Investment Column: Hedge your bets and buy into Man Group

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Our view: Buy

Share price: 331.2p (+23.1p)

Hedge funds have not had a great recession. As investors pulled $150bn out of funds worldwide and companies imploded at regular intervals, the share prices of those with a listing dropped off a cliff.

Man Group, the largest listed hedge fund in the world, was no different. The stock peaked at 628.4p in July 2007 but after a bumpy ride – which included losing $360m in Bernard Madoff's Ponzi scheme – it slumped as low as 158p in March this year.

However, Man is looking up now, which was confirmed by a bullish trading statement yesterday. The group may (we are stressing the may) have turned a corner because its funds under management lifted for the first time in 12 months. The current estimate is $43.8bn, up from $43.3bn at the end of June. It may not seem a significant sum but each journey has to start with a single step.

The bad news is that Man is estimating a pre-tax profit of $280m for the six months to the end of September. This is a huge decline from $622m a year ago but better than the six months to the end of March.

Man's chief executive Peter Clarke sounded effusive as he backed the fund's presence around the world, its capital strength and relationships with global regulators to get ahead in the new, more austere economic environment.

One crucial barometer is the sentiment of its investors, with private individuals piling in with a net inflow of $2.7bn. Those from the institutions were still heading for the exits, but the pace had declined. The management said the outlook for the hedge fund industry was improving, and described the performance outlook as "healthy" and the prospects for sustained inflows as "very promising".

Numis said Man's stock was trading on a price to earnings ratio of 17 times estimated 2010 results, falling to 10 times the following year. The share price rose considerably following the announcement, but there should be a further distance to go. Buy.

Asos

Our view: Buy

Share price: 350p (-14.5p)

The online fashion retailer Asos has been one of the darlings of the recession: its profits, sales and share price have rocketed as others struggled. There was more good news yesterday when the group said its first-half sales were up 47 per cent and international sales up 110 per cent. For punters, the share price was down a little, but it has been up over the last month.

Asos deserves credit for its growth over the past two years and no doubt buyers will raise a glass to the gains made. The question, however, is where does the company go from here? While yesterday's numbers were excellent, the first quarter was stronger than the second. While Asos's share price is up by more than 15 per cent in six months, the growth has been slower than its rivals in the industry, indicating that the share price is reaching fair value.

Analysts are still upbeat, with those at Evolution, who recommend buying into Asos, saying: "Once we pass the important Christmas trading period and approach the March year-end, the valuation will stand out as too low but there is little new excitement to grasp from this update."

Trading on a 2009 price-earnings rating of 27.6 times, the stock is not the cheapest and, with no dividend, investors who hold their nerve and buy at these levels will have to hope for an appreciation in the share price. Nonetheless, we would still be buyers of Asos shares.

They are not cheap, but there is no indication that the company will stop churning out the impressive numbers, especially given its push into international markets. Buy.

St Modwen Properties

Our view: Hold

Share price: 222p (-8p)

After a year of woe and upset for the property sector, investors may be encouraged by St Modwen's update yesterday. It said things are better than it dared hope for a year ago. As with all property companies, investors should not assume that St Modwen is out of the woods yet.

The chief executive, Bill Oliver, said he was pleasantly surprised by the occupancy rates of its portfolio, but conceded that rents were under pressure. The company has also concerns about the economy next year, particularly as the jobless total rises.

The stock is inexpensive, with Mr Oliver claiming that the net asset value of 200.4p takes no account of the group's land bank, which includes a 1500 acres of residential land.

According to analysts at Numis, St Modwen already trades at a premium to the sector, albeit justifiably, and the shares will climb just another 20p in the next year. Conditions are better, but with the group saying 2010 could be tough, we would be inclined to hold.