Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Polar Capital (LSE:POLR)
Why we like it: “Polar Capital (LSE: POLR) is a London headquartered fund management company that boasted £23.8bn in assets under management (AuM) as of December 2024. While the investment management space often gets a bad rap – with the assumption that it charges high fees for poor performance – we have no problem recommending asset managers with long-term, Foolish investment styles, and believe that Polar’s technology and healthcare focus is appealing.
“One of the attractions of fund management businesses is that they have massive operational leverage. Revenues typically grow at a rate that’s proportional to AuM, although costs stay much the same, so profits should grow at a faster rate. In the good times, when markets rise and revenues surge, then the company’s profits should grow even faster – which could potentially make owning the business a proxy for the market’s progress.”
Why we like it now: In the last nine months, Polar Capital’s AuM has improved from £19.2bn to £23.8bn, an increase of 9%. The company has enjoyed modest net inflows of £0.2bn and a £1.8bn increase due to market and investment performance. This is a highly credible performance compared to other UK asset managers which have seen outflows over the same period. Potentially, if Polar’s investment biases – technology and healthcare – keep delivering a strong performance it should help attract further investors into its funds. Despite the company’s performance putting it at the top of its peer group, it’s trading around just under 10x expected earnings, while a forecast 9.5% yield is worth considering for income investors.
