ii view: Ashmore shares dive after flagging fund outflows

Flagging reasons for positivity in emerging markets and offering an attractive dividend yield. Buy, sell, or hold?

Fourth-quarter trading update to 30 June

• Total Assets under Management fell 3% from the previous quarter to $55.9 billion

Chief executive Mark Coombs said:

"There remains some global macro uncertainty and certain investors have therefore reduced risk during the quarter. However, Emerging Markets continue to perform well. 

"Against this developing backdrop, and as expected at this point in the cycle, Ashmore's active investment management approach is delivering outperformance across a range of equity and fixed income strategies."

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ii round-up:

Specialist emerging markets fund manager Ashmore Group (LSE:ASHM) today outlined fund outflows which exceeded City hopes, as institutional clients moved to reduce risk in the face of uncertain economic and geopolitical outlooks. 

Clients pulled $2.9 billion of invested monies during the fourth quarter to the end of June, the eighth consecutive quarter of net fund withdrawals and worse than the $1.2 billion which analysts had forecast. 

Shares in the FTSE 250 company fell around 7% in UK trading having come into this latest news down by a tenth year-to-date. Fellow fund manager Rathbones Group (LSE:RAT) is down by a similar amount in 2023 so far, while hedge fund manager Man Group (LSE:EMG) is up 6%.

Ashmore invests in asset classes including government and corporate debt, equities, and real estate across emerging markets on behalf of its institutional and retail clients. It has exposure to countries like China, Mexico, South Korea, South Africa and Taiwan.

Countering client outflows, positive emerging market returns and Ashmore’s own outperformance of the wider markets, left the overall fall in the value of Assets Under Management (AuM) down by $1.8 billion from the previous quarter at $55.9 billion. 

Ashmore flagged that as of the 30 June, approximately two-thirds of its AuM had outperformed their respective indices over the last one and three years.

Accompanying management comments pointed to improving emerging market fundamentals such as accelerating GDP growth, falling inflation and the potential for interest rate cuts, as well as the benefit of a weaker US dollar. 

Full year results to the end of June are scheduled for 6 September. 

ii view:

Ashmore was started in 1992 as part of the Australia and New Zealand Banking Group. In 1999, it became independent and listed on the London Stock Exchange in 2006. Headquartered in London, most of its investments are made across debt markets, with around 11% in equities and under 3% in alternative assets.  

For investors, the marked change in the relationships between the West and Russia and China over recent years highlights the inherent risks. China and its influence on the wider Asia cannot be forgotten. A potential change of leadership in Russia offers no guarantees of anything better, while forecast dividend cover of below one is less than the three-year average of 1.3 times, which raises some caution regarding the dividend.   

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On the upside, Ashmore’s specialist focus on emerging markets and investment outperformance should not be overlooked. A possible imminent peak in US interest rates may bring easing economic headwinds, emerging economies should continue to grow faster than their developed counterparts, while future consolidation across the asset management industry also remains a possibility.

Ashmore has done better than many other fund managers over the past 12 months, but a share price decline of 16% in 2023 and almost two-thirds drop since before Covid, will put many investors off. Others, however, might relish the opportunity to get access to a well-run business that has still outperformed many peers and trades on a forecast dividend yield of over 7%.

Positives: 

• Positive Q4 investment performance
• Attractive dividend (not guaranteed) 

Negatives:

• Uncertain economic outlook
• Fee pressure from ETF funds

The average rating of stock market analysts:

Hold