Waddell & Reed: Financial Turnaround?


Ben Reynolds Image Ben Reynolds Editor, Sure Dividends

Waddell & Reed Financial (WDR) was originally founded by two World War I veterans in 1937. Waddell & Reed provides investment management and financial planning services both in the United States and internationally, Ben Reynolds, editor of Sure Retirement.

The company currently has a market cap of $1.5 billion. The company’s share price has collapsed from over $60/share in 2014 to around $19 now. With that said, shares have rebounded from lows of around $15 seen in November.

Waddell & Reed’s stock price has plummeted due to declining assets under management (AUM). A large part of the company’s business is collecting asset management fees (usually over 1%) on its portfolio of mutual funds.

The mutual fund business model has come under pressure due to the growing prevalence of low cost ETFs and Robo Advisors. The firm’s assets under management have declined from $57.5 billion to $30.2 billion in just 5 quarters. This has caused the steep stock price decline.

A large portion of the decline is due to weak performance in the company’s flagship Ivy Asset Strategy Funds. These funds invest in multiple asset classes.

They tend to do better (on a comparative basis) when the market is falling versus during bull markets. A dip in the S&P 500 would likely show better performance for these funds, which would result in new asset inflows -– and more earnings.

In the 4th quarter of 2016 (1/31/2017), Waddell & Reed realized earnings-per-share of $0.27, versus $0.76 in the same quarter a year ago.

Continued AUM declines caused the drastic fall off.