Asset managers are primarily a play on equity markets. As these failed to rise as spectacularly as in previous years, last year saw a majority of asset manager share prices lose ground. Ashmore (ASHM) took the biggest hit, reflecting its exposure to emerging markets. Local currency markets were particularly affected, leaving Ashmore suffering not only a negative investment performance in the final quarter but also net outflows.
A notable exception to the share price erosion was Man (EMG), which benefited from a boost to assets under management after a number of acquisitions and an improving performance from its key AHL fund of fund strategies.
This year is likely to see a divergence in performance as some asset managers elect to place more emphasis on actively managed funds relative to passive funds. Fees on passive products have been steadily falling in recent years, putting more pressure on companies to increase returns from active management, particularly through performance fees. This is important in what is essentially a people business. Charging performance fees allows groups to offer greater levels of performance-related remuneration, which should help attract the best fund managers.
Greater flexibility in fees is also important in attracting clients. For some time now, the old industry benchmark of charging 2 per cent in annual management fees and 20 per cent for performance over and above an agreed threshold has been under pressure. According to Shore Capital, there is now scope to offer clients a menu of fee structures, allowing them to select the degree to which they wish charges to vary with performance.
The client mix is also important: institutional clients typically pay lower fees than retail clients. That's partly because their mandates are so much bigger, and partly because asset managers face higher marketing and administrations costs in dealing with a large number of small retail investors. Large retail intermediaries such as Hargreaves Lansdown (HLS) have added an additional challenge as they move from collecting commission paid by fund managers to platform fees paid by clients. As a result of this, Hargreaves has invited asset managers to price funds at a level exclusively available on its platform. Not all asset managers have elected to offer discounts, however.
Of course, there is the usual caveat: there is no guarantee that active fund managers will deliver sufficient performance to justify their fees, whether based on performance or not. It makes sense to pick players focused on active management, with strong performance records, but investors are still exposed to the risk that key staff disappoint.
| Company name | Share price (p) | Market value (£m) | PE ratio | Dividend yield (%) | 1-year performance (%) | Last IC view |
| Aberdeen Asset Management | 428 | 5,697 | 13.3 | 4.2 | 0.4 | Hold, 458p 2 Dec 2014 |
| Ashmore | 267 | 1,889 | 13.8 | 6.2 | -24.4 | Hold, 325p 11 Sep 2014 |
| Brewin Dolphin | 289 | 806 | 16.5 | 3.4 | -6.6 | Hold, 279p 3 Dec 2014 |
| Hargreaves Lansdown | 980 | 4,646 | 28.4 | 2.3 | -36.8 | Hold, 1,109p 3 Sep 2014 |
| Henderson | 221 | 2,521 | 14.5 | 3.8 | -3.0 | Hold, 230p 8 Aug 2014 |
| Jupiter Fund Management | 358 | 1,640 | 13.9 | 3.6 | -5.6 | Buy, 399p 1 Aug 2014 |
| Man | 172 | 3,023 | 11.0 | 3.2 | 99.7 | Hold, 114p 4 Aug 2014 |
| Rathbone Brothers | 2,116 | 1,012 | 23.7 | 2.4 | 23.0 | Hold, 1,991p 24 Jul 2014 |
| Schroders | 2,719 | 6,146 | 16.9 | 2.4 | 4.3 | Hold, 2,437p 1 Aug 2014 |
Favourites
Jupiter Fund Management (JUP) continues to attract net inflows, but acknowledges that future product development needs to be more focused on highly active funds as well as geographical diversification. With a new chief executive at the helm, the foundations are well in place for the group's ongoing development.
Outsiders
Ashmore is focused on emerging markets. Economic growth rates may be higher in the developing world, but the combination of a strengthening dollar, uncertainty over the timing of an increase in US interest rates and especially weak commodity prices seems likely to put downward pressure on emerging markets asset prices for some time yet.
