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Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Polar Capital (LSE:POLR)
Why we like it: “Polar Capital (LSE: POLR) is a London headquartered fund management company that boasted £19.2bn in assets under management (AuM) as of January 2024. While the investment management space often gets a bad rap – with the assumption that it charges high fees for poor performance – we have no problem recommending asset managers with long-term, Foolish investment styles, and believe that Polar’s technology and healthcare focus is appealing.“One of the attractions of fund management businesses is that they have massive operational leverage. Revenues typically grow at a rate that’s proportional to AuM, although costs stay much the same, so profits should grow at a faster rate. In the good times, when markets rise and revenues surge, then the company’s profits should grow even faster – which could potentially make owning the business a proxy for the market’s progress.”
Why we like it now: Polar Capital’s investment specialisms are helping it grow assets under management at a faster rate than peers. In its latest fiscal year, the company reported growth in assets under management of 14%, benefiting from strong gains in technology stocks. Potentially, AuM should continue rising as investors see its strategies delivering strong investment performance, which might attract more investors into its funds. While its technology focus has risks if the sector lurches downwards, the company boasts a strong balance sheet flush with net cash, which potentially makes it a less risky way for investor to gain technology exposure than investing in individual businesses.
