Why Australian Ethical (ASX:AEF) shares are jumping

The Australian Ethical (ASX: AEF) share price has jumped 7% in morning trade after announcing an update about performance fees.

What is Australian Ethical?

Australian Ethical describes itself as Australia’s leading ethical investment manager. It was formed in 1986 to provide investors with wealth management products that align with their values and provide competitive returns. Investments are guided by the Australian Ethical Charter. It has $3.92 billion of funds under management (FUM) across its managed funds and superannuation.

Australian Ethical’s exciting news

The ethical fund manager has announced that its Emerging Companies Fund returned 13.9% after all fees (including performance fees) for wholesale investors for FY20 compared to the benchmark’s return of a 7.4% decline.

A performance fee of $3.64 million, which is 20% of the outperformance, has been earned by Australian Ethical.

This performance fee now adds to expectations for underlying profit after tax (UPAT) announced a few weeks ago. UPAT is expected to be between $9 million to $9.5 million, which is a mid-point increase of 41% compared to FY19.

Summary

Australian Ethical has clearly performed well for investors in the emerging companies fund which targets small caps. Performance fees can be a very useful bonus for fund managers if they do well. Australian Ethical seems to be one of the outfits that is able to do well. I’d be interested in buying shares, but it’s trading at a very high price/earnings ratio. So I’d wait for a lower price, which may never come. I’d rather buy something like Bubs (ASX: BUB) for now.

Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned. 

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