Invesco Still Attractive After Post-Brexit Rebound

Gregg Warren: We've always noted the best time to buy asset managers is when the market is down, and we got a unique opportunity back at the end of June to step into one name in particular, Invesco.

Normally, with the asset managers we're looking for names that have good organic growth prospects, and that generally leads us to names like BlackRock and T. Rowe Price, which, for BlackRock it's ETF growth that's out there. For T. Rowe Price, it's good, solid investment performance. But when the market is trading down, you also get an opportunity to step into some second-tier names that have good prospects but are trading at a much cheaper level than, say, BlackRock or T. Rowe would ever get to. In this case, there's Invesco, AMG, and Eaton Vance that really kind of stood out.

Now, we started recommending Invesco at the end of June basically because the market was acting like the company's exposure to the U.K. and to Europe was going to diminish its prospects in the near term, or at least significantly diminish. The stock lost about 25% of its value in a matter of two days after the Brexit vote. We were confident that the company was not going to get hit as hard. We expected there to be outflows; we expected there to be market losses, but the market itself was acting like it was going to lose all of the AUM that it had in the U.K. region, which is about $99 billion.

At this point, the stock has run up nicely off of those lows. It's about 30% up from where it was and bottomed out right after the Brexit vote. We think that there's still some left in the name. Overall, the stock itself right now is trading at a discount to the group, and the only other names within the group that are trading lower are Legg Mason, Waddell & Reed, and AMG.

With Legg Mason, we think there's a higher risk profile associated with the name. It's taken up some acquisitions this year and run up their debt to do it. Waddell & Reed is dealing with poor fund performance, outflows, and management turnover. And then when we look at AMG, we just don't have the same sort of clarity into their numbers that we do with Invesco. Invesco is reporting AUM flows on a monthly basis. Invesco has a lot more capital to put to work in share repurchases, and the company actually pays a dividend, which AMG does not. Invesco's yield right now is 3.7%. So, that's why we continue to like the name here even though it's run up significantly.