The Federal Reserve recently raised interest rates by half a percentage point, so you can bet professional fund managers are scrambling.
Most of them haven’t this type of activity in years – and younger folks have never dealt with it. Interest rates have been in basement territory for a more or less uninterrupted stretch going back to 2009.
Add to that the fact that inflation is running at a 40-year high and you have a lot of pros in the $22 trillion financial services industry looking for better ways to manage their own money, not to mention the trillions in assets held by their clients.
And while I support the Fed’s aggressive anti-inflation fight, it bears noting that the timing is bad for millions of Boomers who have either just retired or are close to getting there.
Fortunately, there is a tech leader with deep expertise in providing robust and cost-effective solutions for financial firms who need help managing all those assets.
No wonder the company has been growing its diluted per-share profits by an average of 24%.
Let me show you why there’s so much upside ahead….
A Changing Economy Means Big Growth Here
When the Fed raised rates by 0.5% in May, it was the largest single increase since 2000. Usually, the Fed changes rates by 0.25% each time.
But they’re not done. In mid-May, Fed Chairman Jerome Powell said the central bank is looking to hike rates by the same amount in June and in July.
And they’ll continue to do so after, for as long as it takes for inflation to start coming down.
Of course, spiking inflation and the subsequent interest rate hikes have roiled stocks. The S&P 500 is down 16.5% this year, and the Dow has dropped 11.6%, putting both in textbook correction territory.
The tech-heavy NASDAQ, meanwhile, has plunged 28% and is officially in a bear market.
Inflation and interest rates have also wreaked real havoc on the bond market. As interest rates rise, existing bonds get less appealing, and so their prices fall.
That accelerates trading, as everyone is looking to get out of losing positions and find something better.
That puts a lot of pressure on financial firms, which need all the help they can get.
Fortunately, SS&C Technologies Holdings Inc. (SSNC) is there to do just that.
The firm is a one-stop-shop for technology, administration, and services for the whole financial sector.
Whether a company only manages private money, works in some other financial niche, or is a full-service money manager, broker, and more, SS&C can help. The firm works with mortgage bankers, hedge funds, stock and bond traders, municipal bond issuers, insurance, and real estate firms.
The clients use SS&C’s software modules to help them track their investments, liabilities, and assets, and to build their business while staying inside the lines of a welter of regulations.
In fact, SS&C is the world’s largest hedge fund and private equity administrator as well as the largest mutual fund transfer agency.
With today’s finance industry, that makes them a bona fide tech powerhouse.
Now, SS&C has evolved over time. Before the 2008 financial crisis, the company had just $280 million in sales and was known for its mundane back-office software that helped firms conduct and monitor transactions.
Important, but nothing groundbreaking. The financial crisis changed all that. It showed the need for financial companies to closely track all aspects of their finances, investing, and trading to make sure they weren’t over-leveraged without knowing it.
Executives demanded to have more control over what their bankers, traders, and dealmakers they employ were doing. Combine that with new regulations meant to rein in the excesses of Wall Street, and what you got was a boom in demand for financial compliance software.
And SS&C is the leader in the field. It was also early to see the opportunity that cloud-based platforms could bring to increasing the value for customers while also increasing profit for itself.
The company built and bought, through 40 deals since 1995, the tools financial firms need to make it in the tough new world of post-2008 compliance.
Not just here in America, mind you. SS&C has offices in North America, Europe, Asia, and Australia. It’s a truly global fintech play that serves its customers wherever they are.
Today, SS&C provides key services to more than 40 of the world’s largest fund managers, nine out of top 10 prime brokers, and three-quarters of the top 100 hedge funds.
99% of all US short-term commercial bonds are handled on SS&C systems, as are 95% of all US municipal bonds. Last year, $34.7 trillion in transactions happened through SS&C’s linking software that makes money flows easier to set up.
In short, as rising inflation and interest rate hikes send more investors and their money looking for new and better investments, the financial industry is going to be swamped with transactions, account openings, and more.
That’s going to increase the already high demand for SS&C’s indispensable cloud software platform for the financial industry.
A moment ago, I noted that the company has been growing diluted earnings per share by 24% a year. At that rate, they will double their earnings in three years and double again six years after that.
You can see then, why I say this should definitely be on your watch list.
That way, when the tech rebounds hits, you’ll be set up to invest in a winner for the long haul. As tech investors, it’s critical we take the long view and look far beyond the current NASDAQ bear market because the big picture is one of tech profits. Tech has driven the American economy for nearly 40 years, and it’ll continue to do that over the next century, at least.
Cheers and good investing,
— Michael A. Robinson
Source: Strategic Tech Investor