of only 12 times 2014 estimates suggesting the stock could see considerable upside if fund flows do improve.
New kid on the block
Virtus Investment Partners Inc (NASDAQ:VRTS) has come out of nowhere to produce one of the best five-year returns. The stock was virtually unknown at that time point and still only commands a market value of $1.4 billion after a 1,600% return.
For an asset manager, Virtus Investment Partners Inc (NASDAQ:VRTS) had an incredible net flows increase of 99% to $3.7 billion in Q1 2013. AUM are only $51.2 billion providing the company plenty of runway for growth as the major asset managers have $500 billion in AUM. With the huge asset growth, the company has seen earnings soar from $4.66 last year to expectations of $8.49 for 2013. Analysts expect Q2 earnings to nearly double from only $1.04 last year to $2.03 this year.