The asset management plays, like Brookfield Asset Management (TSX: BAM) and Brookfield Corp. (TSX: BN) stocks, have been under quite a bit of pain of late, thanks in part to the rapid rise in interest rates. Undoubtedly, higher rates hurt many firms within and outside the financial sector. With the Bank of Canada hitting the pause button (at least for the time being), there’s hope that the rate-induced headwinds facing all firms will peak. And in due time, the hope is that inflation will plunge, allowing central banks to pursue rate cuts.
It’s too early to tell where rates go from here. Some think a few more hikes are necessary to continue to drive inflation lower. Others think that the rise of artificial intelligence (AI) and regional banking pressures may be enough to help central banks’ fight against inflation without further sizeable rate increases.
It’s hard to tell. In any case, I don’t think investors should be looking to predict what the Bank of Canada will do. Timing monetary policy can be as difficult as timing markets and the economy. Your time and effort would be better put in finding great companies at decent prices you’d be more than willing to hang onto for years.
Bank stocks aren’t the only financial plays rich with value!
When it comes to the financials, many Canadians likely have exposure to the Canadian banks. They’ve taken a hit of late, thanks to rate-induced macro headwinds and jitters from March’s regional bank failures. Though the banks are great investments, I think there’s a way to get a better risk/reward scenario with the asset managers at this juncture.
Not to knock the big banks. They’re still wonderful ways to play the financial space. You get a huge dividend alongside a good shot at steady capital appreciation over the long haul. That said, the big banks tend to be extremely choppy when the macro picture gets a bit ugly. It doesn’t matter how well run or well capitalized a bank is; it can still take a hit to the chin when the economy sours and loan growth sinks.
Of course, asset managers can still face wild swings. However, at today’s modest valuations, I think there’s a remarkably wide margin of safety to be had in a name like Brookfield Asset Management.
Brookfield Asset Management stock: A new income heavyweight in town
I’ve covered Brookfield Corp., the asset-heavy parent of Brookfield Asset Management that formed from the spin-off of the “old” Brookfield Asset Management, in prior pieces.
Brookfield Corp. is a great alternative asset management play in itself. However, the “new” Brookfield Asset Management is undoubtedly more compelling to the new income investors out there. The stock offers a juicy 3.94% dividend yield at the time of writing.
Further, the firm is well equipped to grow its payout, as it looks to continue capitalizing on increased demand for alternative asset management.
Though BAM doesn’t expect any big merger and acquisition deals this year, I think the firm may change its mind if it sees a compelling opportunity to deploy any excess capital. In any case, Brookfield looks to be on the right track, as it looks to continue working its magic in the post-spin-off era.
