When it comes to asset management companies, there are few that rival Brookfield Asset Management (TSX:BAM) and Fairfax Financial Holdings (TSX:FFH). But between the two, it can be a little less clear which is the better buy.
So today, we’re going to look into this. These companies are established Canadian companies with strong track records, but offer different investment propositions. So let’s get into a breakdown to help you decide.
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Looking into earnings
First off, let’s look at how these companies have been performing lately. That would include looking at earnings from these asset management companies. BAM for its part reported negative net income during the fourth quarter, due to non-cash fair value adjustments and unrealized losses on investments.
That being said, funds from operations (FFO) remained positive. This is key, as this metric for real estate and infrastructure firms can demonstrate long-term growth and value. Management also stated they should continue to see strong fundraising for the company, as well as a healthy investment pipeline.
As for Fairfax, the company managed to deliver positive net income! This came from its underwriting results from its insurance subsidiaries, as well as gains in investments. So the exact opposite of BAM. Furthermore, the company grew its written premiums, seeing insurance continue to grow. In fact, FFH even announced a share buyback program, and upped its dividend.
Strong leadership
Both of these companies also offer strong leadership. And this is something that is often overlooked by many investors. Companies can be strong, it’s true. But throw in a poor leader and they can sink those companies right into the ground.
BAM stock is led by Bruce Flat, who is a seasoned investor with a long history of alternative asset management involvement. What’s more, his track record is strong, with many spin outs of the company in recent years. He’s known for opportunistic investing, with a major focus on long-term value creation.
Then there’s Prem Watsa, often called the “Canadian Warren Buffett.” This is because he focuses on valuing companies when it comes to investing, similarly to Buffett. He’s also known for being conservative rather than opportunistic. Watsa has focused on undervalued businesses, and maintaining underwriting to continue growth no matter what.
What about the future?
Now this is all grand, but what about the future of these two companies? That can be the ultimate deciding factor when it comes right down to it. Both look as though they are going to offer strong growth from investments. But let’s consider our options.
BAM stock faces headwinds at the moment thanks to higher interest rates. Further, a potential economic slowdown could also hurt the stock. That being said, it has a long-term track record of keeping up even after slowdowns. What’s more, BAM stock has investments in renewable energy and infrastructure, which will be major long-term growth opportunities.
Fairfax actually benefits from higher interest rates, thanks to the insurance business. However, there is an issue when it comes to the future. And that lies with Watsa. FFH relies heavily on his investment decisions. This could be a risk factor should he step down. Even so, the focus on value creation makes it a strong opportunity even in a volatile market.
Bottom line
When it comes down to it, both are great investments. BAM offers diversified exposure to alternative assets for long-term growth. However, it comes with higher risks at the moment. FFH stock with its combined investment and insurance strategy, meanwhile, remains valuable and with less risk. And frankly, we can’t know when Watsa will leave. As long as he’s around, I would consider it the winner of the two.
