What happened
Affiliated Managers Group (AMG +2.41%), or AMG, saw its stock price fall on Wednesday, dropping as much as 14.8%. As of 2:45 p.m. ET, the share price was down 13.9%. The stock was trading at about $141 per share at that time, down about 11% year to date.
The major markets were all trending up on Wednesday as the S&P 500 index was up nine points (0.2%), the Dow Jones Industrial Average climbed 156 points (0.4%), and the Nasdaq Composite gained eight points (0.1%) as of 2:45 p.m. ET.
So what
After being down all day, the markets spiked after 2 p.m. ET when the Federal Reserve announced that it had, as expected, raised interest rates by 25 basis points to the 5.25% to 5.50% range. The late surge may have been buoyed by the fact that Fed Chair Jerome Powell said further rate increases will be determined "meeting by meeting" and offered no guidance on future actions other than to say the Board wants to be sure inflation is "durably down."
NYSE: AMG
Key Data Points
Interest rates aside, AMG, the asset management firm, dropped after the release of its second-quarter earnings. AMG reported a mixed bag, as earnings were up 10% year over year to $4.45 per share, but revenue was down 15% to $512 million. Earnings surpassed analysts' expectations while revenue fell short of them.
Assets under management were down 2.5% to $674 billion, and the firm had $10.5 billion in net outflows in the quarter. Earnings were boosted by lower operating expenses, down 6.5% year over year, and higher equity method income for the manager of managers.
Now what
The steep decline for AMG seemed like a bit of an overreaction, as it looks to be in decent shape with a well-diversified portfolio. Only about 17% of its assets are in U.S. stocks, while 50% are in alternatives and 25% are in international or global assets. U.S. stocks had a strong first half, which may have hurt it relative to some competitors. But overall it has a solid roster of diversified boutique asset management partners that has performed well through various market cycles in recent years.
It also expanded its footprint in the private equity space by announcing a partnership with Forbion, a European venture capital and growth equity firm focused on life sciences.
AMG has a low valuation with a price-to-earnings ratio of 6 and has a solid capital position, having just repurchased approximately $269 million of its stock. This steep price decline could entice some investors to jump on board at a lower valuation.
