The Australian Ethical Investment Limited (ASX: AEF) share price is up 6% after giving a FUM update for December 2020.
Australian Ethical is a funds management business that focuses on giving investors exposure to ‘ethical’ businesses doing good for the world.
December update
Australian Ethical has revealed that its funds under management (FUM) grew by another 16.9% to $5.05 billion for the quarter ending 31 December 2020, up from $4.32 billion at 30 September 2020. Net flows totaled $270 million.
The fund manager said that the increase was driven by exceptional investment performance and strong net inflows.
Its managed funds saw $110 million of net flows as well as a $200 million increase from investment performance, ending the quarter with $1.75 billion of FUM.
Superannuation saw net flows of $160 million and investment performance growth of $260 million, ending the December quarter with $3.3 billion.
For the six month period to 31 December 2020, FUM grew by $1 billion from $4.05 billion to $4.05 billion. It received $420 million of net inflows.
Are Australian Ethical shares a buy?
Australian Ethical is an interesting one. The business is clearly doing well, a 16.9% increase in FUM in just one quarter is impressive, driven by both net inflows and investment performance.
I always think it’s a good idea to look at businesses that are growing strongly.
Can this grow continue for the long term? I think it can. ‘Ethical’ investing isn’t going to attract everyone, but strong investment performance will always be an attractive factor.
I think Australian Ethical is putting itself in a good position to attract more FUM over time as it lowers fees. Newer investors really understand how much of an impact that fees can have on their wealth over time.
This business is aligned to the steady growth of superannuation funds as people regularly contribute to their fund. That’s a good tailwind.
However, the main sticking point for me is the valuation. For the half year it’s expecting to make $4.6 million to $5.1 million of profit. If we ballpark $10 million of profit for FY21 then Australian Ethical is valued at around 66 times my ballpark figure for the 2021 financial year. That’s expensive, but it is a quality business.
There are other ASX growth shares in the funds management space that I think look better value such as Magellan Financial Group Ltd (ASX: MFG).
