Ares Management - Viewed Through The Eyes Of A Preferred Investor: An Update

| About: Ares Management, (ARES)
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Summary

ARES did not perform as well as it did the previous quarter, yet nothing the preferred investor need be concerned about..

While ARES performed at the very top of its peer group the previous quarter, it performed near the bottom during this past quarter..

Ironically ARES-A lost $0.51 price-wise, and as a result is now a better buy, offering a higher yield and a lower capital loss when called..

This review updates my initial look at Ares Management (NYSE:ARES) from my October 10, 2016, article, "Ares Management: Viewed Through The Eyes Of A Preferred Investor."

Though I hope you will read the original linked article in full, my bottom-line assessment and buy recommendation at the time were as follows:

Now for that recommendation you have been eagerly awaiting. ARES-A is callable 6/30/21, which means that even if you purchase it at its current $1.01 above par you have five years of dividends to collect before ARES can call it away from you and you'd lose that $1.01. Of course if you are one of those trader kind of guys, you might not like its share price falling and you being stuck with it because you don't want to book a loss. For investors like myself, who usually hold until an issue is called, its price movement is of no real concern to me, because I don't expect it to move very much considering how large and solid a company ARES is.

Let's see how ARES' common has performed over the past quarter since I wrote the previous articles. Because of the greater volume of common shares traded as opposed to the limited liquidity of most preferreds, I find the commons to be a better indicator of a company's overall performance.

It appears that over the past three months, ARES' share price dropped at first and has trended upward nicely since it bottomed on November 2, to $15.15. On October 10, 2016, it traded at $18.55, now it's priced at $18.05. That's a loss of $0.50 in three months. Nothing to be concerned about as far as this preferred investor is concerned.

Now let's compare ARES' share price performance over the past three months in relation to a number of its peers. Chart provided by Yahoo Finance:

According to the chart above, ARES performed toward the bottom of its peer group, a complete reversal of the previous quarter when it performed at the very top. Another vindication that quarterly price fluctuation should be of little concern for the preferred investor. The peer comparisons charted above are: Evercore Partners (NYSE:EVR), Cohen & Steers (NYSE:CNS), American Capital Ltd.* (NASDAQ:ACAS), Artisan Partners Asset Management (NYSE:APAM), and AllianceBernstein Holding (NYSE:AB).

Before we discuss ARES' future prospects, let's see how its preferred has fared during the past three months. The following chart is provided by MarketWatch:

ARES-A performed as best as could be expected considering its share price was $1.01 above par value (the natural glass ceiling of all preferreds) or $26.01 when we reviewed it in October. As I expected, it did not maintain it lofty price. But it's certainly nothing to worry about for those investors determined to hold this preferred until it's called. Yes, at 26.01 they will suffer a capital loss of $1.01, but they will have collected five years of dividends. And in the event Ares does not call this preferred in a timely fashion they will continue to collect dividends at the effective rate of 6.73%

As I recommended in October:

Now for that recommendation you have been eagerly awaiting. ARES-A is callable 6/30/21, which means that even if you purchase it at its current $1.01 above par you have five years of dividends to collect before ARES can call it away from you and you'd lose that $1.01. Of course if you are one of those trader kind of guys, you might not like its share price falling and you being stuck with it because you don't want to book a loss. For investors like myself, who usually hold until an issue is called, its price movement is of no real concern to me, because I don't expect it to move very much considering how large and solid a company ARES is.

However, being a bit of a yield hog, the effective yield ARES-A currently offers is not quite up to my lofty standards. By the numbers:

  • 1.75 (yearly dividend) / 26.01 (current price) = 6.73%

Not shabby at all for a nice safe five year or more investment.

Now for a little forward guidance

Because as a long-term cumulative preferred investor, I am little concerned about quarterly financial reports and their attendant conference calls, which are liberally spun, I don't bother paying much attention to them unless the particular company is at risk of suffering some existential threat. Ares Management is no such company, as illustrated by the price of its preferreds and its common price performance these past three months.

Consequently, ARES-A is actually a better buy now than it was in October:

  • 1.75 (yearly dividend) / 25.50 (current price) = 6.86%

And with the added benefit that the buyer at this price would only lose $0.50 when it's called. Still not good enough for me, but a nice safe yield for the less intrepid preferred investor.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.