Image source: Getty Images
2021 has been an excellent year for Canadian financial stocks, particularly for Brookfield Asset Management (TSX: BAM.A) (NYSE: BAM). While major Canadian banks (such as Royal Bank of Canada and Toronto-Dominion Bank) generated a total return of approximately 33% in 2021, Brookfield generated a total return of 47%.
Brookfield has outperformed Canadian banks for years
Frankly, that shouldn’t be a big surprise. Brookfield has consistently outperformed the best Canadian banks for years. Over the past five years, Brookfield has produced a compound annual growth rate (CAGR) of 22.7%. That’s nearly double the Royal Bank’s 12.4% CAGR over the same period.
Although Brookfield is considered a financial stock, it is an entirely different beast from Canadian banks. Brookfield is one of the world’s largest asset managers. It manages $ 650 billion in assets. Today, with a price of $ 76 per share, it has a market cap of $ 120 billion.
A pioneering asset manager
Brookfield was a major pioneer in the asset management industry. Rather than investing in traditional stocks or bonds, he focused on real and specialized alternative assets. Today, its publicly traded companies and private equity funds focus on real estate, renewables, infrastructure, private equity, distressed debt, insurance and bridging investments.
As interest rates have fallen over the past decade, the real value of assets has increased. Likewise, investment demand for higher yielding alternative assets has skyrocketed. Retail and institutional investors who hold heavily bond portfolios are losing money after inflation right now. Conversely, BAM offers both publicly traded entities and hedge funds that offer relatively low risk and high yield returns.
Brookfield is a smart value investor
This is one of the main reasons for the strong performance of Brookfield stocks, which is beating the market. However, I don’t want to undermine the Brookfield management team, which is led by CEO Bruce Flatt. Brookfield is very disciplined in the allocation of capital. For years, he took a counter-cyclical value-driven investment approach.
During good times, it recycles assets for big profits. He patiently waits for economic decline and rolls out his balance sheet when assets are depressed and cheap. The good thing is that today the company has expertise and scale across the world. Therefore, he can invest opportunistically whenever there is attractive value (there is always an opportunity somewhere).
Record growth in 2021
In 2021, Brookfield enjoyed record fundraising ($ 34 billion in its last quarter). Fortunately, as Brookfield grows, it also has more opportunities to sell and sell diverse products to investors. He can do this at very little additional cost, so his margins should increase as well.
This trend is creating very strong financial results. Over the past 12 months, Brookfield has increased its operating funds per share by 84% to $ 4.97. Its distributable income increased 95% to $ 6.6 billion or $ 4.23 per share. Over the past five years, its distributable income per share has increased by 32%!
Madness to take away
Overall, Brookfield is more than just a boring financial market. It is a diversified investment platform that becomes more profitable as it evolves. While interest rates are expected to rise soon, Brookfield has a habit of outperforming when interest rates are moderate (3-5% range). This leading Canadian stock is up 45% this year, but it’s poised to continue beating the TSX Index for many years to come. It’s one of the top picks for Canadian stocks for 2022 and beyond.