According to a study by the Spinoff Report, 60% of the 500 spinoffs it studied between 2000 and 2010 were up after one year. Furthermore, Joel Greenblatt has found that spin-offs tend to outperform their industry peers in the first three years as public companies. It's no surprise then that Virtus Investment Partners (Nasdaq:VRTS) is up 660% since Jan. 2, 2009, the day it became an independent company; while its parent, Phoenix Companies (NYSE:PNX), is down 36% to $2.03. Virtus has done nothing but perform since its spin-off in early 2009 and you can expect that to continue. Here are three reasons why.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Assets Under Management

Mutual funds carried the day in 2011 as net flows were $5.1 billion, $3.4 billion higher than in 2010. Its fourth quarter was its 11th consecutive quarter of positive flows and its fourth consecutive quarter of more than $1 billion of net flows from open-end mutual funds. It finished 2011 with $34.6 billion in assets under management, up 17% from 2010 and 5% from the third quarter ended Sept. 30, 2011. Mutual fund assets represent 72% of its total assets under administration with long-term open-end funds approximately two-thirds of that with closed-end funds and money market funds the remainder.

All of its growth in assets under management in 2011 was the result of a strong distribution team and not market appreciation, as you can well imagine, given the performance of the indexes. One year earlier in 2010, its open-end mutual funds had $1.3 billion in market appreciation to go along with $1.7 billion in net flows. While it can't control the direction of the markets, it certainly can control its sales efforts. In 2011, its sales effort was a big success and this showed up in a big increase in management fees.

Revenues and Profits

On the top line, revenues increased 42% to $204.7 million with investment management fees increasing by 38% to $135.1 million, or 66% of revenues. Ancillary revenue, which includes service and transfer agent fees, increased 51% to $67.7 million. Excluding distribution expenses on a non-GAAP basis, adjusted revenues increased 39% to $155.1 million. Farther down the income statement, it generated adjusted operating income of $43.7 million, a 90% increase from 2010. Its operating margin on an adjusted basis in 2011 was 28%, 800 basis points higher than in 2011. This has a lot to do with its stock rising 68% in 2011, the best performance by a public asset manager for the second consecutive year.

Up 5% through April 20, it's going to need some more good news if it wants to catch its asset manager peers, which are up 13.5% year-to-date.

Investment Pedigree

For those of you who believe in active management, mutual funds are the only way to go. Active ETFs represent less than 1% of ETF assets at present and even with big entrants like PIMCO, it's going to take years for this to change. When it does, Virtus will be there. The important thing to remember about its business is that it doesn't bring in more assets if its investment managers are second rate. At the end of 2011, 85% of its assets and 60% of its funds were invested in five- and four-star Morningstar-rated funds.

Investors are attracted to success and its funds have had plenty. For instance, its biggest equity fund, with at least a five-year history, is the Virtus Emerging Markets Opportunities Fund (HEMZX), which has a 22.7% three-year annualized return. It won The's Best Funds 2012 award for best fund in emerging markets. Run by Rajiv Jain since 2006, it invests in companies like McDonald's (NYSE:MCD) and Coca-Cola (NYSE:KO) that are benefiting from domestic consumption in places like China, India and Brazil.

The Bottom Line

Probably the biggest reason to like Virtus is the fact it's owned 22.4% by the Bank of Montreal (NYSE:BMO), which is making a big push into the U.S. through Chicago-based Harris Bank. Long-term, you have to like the chances of BMO acquiring it. Therefore, unless it stumbles badly, which is unlikely, Virtus comes with a floor price of sorts and that's attractive indeed.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center