FTSE 350 Review: Pick up chunky dividends from fund firms

Asset managers, being in effect a levered play on stock markets, struggle when those markets go awry. Even in the good times there is no guarantee of success: those tasked with running funds often find themselves concentrating on the wrong areas.

Last year’s surging US stock markets, for instance, did little to aid the fortunes of FTSE 350 fund firms, whose biggest draws tend to be in other asset classes. Client inflows remained largely stagnant as a result.

Meanwhile, investment platforms AJ Bell (AJB) and Hargreaves Lansdown (HL.) find themselves part of a probe by the Financial Conduct Authority (FCA) into the amount of money platforms are making on client cash now that base rates have risen.

Asset manager standouts last year were M&G (MNG) and Man Group (EMG). The former is insulated somewhat by its insurance arm, coupled with its PruFund range favoured by financial advisers for at-retirement clients. Man Group’s quantitative 'black-box' strategies can do well when others struggle.

But despite all the headwinds, the year wasn’t terrible for the sector as a whole, either – for two main reasons.

First, hefty dividend payouts helped improve the picture (the average share price return last year was -7.2 per cent; the average total return was -0.9 per cent). The second factor was a strong fourth quarter for shares, driven by hopes of interest rate cuts this year. The hope is that an uptick in inflows will soon follow. Early signs suggest progress will be rockier than many hope, and that’s before the continued march of passive funds – which makes life harder for the UK’s listed fund managers, if not the wealth managers or platforms – is factored in.

So companies may again prove reliant on total returns, or else look longingly for an acquirer. Quilter (QLT) is often deemed the most likely takeover target, in the aftermath of several other wealth management tie-ups. But there is more than one example in this sector of an ostensibly cheap company left on the shelf by virtue of its operational struggles.