Diamond Hill(DHIL) - 2024 Q4 - Annual Report

Market Performance - The U.S. equity markets saw significant gains in 2024, with the Russell 3000 Index rising by 23.81% and large-cap stocks leading at 24.51%[112] - Growth stocks outperformed value stocks for the second consecutive year, with the Russell 1000 Growth Index returning 33.4%, exceeding the Russell 1000 Value Index by 19 percentage points[113] - The U.S. fixed income market posted a modest return of 1.25% in 2024, as measured by the Bloomberg U.S. Aggregate Bond Index[116] Fund Flows and Inflows - Total mutual fund and ETF inflows reached $720 billion in 2024, marking the second-highest annual inflow in the past 25 years[118] - Actively managed funds experienced $166 billion in outflows, while passively managed strategies accounted for $885 billion in inflows[118] - Large-cap ETFs received $514 billion in inflows, while large-cap mutual funds saw $318 billion in outflows[119] - The market for actively managed ETFs expanded significantly, with 500 new products introduced and $285 billion in inflows, representing 26% of total ETF flows[119] Company Financial Performance - Total revenue for 2024 was $151,095,000, an increase of 11% compared to $136,716,000 in 2023[142] - Net operating income for 2024 was $43,892,000, a 24% increase from $35,504,000 in 2023[142] - Adjusted net operating income for 2024 was $48,696,000, an 18% increase from $41,434,000 in 2023[142] - The Company generated net income attributable to common shareholders of $43.2 million ($15.66 per diluted share) for 2024, compared to $42.2 million ($14.32 per diluted share) for 2023, reflecting a year-over-year increase[150] Assets Under Management (AUM) - Ending Assets Under Management (AUM) and Assets Under Advisement (AUA) reached $31,925,000,000 in 2024, up from $29,164,000,000 in 2023, representing a growth of 9.5%[135] - Average AUM during 2024 was $29,718,000,000, reflecting a 16% increase from $25,552,000,000 in 2023[144] - Total AUM by product for 2024 included $18,097,000,000 in proprietary funds, $6,108,000,000 in separately managed accounts, and $1,947,000,000 in collective investment trusts[135] Expenses and Costs - The average advisory fee rate decreased to 0.45% in 2024 from 0.47% in 2023[144] - Compensation and related costs, excluding deferred compensation, increased by $3.9 million in 2024, primarily due to higher incentive compensation and salary expenses[166] - General and administrative expenses increased by $1.8 million, or 12%, in 2024, primarily due to enhancements in technology support and research management systems[169] Cash Flow and Capital Management - In 2024, net cash provided by operating activities totaled $16.6 million, driven by net income of $43.2 million and non-cash adjustments[188] - The company repurchased 195,224 shares in 2024 at an average price of $154.92, totaling $30.2 million[182] - The company paid a total dividend of $16.5 million in fiscal 2024, maintaining a regular dividend of $6.00 per share[183] - The company had no debt and believes its available working capital is sufficient to cover current expenses and anticipated capital expenditures[186] Tax and Income Adjustments - The effective tax rate increased from 26.4% in 2023 to 26.8% in 2024, attributed to an increase in income before taxes[148] - The company reported a non-GAAP effective tax rate of 26.8% for both 2024 and 2023, and 25.8% for 2022[209] Investment Valuation - The fair value of equity investments as of December 31, 2024, was $79,207,519,000, with a hypothetical 10% increase bringing it to $87,128,271,000, and a decrease to $71,286,767,000[218] - The fair value of fixed income investments as of December 31, 2024, was $80,545,462,000, with a hypothetical 10% increase resulting in $88,600,008,000, and a decrease to $72,490,916,000[218] - Total fair value of investments as of December 31, 2024, was $159,752,981,000, with a hypothetical 10% increase leading to $175,728,279,000, and a decrease to $143,777,683,000[218] Operational Insights - The company emphasizes the importance of understanding core operating results by adjusting for non-GAAP items, which helps improve comparability across periods[210] - The company consolidates all subsidiaries and certain investments where it has a controlling interest, which is determined based on ownership and contractual involvement[211]