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Diamond Hill Investment Group, Inc.'s Earnings Bolstered by Market Gains

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Diamond Hill Investment Group (NASDAQ: DHIL) reported second-quarter results on July 27. The asset-management firm enjoyed net cash inflows, and market appreciation fueled gains, which helped drive revenue and profits higher.

Diamond Hill Investment Group results: The raw numbers

Metric 

Q1 2016

Q1 2015

Growth (YOY)

Revenue

$32.669 million

$31.382 million

4%

Net income

$9.715 million

$9.178 million

6%

Earnings per share

$2.84

$2.73

4%

Data source: Diamond Hill Investment Group Q2 2016 earnings press release.

What happened with Diamond Hill Investment Group this quarter?

Diamond Hill saw net cash inflows of $73 million during the second quarter, which helped the firm's assets under management (AUM) grow to nearly $17.6 billion as of June 30, up from $16.7 billion at the end of Q2 2015.

Diamond Hill's higher AUM boosted investment advisory revenue by 6% year over year, to $28.6 million. Mutual fund administration revenue, however, fell 6%, to $4.1 million, due to fee reductions. On a combined basis, total revenue rose 4%, to $32.7 million.

Net operating income also increased 4%, to $14.7 million, with operating margin holding steady at 45%.

Investment income was $693 million, compared to $457 million in the year-ago quarter. These gains and losses can change significantly from one period to another, and market fluctuations can distort the underlying operating performance of the company. Because of these reasons, Diamond Hill's management focuses more on net operating income after tax, a metric that excludes the impact of investment-related activity. In the second quarter, net operating income after tax rose 5%, to $9.3 million, and increased 3% on a per-share basis, to $2.73.

Looking forward

With the markets trading near all-time highs, it's possible that Diamond Hill Investment Group could continue to enjoy net inflows if higher asset prices buoy investor confidence. Further market gains would also bolster Diamond Hill's assets under management and, by extension, the firm's advisory fees. Of course the reverse is also true, which makes an investment in Diamond Hill largely an investment in the long-term growth of the capital markets.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Diamond Hill Investment Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.