Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Triple Threat Firms Will Deliver Your Best Stocks Returns in 2014

Companies / Investing 2014 Jan 30, 2014 - 11:47 AM GMT

By: Money_Morning

Companies

Robert Hsu writes: As readers of my Permanent Wealth Investor know, alternative money management firms are some of my favorite securities for investors to own.

After a great run in 2013, those firms will have a hard act to follow in 2014.

But, here's the thing: the same sources that drove income last year for these companies are firmly in place. And will be throughout 2014.


So, what's so great about alternative money management firms?

They're great for both growth and income-oriented investors because their revenue comes from a "triple threat" of catalysts that can drive your best returns in 2014...

How Multiple Profits Pass Straight to Your Pocket

First off, alternative money management firms and private-equity firms charge fees based on the amount of assets under management. With billions of dollars in "AUM," or "assets under management," these firms are seeing big dollars each year in annual management fees.

On top of the management fees there are also performance fees, which can come to about 20% of the performance gains in a given account.

Finally, there's the capital appreciation of the capital these funds invest for themselves, which gives them an added layer of bottom-line performance that can drive their share prices higher.

The multiple revenue sources feeding alternative investment and private-equity firms are in large part what makes them such a great asset class for income investors. Yet the structure of these funds also makes them well-suited for both growth and income investors.

You see, most of these firms are structured as a limited partnership, which means at least 90% of their earnings must be "passed through" to shareholders. That means they are set up differently than traditional public corporations. While traditional corporate structures are designed to retain earnings, pass-through entities are designed to funnel their earnings directly to shareholders.

The Extra Tax "Boost" That Enhances Your Return

One huge reason why pass-through securities are so attractive is because the money paid out to shareholders (also known as unitholders in the case of most pass-through securities) is only taxed once at the corporate level.

This single taxation, as opposed to the double taxation on traditional corporations, means dividend payouts from pass-through entities are much bigger, and hence many of their annual dividend yields are much more attractive than regular corporate dividends.

For unitholders, pass-through securities offer the limited liability protection of traditional corporations, but without the double tax bite you take from Uncle Sam. And, because these entities don't have to contend with retained earnings, they are usually much more efficient and have far fewer financial barriers between money earned and the unitholders.

Finally, one of the most attractive aspects of alternative money management, pass-through securities is their outstanding yields. Many pay out distributions (dividends) that amount to a 5% to 10% yield.

Two Great Companies to Get You Started

Although there are many great companies to choose from in the alternative investment management space, there are two that I really like, and that investors should consider owning. The first is hedge fund titan Och-Ziff Capital Management Group LLC (NYSE: OZM).

Founded in 1994 by former Goldman Sachs' proprietary trader and self-made billionaire Daniel Och, OZM is one of the largest institutional alternative asset managers in the world, with approximately $38.5 billion in assets under management as of November 2013.

Through the management of assets for large institutions and select high-net-worth clients, OZM collects substantial management fees of about 1.5% per year on total assets. Finally, the firm charges its customers a percentage of profits, around 20%, which in the business is known as an incentive allocation. The multiple revenue sources feeding OZM are in large part what make it an ideal pick to benefit from a strong bull market.

Last year, the company's AUM soared to record levels that increased some 21% from the prior year. In 2013, OZM's three equity hedge funds were each up more than 10% for the year through October, versus 5.5% during the same period for the average equity hedge fund. The firm also earned $72.3 million in incentive income in Q3, 2013, up from $8 million in the same quarter a year earlier.

Last quarter, OZM declared a dividend of 25 cents per share, a 2% quarterly yield for the stock. Annualized, that's a 6% yield. That's solid, but when you consider the share price on OZM is up more than 50% over the past 12 months, you get the real sense of why I like this stock.

Another stalwart firm in this space that I really like is The Blackstone Group L.P. (NYSE: BX). This is the largest private-equity firm in the United States, with $248.1 billion in total assets under management as of September 2013. That's an incredible amount of total assets, and the sheer size of Blackstone's fiscal might is what helps makes it such a revenue and earnings machine.

Founded by Wall Street veterans and former Lehman Brothers bankers Stephen Schwartzman and Pete Peterson in 1985, Blackstone managers have accumulated decades of experience and fiscal know-how when it comes to generating returns for investors. Like many private-equity firms, Blackstone bought assets on the cheap during the Great Recession, and in recent years it's cashed in on those discounted acquisitions. Some of the highest-profile holdings in Blackstone's investment portfolio include marine-life themed amusement park SeaWorld Entertainment, and Hilton Hotels.

BX shares currently yield 3%, which is solid if not spectacular. What is spectacular, however, is the share price and dividend gain of more than 100% in 2013.

2014 should be another great year for money management firms. That means investors seeking high income and great capital appreciation need to take note, and embrace the alternative.

The total return potential in these securities is just too good to pass up.

Source : http://moneymorning.com/2014/01/30/triple-threat-firms-will-deliver-best-returns-2014/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a finan

cial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in