Ashmore's twin growth engines

The group’s dynamics are compelling. Emerging markets account for 86 per cent of the world’s population, more than half of gross domestic product, and three-quarters of foreign exchange reserves. Demographic trends are powering economic convergence with the developed world. The diversity and liquidity of potential investments is already enormous, and growing. And yet for various reasons, international capital has largely overlooked these facts. At Ashmore’s full-year results, group finance director Tom Shippey suggested institutional investors, of which around two-thirds are based in the developed world, have historically allocated less than 10 per cent of funds to emerging market mandates. That's well below neutral global benchmark weightings, which are closer to 15 to 20 per cent, and which are only going to increase as economic power shifts eastwards. It’s the sort of pull that even a trade war cannot stop.

What's more, to many global investors, developed markets are now awash with trillions of dollars of negative-yielding debt and equities that command an ever-higher premium for growth when compared with emerging market alternatives.

For Ashmore, this all translates to a strong mandate. Quarterly client investment flows have remained positive over the past two years, despite occasional bumps within markets and dips in asset prices. In the 15 months to September, the group saw cumulative net flows of $13.1bn, contributing to a 24 per cent total rise in assets under management once you include investment performance.

These flows have two important characteristics. The first is that unlike many UK-based fund managers, Ashmore’s client base is truly global, including 30 per cent of all assets from emerging-market-domiciled clients. Second, these clients appear less responsive to the occasional spell of negative performance, perhaps because – like Ashmore – a long-term view on the growth opportunities within emerging markets is starting to prevail.

That doesn’t mean the group’s mixture of debt, equity, multi-asset and alternative investment products fail to deliver. Over the past three and five years, 97 per cent of its mandated funds have outperformed their benchmarks. Active management, Ashmore contends, is essential to navigate the inefficiencies that exist in emerging markets, and ensuring that volatility creates value opportunities rather than simply raising risk. If active investing can be justified, which on balance we think it can, then that offers investors hope that the cash profit margin of 66 per cent seen in the past two financial years can be maintained.

The challenge of maintaining this level of margin may leave some investors anxious, although it could be argued that Ashmore’s current price already reflects any nerves. Strip out cash, and its shares trade on less than 14 times this year’s forecast earnings. Investors are prepared to pay more than 20 times forward earnings for a high-charging wealth manager like St James Place (STJ), and even more for fund supermarkets Hargreaves Lansdown (HL.) or AJ Bell (AJB) – all of which have UK-focused growth stories.

*Peel Hunt forecasts, adjusted PTP and EPS