For asset managers, the single most important variable in 2015 was emerging market exposure. Out of the sector's nine constituents, just two - Ashmore (ASHM) and Aberdeen (ADN) - ended the year with a lower share price than they started with. This should come as little surprise: both are weighted towards emerging markets, which suffered high volatility and their first year of net capital outflows since 1988, according to the Institute of International Finance.
Worst hit was Aberdeen, which fell out of the FTSE 100 as its shares lost a third of their value and assets under management tanked 13 per cent to £284bn in the year to September. Given the continued drop in the share price since the start of the year, the market clearly expects the trend to continue.
Others had a very strong 2015. Strategies that focused on developed market equities and stocks buffeted by Europe's experiment with quantitative easing found investors looking for strong returns in a low-rate environment. This was particularly true of Henderson (HGG) and Jupiter (JUP), both of which increased global distribution networks and attracted net inflows in the year.
However, some of the positive momentum has lost its shine in recent weeks, as the sector has been sold off at a sharper rate than the FTSE 350 index. Only shares in wealth manager Rathbone Brothers (RAT) have held firm since the turn of the year, as the market apparently expects asset management clients to have taken the advice of RBS's research team: "Sell everything apart from quality corporate bonds."
The second key uncertainty is the effect of a rising interest rate environment. The effect has been more pronounced on bond fund managers such as M&G Investments, part of Prudential (PRU), and there is little suggestion yet that a tightening of US monetary policy will negatively affect equity markets.
| Company name | Price (p) | Market cap (£m) | PE (x) | DY (%) | 1-year change (%) | Last IC view: |
|---|---|---|---|---|---|---|
| ABERDEEN ASSET MAN. | 228 | 3,009 | 7.5 | 8.5 | -44.3 | Hold, 326p, 1 Dec 2015 |
| ASHMORE GROUP | 202 | 1,425 | 9.9 | 8.3 | -20.7 | Hold, 257p, 9 Sep, 2015 |
| BREWIN DOLPHIN | 276 | 781 | 15.3 | 4.4 | -5.0 | Buy, 269p, 2 Dec 2015 |
| HARGREAVES LANSDOWN | 1,265 | 6,000 | 38.1 | 1.7 | 33.1 | Buy, 1,172p, 9 Sep, 2015 |
| HENDERSON GROUP | 268 | 3,036 | 16.0 | 3.5 | 22.9 | Buy, 273.5p, 31 Jul, 2015 |
| JUPITER FUND MANAGEMENT | 391 | 1,791 | 13.8 | 3.5 | 12.3 | Buy, 454p, 30 Jul, 2015 |
| MAN GROUP | 156 | 2,648 | 7.6 | 4.8 | -3.4 | Sell, 162p, 30 Jul, 2015 |
| RATHBONE BROTHERS | 2,215 | 1,065 | 21.6 | 2.4 | 4.9 | Hold, 2,140p, 29 Jul, 2015 |
| SCHRODERS | 2,590 | 5,854 | 14.5 | 3.2 | -2.5 | Buy, 3,169p, 6 Aug, 2015 |
Favourites
We have been positive on asset managers in a recovering global economy, with just under half of the sector's FTSE 350 constituents on buy tips. To single out just two, Henderson's strong performance in winning US business provides good grounds for optimism, as does a newly restructured Brewin Dolphin (BRW), backed by an attractive dividend and sticky clients.
Outsiders
The key test for Aberdeen and Ashmore is whether efforts to diversify their asset classes will boost market confidence in the dividend cover. Fellow emerging-market-focused manager City of London (CLIG) shows this can be done on a smaller basis and with careful asset selection, but with sentiment towards emerging markets still so bearish we're not calling the bottom on either blue-chip manager.
