Industry Trends
After two years of declining assets under management in the industry, equity flows have finally turned positive. Inflows for 1Q13 so far total over $80 billion in assets. While the inflows have tapered slightly, $2.9 billion for the week of March 13, 2013, down from $4 billion versus four weeks prior, they remain steady. The increase in equity assets under management, as well as bonds, is largely coming from money market funds. In terms of the shape of fund flows over recent years, equity assets under management increased from 2005-2007, declined in 2008, increased in 2009-2010 and then declined in 2011-2012. There is a degree of seasonality, as fund flows are usually positive in the start of the year. That said, the magnitude in 2013 is greater than in years prior. Calamos Asset Management, Inc (NASDAQ:CLMS) has not grown in line with this and has had negative revenue growth in every year since and including 2007.
Calamos Underperforming Versus the Industry
Calamos’ negative asset flows most peaked in December 2012, when there was a decline of $977 million. This has softened since, with a decline of $544 million in February 2013, though that’s still a very large and concerning number for shareholders. However, the slowing pace is not encouraging when taking into account positive industry trends. At Calamos Asset Management, Inc (NASDAQ:CLMS), their two largest funds have lagged their benchmarks significantly over the past three years. Also, over 50% of their assets are in US Growth, which may underperform as a sector. That said, some of their smaller funds are outperforming, such as their international growth fund. However, it will be difficult for Calamos Asset Management, Inc (NASDAQ:CLMS) to offset outflows at their large funds with increased assets at their small funds.
Dividend and Share Purchases
The CEO of Calamos, who is also the founder, has steadily put his money back into the company’s shares over recent months. Since December 1, 2012, insiders have repurchased $34.7 million in stock. This is a large number when taking into account the fact that Calamos has a market cap of $233.4 million.
It is also a positive sign that management believes it can turn fund performance and the firm around. In addition to insider buying, the Board approved a 3 million share repurchase program – there are 22.8 million shares outstanding – which is again a significant number. Management also increased the quarterly dividend to $0.11 from $0.125, and the dividend yield to 4.3%, despite its performance.
Share Performance vs. Competitors
Calamos Asset Management, Inc (NASDAQ:CLMS) shares are down 11% from a year ago, but year to date they are up 8.3%. Even with their shares being up in 2013, Calamos has significantly underperformed in comparison to other asset managers like BlackRock, Inc. (NYSE:BLK) , up 22.4% YTD, and Affiliated Managers Group, Inc. (NYSE:AMG) , up 22.4% YTD. The difference is the assets under management increases at BlackRock and AMG versus Calamos. Due to the increases in AUM, Blackrock has increased its revenue by 14% and AMG has increased its revenue by 22%. The resulting earnings growth has been phenomenal. Blackrock’s quarterly earnings are up 24%, while AMG’s are up 86%. Even with this growth Blackrock and AMG have PE ratios of around 14. Janus’ (JNS) shares are also up 8.4% YTD. Its funds have also underperformed versus benchmarks, though not to the degree of Calamos’ funds, which has also resulted in outflows.
Conclusion
On March 13, Calamos was downgraded to Sell by Goldman Sachs. Asset outflows, fund underperformance, and a relatively expensive valuation compared to recent and forecasted growth all present challenges for Calamos. In the near-term, it is likely to underperform peers as there is no quick fix to start growing assets again at the fund given a poor track record in too many large funds. While the repurchase program, an increased dividend, and insider buying seem positive, it is likely what is supporting and driving the shares up given the company very weak fundamentals. If this dries up or scales back and performance at its funds do not improve, the shares could again start to decline.
The article Can This Financial Firm Rebound? originally appeared on Fool.com is written by Mike Thiessen.
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