UBS: Wealth Management King
Quick, who's the largest asset manager in the world? Fidelity, Vanguard and Capital Research are good guesses. But UBS, a Swiss bank with more than $2 trillion under management, is the correct answer. That helps to explain why many of the smartest mutual fund managers around have been gobbling up shares of UBS, which trades in the U.S. as American Depositary Receipts under the UBS symbol.
Fund management is one of the most profitable businesses known to man. UBS is also a heavyweight in global investment banking, but it's the private banking and wealth management arm of the big Swiss bank that's attracting investors such as David Herro of Oakmark International, Cory Gilchrist of Marsico 21st Century and Bob Smith of T. Rowe Price Growth Stock.
All three managers calculate that more than half of UBS's value is contained in its steadily expanding asset-management business. "UBS is the world's best high-net-worth wealth manager," asserts Gilchrist, who highlights the Swiss bank's strong position in China, where wealth is growing explosively. Oakmark's Herro notes that simply matching an average market performance of 7% to 10% a year expands UBS's lucrative pool of assets under management by a like amount.
Yet UBS stock, which closed March 30 at $59.43, down 0.2%, sells at a modest 12 times projected 2007 earnings, more like the valuation of a commercial bank or an investment bank with volatile earnings. Reliable asset managers sell at multiples of 20 times earnings and higher. Smith of T. Rowe Price figures that UBS shares, which yield 3%, should sell at 15 times earnings, implying an upside of nearly 30%. Fund managers know a good thing when they see a cash machine that operates in their own space.