Asset managers like it when bull markets push the value of their holdings higher, as it typically means more fee revenue for them. Affiliated Managers Group (NYSE:AMG) has made strategic moves to complement the upward impact of a rising market, and its success has helped send its stock to levels it hasn't seen since the boom times of 2015.
Coming into Monday's third-quarter financial report, AMG shareholders fully believed that the asset manager would be able to sustain its recent run of growth, and the company didn't disappoint them. AMG also said that it should be able to find new opportunities to expand. Let's take a closer look at Affiliated Managers Group, and consider whether it can sustain its positive momentum through the end of the year and beyond.
More solid results for AMG
Affiliated Managers Group's third-quarter results delivered on the promise that the business has. Revenue climbed 7.5% to $585.7 million, accelerating from the spring quarter and meeting the expectations of those following the company. Economic net income climbed 16% to $191.3 million, which translated to results of $3.41 per share, topping the consensus forecast for $3.36 per share.
Despite the favorable markets, though, AMG continued to see some mixed signals from its investor base. Overall, the asset manager had net inflows of $3.1 billion, which helped to lift its assets under management above the $800 billion mark. Yet nearly all of those inflows came to AMG's alternative funds. Global and U.S. equity funds suffered substantial outflows totaling nearly $8 billion, further building on the negative trends that have been prevailing despite the market's ongoing strong performance. AMG enjoyed market-based gains of $24.2 billion during the quarter, about three-quarters of which came from equities. Favorable foreign-exchange impacts also added $4.5 billion to the asset base.
There was a clear contrast in behavior between the types of clients AMG serves. Its institutional clients -- who account for the majority of its business -- took net outflows. Retail and high-net-worth individuals, on the other hand, had inflows, with the largest contribution coming from the retail side. Some investors might be nervous about that trend, which suggests that less sophisticated investors are jumping on the bull market bandwagon at just the time that their more experienced counterparts are looking elsewhere.
Cost-cutting continued to help Affiliated Managers Group's bottom line. Declines in compensation, overhead, and intangible-related expenses all helped to boost operating income, although a big jump in income taxes ate away part of its gains.
Can AMG keep succeeding?
CEO Sean Healey was happy with the results Affiliated Managers Group put up. "Our results reflect the diversity of our business and the excellent execution of our growth strategy," he said, "including ongoing organic growth from net client cash flows and the consistent investment outperformance of our affiliates, along with the continued success of our strategy to partner with the highest-quality boutiques worldwide."
Looking ahead, the CEO was optimistic. "We see ongoing opportunities to bring the outstanding performance of focused specialist firms, supported by the scale, resources, and risk management of a global investment manager, to clients around the world," he said.
However, shareholders weren't entirely satisfied with the report, and the stock dropped more than 2% just after the open on Monday. Investors will want to keep an eye on fund flows to see whether the trend away from equity investments toward alternatives continues, especially if that movement is largely driven by institutions acting in a way that differs from the behavior of retail investors. For now, AMG appears to be in the right place at the right time, and is moving forward with initiatives that will allow it to take full advantage of the good conditions in the market for as long as they last.