- High yield sectors have easily outperformed what has been a flat market so far in 2014.
- This could continue as a huge sector rotation out of momentum stocks continues and interest rates show declines from where they began the year.
- Playing that trend, two attractive high yielding asset managers are profiled below.
Volatility has increase so far in 2014 compared with 2013's levels. Although the markets are basically flat so far in the year, investors have seen a significant rotation from the momentum stocks that led the rally in 2013 into safer, higher yielding plays.
In addition to this sector rotation that has been underway since March, high yield sectors have also been bolstered by the decline in ten-year treasury yields since the first of the year. Confounding skeptics, yields on the ten-year treasury has fallen from just over 3% to under 2.6% over the first five months of the year.
I think the market is telling investors that the economy will not grow at a 3% GDP level as the consensus forecast predicted to begin the year in 2014. The economy appears to be permanently muddling along at the same 2% level it has been delivering for five years in the weakest post war recovery in history. I think high yield sectors will continue to outperform in what is looking like a flat market for 2014.
One area I have not touched on recently is some of the high yields available in some asset managers, not a traditional place investors look for income. Here are two attractive high yield plays currently available in this sector.
Och-Ziff Capital Management Group (NYSE:OZM) is one of the largest institutional alternative asset managers in the world, with approximately $43.5 billion in assets under management as of May 1, 2014.
The company easily beat earnings expectations during its last quarterly results. The stock sold off on some concerns around a funding deal in Congo, which seem overblown. KBW came out today saying to "Buy the Dip" and upgraded the shares to "Outperform."
Earnings and revenues are projected to be down by ~25% this year before rebounding by over 30% in FY2015. The shares go for eight times trailing earnings and yield over seven percent (7.1%). The shares go for under $13 a share, substantially below the $16.25 a share median price target held by the eight analysts that cover the stock. The company has quadrupled AUM (Assets under Management) over the past decade.
Blackstone (NYSE:BX) is a leader in alternative asset management space. They provide various investment vehicles and manage over $250B in assets for public and corporate pension funds, academic, cultural and charitable organizations. Their diverse range of funds include private equity, real estate, credit and hedge fund investments all over the world.
The asset management firm delivered variable quarterly dividend payouts. Based on the last four quarterly payouts, the shares yield over 4.5% at current prices. The shares currently go for under 10x trailing earnings and consistently beat earnings expectations. The company has beat the bottom line consensus for six straight quarters.
The stock trades at ~$30 a share, ~25% below the $37 a share price target held by the 15 analysts that cover the equity. In addition, the shares have a very low five-year projected PEG (.42) for a high yielder and has an over 20% ROE (Return on Equity). The stock has declined more than 10% since its highs in March offering a good entry point.
Disclosure: I am long BX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.