The FTSE 250 Income Stock that thrives in volatile markets

11th February 2019.

If you want to build a portfolio of blue-chip income stocks, you can’t go wrong with the FTSE 100. However, the one downside of using this index as an income investment is volatility. When the going gets tough, the price of the FTSE 100 can crash, and this could be enough to put some income investors off. With that being the case, today I’m looking at a FTSE 250 income stock that offers both a higher dividend yield than the FTSE 100 and tends to thrive in volatile markets.

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The FTSE 250 income stock that thrives in volatile markets

If you want to build a portfolio of blue-chip income stocks, you can’t go wrong with the FTSE 100.However, the one downside of using this index as an income investment is volatility. When the going gets tough,the price of the FTSE 100 can crash, and this could be enough to put some income investors off. With that being the case, today I’m looking at a FTSE 250 income stock that offers both a higher dividend yield than the FTSE 100 and tends to thrive in volatile market

Man Group

Background

Man Group is a UK-based independent alternative investment manager. It offers long-only, alternative and private markets products on a single and multi-manager basis. Its investment management firms include Man AHL, Man Numeric, Man GLG, Man FRM and Man Global Private Markets (Man GPM). Man AHL is a diversified quantitative investment manager. Man Numeric is a quantitative equity manager invested across equity markets.

Man GLG is a discretionary fund manager, active across alternative and long only strategies. Man FRM is an open architecture, full service hedge fund platform, which offers commingled fund of hedge funds, advisory solutions and outsourced research and consulting. Man GPM is engaged in private market asset classes, such as real estate, private credit and infrastructure. The company is one of the world’s largest publicly-traded hedge funds and Man Group manages around $114bn for clients around the world. The value of AUM hit a record last year, thanks to a surge in inflows and a positive trading performance.

The company is best known for its computer-driven equity strategies, in particular its flagship AHL strategy that has been a pioneer of systematic trading since 1987. As well as the computer-driven trading business, the group also invests in private equity and infrastructure assets to help its investors achieve an attractive return.

Results

On Aug 1st 2018, Man Group reported semi-annual 2018 earnings of 0.081 per share. This result was in line with the consensus of the 2 analysts following the company and exceeded last year’s results for the same period by 8%. Man Group reported annual 2017 earnings of 0.20 per share on Feb 28th 2018. Man Group reported semi-annual 2018 revenues of 506.00m. This was 9.76% above the prior year’s period results. Man Group had revenues for the full year 2017 of 1.07bn.

This was 29.14% above the prior year’s results. The next earnings announcement from Man Group is expected the week of Mar 1st 2019.

Investment Case & Forecasts

Hedge funds like Man Group tend to thrive in uncertain and volatile environments because market volatility throws up opportunities that they can take advantage of quickly. I think the fact that the group’s AUM rose to a record last year supports this argument — investors are placing their cash with the firm in the hopes that it can profit from uncertainty.

And as investors rush to give their money to the hedge fund manager, shareholders are set to benefit as well. One of the primary ways Man Group makes money is through investment management fees, and the more money that is deposited with the group, the higher the fee income stream. As well as returning cash to investors via a regular dividend distribution, Man Group is
also buying back shares. The money being spent here is equivalent to an additional yield of 0.8%, giving a total shareholder yield of 6.9%.

Because Man Group invests in assets like private equity, where returns can be lumpy and unpredictable, the company’s earnings tend to jump around a lot. With this being the case, I think it’s appropriate to value the shares based not on profits, but on the stock’s total yield to investors.

As of Feb 09, 2019, the consensus forecast amongst 14 polled investment analysts covering Man Group PLC advises investors to hold their position in the company. City analysts believe the company’s earnings per share will rise 25% for 2019 to $0.18, giving a forward P/E of just 10. At the same time, they’ve pencilled in a dividend yield of 6.1%.

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