As one of the sectors most highly correlated to equity market sentiment, asset managers had a tumultuous 2016. The Brexit vote pushed the share price of the majority of constituents over a cliff edge, tracking the wider market, and increased circumspection by investors in the run-up to the referendum hurt earnings, as retail investors in particular shied away.
Last year’s shocks revealed the benefits of diversification for fund managers. With a high proportion of European equities, Henderson (HGG) suffered a £2bn surge in net outflows during the first six months of the year, although its third-quarter earnings were better, due to positive investment markets. Its merger with US asset manager Janus Capital – which will result in Henderson delisting in London - will create a group with wider geographical exposure, albeit still with a retail skew. Janus has been increasing its fixed-income holdings, which account for a quarter of assets, during the past five years. The deal is expected to complete during the second quarter.
Asset managers Schroders (SDR) and Jupiter Fund Management (JUP), both IC buy tips, have been broadening their portfolios by asset class and geography for much longer. However, wealth managers Jupiter and Rathbone Brothers (RAT) have warned that political and economic uncertainty in 2017 could disrupt investment markets further. Jupiter suffered £373m in outflows during the final quarter of 2016 as institutional investors moved away from European and multi-manager strategies.
While the US election outcome lifted developed market equities and prompted the first of four expected interest rate rises, the impact on asset managers with emerging market exposure may be less positive. Emerging market specialists Ashmore (ASHM) and Aberdeen Asset Management (ADN) enjoyed a recovery in share price during the first 11 months of 2016 due to improved commodity prices and sentiment towards Chinese growth, as well as very low global interest rates. However, Trump’s protectionist threats and higher US rates have since prompted investors to pull money out of emerging markets.
| Price (p) | Market value (£m) | PE (x) | Yield (%) | 1-year change (%) | Last IC view | |
| Aberdeen Asset Management | 272 | 3,583 | 12.9 | 7.2 | 21.6 | Hold, 282.6p, 29 Nov 2016 |
| Ashmore | 296 | 2,094 | 15.5 | 5.6 | 48.7 | Hold, 357p, 07 Sep 2016 |
| Brewin Dolphin | 310 | 878 | 17.5 | 4.2 | 11.7 | Buy, 280.5p, 06 Dec 2016 |
| Hargreaves Lansdown | 1,331 | 6,313 | 35.6 | 1.8 | 7.4 | Hold, 1,335p, 07 Sep 2016 |
| Henderson | 242 | 2,735 | 13.4 | 4.3 | -7.9 | Hold, 231p, 28 Jul 2016 |
| Jupiter Fund Management | 409 | 1,872 | 14.3 | 3.7 | 5.1 | Buy, 447.4p, 27 Oct 2016 |
| Man | 125 | 2,092 | 13.4 | 5.5 | -17.3 | Sell, 123p, 20 Oct 2016 |
| Rathbone Brothers | 2,045 | 1,036 | 18.4 | 2.7 | -5.7 | Buy, 1,856p, 28 Jul 2016 |
| Schroders | 3,020 | 6,826 | 18 | 2.9 | 19.7 | Buy, 2,902p, 15 Dec 2016 |
Favourites: Rathbone is one of the quality players in the market, benefiting from its longstanding exposure to discretionary management. Relying on more reliable fee income, rather than commission, helped it grow its assets under management by 14 per cent during the first nine months of 2016 – impressive compared with the outflows suffered by others in the sector.
Outsiders: Man Group (EMG) has had a tough time during the past 18 months as a shift towards institutional assets has eroded its average net management fee margins. The performance of its flagship AHL strategies has struggled, dragging on related fees, although the most recent third-quarter update had more positive news on flows and returns.
