Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.
Rising stock and bond prices helped the company stem a decline in customer assets.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Motley Fool Returns
Market-beating stocks from our flagship service.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 2025-08-29 05:06:09.931673.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Fund manager Federated Investors (FII 0.01%) reported a 2.8% increase in net income in the third quarter compared to the year-ago period. Its earnings were helped by rising stock and bond prices, which helped stem a decline in assets due to customer redemptions.
|
Metric |
Q3 2017 |
Q3 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Average assets under management |
$360.5 billion |
$365.4 billion |
(1.3%) |
|
Net income |
$56.4 million |
$54.9 million |
2.8% |
|
Earnings per share |
$0.56 |
$0.54 |
3.7% |
Data source: Federated Investors.
Asset managers have only a few levers that really matter. Ultimately, the business boils down to how much money a company manages, the average fee it can charge to clients for its services, and its ability to manage expenses so as to maximize the portion of fees that make their way into pre-tax income.
Image source: Getty Images.
The press release quoted management's positive statement about the performance of the company's fixed-income funds, many of which are beating their peers in the most recent one-year period.
"At the end of the third quarter, 85 percent of Federated's rated domestic bond-fund assets had outperformed their category averages on a one-year basis," said CEO J. Christopher Donahue. "Federated continued to see positive flows in our flagship multisector bond fund, the $7.5 billion Federated Total Return Bond Fund, a strategy that incorporates our firm's highest-conviction ideas about different fixed-income asset classes."
Bond funds have enjoyed a good start to the year, despite Fed rate increases. The Bloomberg Barclays U.S. Aggregate Bond Total Return index is up approximately 3.1% year to date, on track to put up the best return since 2014.
A slide in the company's earnings reveals the importance of non-money market AUM to Federated Investors' top and bottom lines. It points out that money market strategies made up two-thirds of Federated Investors' AUM but generated only 30% of its fee income after distribution expenses this quarter. Fixed-income and stock strategies made up only a third of AUM, but generated 70% of fee income, after accounting for distribution expenses.
All this to say that, on average, a dollar of client capital invested in its equity and fixed-income strategies is worth more than twice as much to Federated Investors as a dollar invested in its legacy money market products. Growing these two strategies remains a priority for the company.
But not all growth is created equal. Shareholders will want to see that Federated Investors can grow AUM without the help of rising stock and bond prices. While all AUM growth is good, the very best asset-management companies grow AUM by convincing investors to invest more in their products than they withdraw over time.
If Federated Investors can stem customer outflows, and attract inflows, in its highly profitable equity and fixed-income strategies, increasing stock and bond prices will only serve to magnify its AUM and profit growth over the long haul.