See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Jubak's Journal Recent articles: • How a Fed halt could hurt you, 1/10/2006 • Invest in Europe's alternative energy leaders, 1/6/2006 • Russian roulette? Not with these 5 stocks, 1/4/2006 More... | Jubak's Journal The big winners of Dow 11,000 When the market heats up, the stocks of mutual fund companies do, too. Here are the 5 asset managers best positioned to reap the rewards. By Jim Jubak What do you get when you put together expectations of the end to the Fed's interest-rate hikes and a close above 11,000 on the Dow industrials? The ideal time to buy stocks of the companies that manage investors' money. On Monday, the Dow Jones Industrial Average Last week, the release of the minutes from the Federal Reserve's Open Market Committee, the body that sets short-term interest rates, convinced investors that one or two more interest-rate increases would be enough to put an end to its run of rate hikes. So far, its 13 consecutive 0.25 percentage point increases have taken short-term rates from 1% in June 2004 to 4.25% in December 2005. Short-term rates above 4% bring money flooding into money-market funds of the kind run by Federated Investors
The asset management business is pretty simple. More money coming in from investors -- and better stock and bond performance -- is good because asset managers collect fees that are largely based on the dollar-value of the accounts they manage. Money going out is bad since it cuts that revenue and forces managers to sell stocks and bonds when prices are falling in order to meet the demands of investors who ask for the return of their money. More from MSN Money
Since many costs are fixed for asset managers -- advertising and research cost what they cost whether $1 million or $1 billion is coming in the door -- higher inflows result in even bigger increases in profits. So as you'd imagine, November 2005 was a much better month for the asset management business than November 2004. U.S. equity and money-market funds attracted $24 billion and $35 billion, respectively, of new assets, according to Simfund. That was up from inflows of $22 billion and $2 billion in October. But it was a better time for some kinds of asset managers than others. Follow the money November kept the good news coming for money market funds. These asset pools have seen net inflows in six of the past seven months -- after facing net outflows for most of the last three years. Net inflows of $20 billion to date compare to a net outflow of $141 billion in 2004 through November. And November also marked a startling turnaround for managers of funds specializing in U.S. growth stocks. After recording outflows month after month since April 2004, the flow into these asset pools finally turned positive in November. The news wasn't as good for the managers of funds that specialized in U.S. fixed income investments, such as U.S. Treasurys. In fact, these funds saw a net outflow of $1 billion in November. That put an end to a string of seven consecutive months of net inflows, but bond funds still took in a net $36 billion of new money in the first 11 months of 2005. That's well ahead of the $1 billion in net inflows in first 11 months of 2004. The key to taking advantage of the enthusiasm for Dow 11,000 and an end to Federal Reserve interest-rate hikes is to find the asset managers best positioned to get the strongest money flows. In my regular Wednesday appearance on CNBC's "Morning Call," I recommended these three asset management stocks: Federated Investors. Historically, when the Fed's short-term interest rate hits 4%, money starts to flow strongly back to money market funds, according to Friedman, Billings, Ramsey. Well, the short-term interest rate benchmark is now at 4.25%, so investors can look forward to flush times for Federated Investors T. Rowe Price Group Janus Capital Group As always I have an additional two "exclusive" picks for readers of CNBC.com on MSN Money.
Franklin Resources Affiliated Managers Group Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For suggestions to help navigate the treacherous interest-rate environment see Jim's new portfolio Dividend stocks for income investors. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak did not own or control shares of any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column. | |||||||||||||||||||||||||||||||
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