Ashmore sets sights on retail investors

If you’re involved in a pooled investment scheme – and that’s most of us – there is a good chance that you will be exposed to emerging market performance to some extent. And that’s probably a good thing. The MSCI Emerging Markets index delivered an average return of 10.9 per cent per annum from December 1987 through to July 2021. So, £1,000 invested in a tracker fund at the start of that period would now be worth around £37,400 (assuming they existed at the time and less fees, of course).

By now, we’re all probably aware of the demographics driving that growth. With three-quarters of the world’s land mass and four-fifths of the global population, it is not difficult to appreciate why emerging markets have outpaced mature industrial economies since the start of the millennium. Put simply, there is still a lot of headroom. And though it may seem counter-intuitive, volatility within emerging markets has been trending lower for some time.

Events over the past 15-months have tested received wisdom, but we shouldn’t be too surprised that Ashmore Group (ASHM), the specialist emerging markets asset manager, has registered a 13 per cent increase in assets under management (AuM) in the year to the end of June.

Mark Coombs, Ashmore’s founder and chief executive, said that global vaccination programmes, together with a more hawkish stance from central bankers are generating “attractive opportunities for investors to increase allocations with heavily discounted equity valuations in emerging markets”. He also highlights “high real yields compared with the negative rates in developed markets”.

Bond yields in developed economies may will be in negative territory, but things are certainly looking up regarding distributions. Recent analysis from Janus Henderson indicates that global dividends could hit $1.39 trillion in 2021, slightly down on the aggregate for 2019, but much better than some analysts had feared. Indeed, we could witness a return to pre-pandemic highs within the next 12 months.

Underlying growth of 11.2 per cent was recorded over the second quarter, with established markets like the UK rebounding strongly on the income front. That’s unsurprising given the outlook for financial services and commodity companies, both mainstays of the FTSE 100. But dividends for emerging market economies contracted by 3.2 per cent annually on an underlying basis due to lower 2020 profits, with only 56 per cent of emerging market companies either raising or holding dividends steady in the second quarter.

However, evidence suggests that income expectations for emerging markets have been improving through August. Specialist funds in this area consistently underperformed their US counterparts throughout the pandemic, due in part to the regulatory crackdown in China. Related stricture in China are easing, so exchange traded funds covering emerging markets were among the best-performing derivatives through August.

The marked increase in Ashmore’s AuM suggests that market sentiment has improved, though the clinical situation is far from predictable. In terms of those issues that it can influence, management at Ashmore is looking to increase the proportion of assets managed for intermediary retail clients. The company notes that its existing retail clients, representing around 8 per cent of AuM, have been “relatively slow to return to emerging markets”, but over time they could help to drive the net management fee margin. The trade-off is that they are more reactive to market movements than institutional investors, a point borne out by the reaction to the initial Covid-19 outbreak in China, but the plan to expand AuM in this area is certainly understandable.