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Diamond Hill Investment Group Enjoys $425 Million in Net Cash Inflows in 2017

By Joe Tenebruso - Feb 28, 2018 at 9:19AM

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The investment advisory firm continues to buck the trend toward passive funds.

Although investors pulled billions of dollars out of actively managed mutual funds in 2017, Diamond Hill Investment Group (DHIL 1.28%) grew its assets under management by more than 15% last year. That helped the investment manager increase its profits at a solid clip, even as many of its rivals lost sizable portions of their business.

Diamond Hill Investment Group results: The raw numbers

Metric

2017

2016

Year-Over-Year Change

Revenue

$145.2 million

$136.1 million

7%

Net income

$50 million

$46.1 million

9%

Earnings per share

$14.48

$13.49

7%

Data source: Diamond Hill Investment Group Q4 2017 earnings press release.

What happened with Diamond Hill Investment Group this quarter?

Diamond Hill's fourth-quarter revenue fell 6% to $37.8 million, but that was largely due to $6.4 million received in connection with the termination of a variable rate fee contract in the fourth quarter of 2016. Excluding this one-time gain, revenue rose 12%. For the full year, Diamond Hill's revenue increased 7%, to $145.2 million.

The company saw net cash inflows of $425 million in 2017, with $843 million of inflows to its proprietary funds more than offsetting $164 million of outflows from its sub-advised funds and $254 million from its institutional accounts. These net cash inflows, together with market appreciation of $2.5 billion, helped the investment firm's assets under management (AUM) grow to $22.3 billion as of Dec. 31, up from $19.4 billion at the end of 2016.

A person in a swimming cap and goggles swimming through the water.

Diamond Hill may be swimming against the tide, but its AUM totals are still moving in the right direction. Image source: Getty Images.

In turn, Diamond Hill's investment advisory fees rose 9% to $132.7 million. Mutual fund administration fees, however, fell 13% to $12.5 million. This decline was mostly due to Diamond Hill's sale of its Beacon Hill business, as well as a reduction in its net administration fee rate to 0.08% from 0.10%.

All told, full-year net operating income grew 6%, to $67 million, as operating margin held steady at 46%. Investment income, meanwhile, jumped 86% to $14 million. As such, pre-tax income increased 11% to $81 million.

Moreover, Diamond Hill generated $60.9 million in operating cash flow and $59.8 in free cash flow  in 2017.

Looking forward

In 2017, investors pulled $207.5 billion out of U.S. equity active funds, according to research company Morningstar, while $220.4 billion flowed into passive funds. Yet against this massive headwind, Diamond Hill continues to grow its AUM. That's a testament to the strong performance of its funds, and it suggests that Diamond Hill can further grow its business even if the actively managed fund industry continues to shrink in the years ahead.

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Diamond Hill Investment Group Stock Quote
Diamond Hill Investment Group
DHIL
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