As you know I write about asset managers probably too much considering I am only analysing two companies TROW and BEN. My last post was a little bit over month ago and I wrote my conclusion:

Surely you should never put all eggs in one basket, but objectively for now I prefer BEN to TROW (still I am not planning to increase my exposition on asset managers). If share price of TROW falls further I will consider buying.

Comparing performance for the last month both asset managers are down around 4.5% and for the last 3 months BEN is outperforming TROW for around 12 percentage points. The valuation is narrowing and the key point is whether it is a right time to buy.

I saw in a dividend investing growth community that you are buying TROW – well having 3.2% dividend yield more for the next year (growth assumed) it is extremely tempting to buy. Comparing to market yield of around 2.1% and BEN yield 2% it is a nice premium (but I would be reluctant to look only at dividend yield. Consider also buybacks and special dividends and cash on the balance sheet, then BEN looks like very good). Share price is around January’s low and market now is currently doing significantly better (which is important for asset managers due to success fees).

The key problem is that I do not really understand why TROW share price is going down. Well maybe declared dividend is below expectations but still does it really make sense for shares to fall few bucks when quarterly dividend is few cents lower?

Looking at valuation – company has around $2b in cash -> I deduct from market cap as it can be paid as special dividends in future. This gives us P/E around 13 for this year and around 11 for next year. Well it is not expensive. BEN is still cheaper, but it is mostly the case of 2015, when BEN shares dropped a lot and didn’t recovered. Gap is now narrowing but there is still a lot of space for BEN outperforming TROW.

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Summing up, when high quality company is going through de-rating on multiples it is easy to buy shares too early. Assuming V shape of chart and impossibility to buy exactly at the bottom the key question is whether it is better to buy too early (and then have a loss on paper) or wait too long and buy after rebound. This is an individual matter. For now I am closely looking at asset managers, I like TROW but I am waiting for even better price. We will see. I prefer to lose investment opportunity than to lose money.

 

Disclaimer – long BEN, no position TROW.