Are The StockRanks Highlighting Opportunities In Fund Managers?

31st Oct '24 by Roland Head

8 comments 2087 reads

For much of the last few years, anyone betting on a recovery in fund manager stocks has been long and wrong, as the saying goes. That has included me at times.

For years, active managers have faced steady pressure on fees due to competition from cheap passive funds. More recently, most UK fund managers have also faced sustained outflows as investors have jumped ship to US equities or simply withdrawn from a lacklustre UK equity market.

However, the StockRanks are pointing to a number of potential opportunities in this sector, notably in two of the most unloved fund managers of all – Abrdn (LON:ABDN) and Jupiter Fund Management (LON:JUP).

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I’ve been taking a closer look at both of these firms. I think this could be a case where the objective metrics powering the StockRanks are highlighting an opportunity that’s not yet being recognised by the wider market.

Despite the (many) good reasons to be cautious about these businesses, I think the investment case for each is worth exploring.

Abrdn (LON:ABDN)

Fund manager Abrdn is a traditional fund manager, but the group also has an Adviser platform (providing services for financial advisers) and owns the interactive investor retail investment platform.

In other words, Abrdn aims to serve the full spectrum of investment clients, from institutions such as pension funds through to DIY investors.

While I was planning this article, the company issued a Q3 trading update revealing net outflows of £3.1bn during the third quarter. These were driven by outflows from the funds and adviser divisions, offset by inflows to interactive investor.

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While this was an improvement on the net outflows of £6.7bn seen during Q3 2023, it wasn’t what the market was hoping to hear:

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Continued outflows are obviously a potential concern. But Abrdn is hardly alone in this regard. I don’t see it as a dealbreaker at the current valuation.

Despite the structural headwinds to their business, my working assumption is that the cycle will turn for active managers at some point. On this basis, I think there are some good reasons to think that Abrdn could be attractively priced at current levels. Let’s take a closer…

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PastPerformance

31st Oct '24

Thanks Roland, great article! I also think a reversal of the popularity of passive funds is inevitable at some point, driving money back towards differentiated strategies and stock picking funds.

One question - below suggests ABRDN trades at 10x op rather than 5x? Unless you’re looking at a half year perhaps?

‘third-quarter statement reiterated guidance for operating expenses of less than £1,075m in 2024. If I subtract this from Stockopedia’s consensus estimate for revenue of £1,321m, I get an operating profit estimate of £246m for the current year.

With a market cap of £2.5bn, this values Abrdn shares at five times forecast operating profit, which seems undemanding to me.’

UncleG

Hi Roland,

Thanks for taking the time to share this analysis.

I've been patiently waiting and watching both companies for a while now and have the same view that there may be opportunities here over the mid to longer term timeframe. Collecting good divi's along the way is a plus and will definitely help.

Just now I have a small starter position in Jupiter Fund Management (LON:JUP) and am looking to add to it when possible. It was good to see the price was reasonably stable after reporting the last AuM outflows and I'm starting to wonder if the market is beginning to look past them now ...

Abrdn (LON:ABDN) isn't too far off it's 2009 lows and it seems like you're getting a lot of company for that money. I guess I'm thinking like a weighing machine here and am looking forward to seeing what the voting machine thinks.

Thanks again, this was very helpful.

Roland Head

Hi Jon, many thanks for your comment and for pointing out my typo, it's now corrected.

Regards,

Roland

af20001

I'm not sure what the catalyst would be to switch from passives/etfs back to using active fund managers?

The fees these managers charge are too high, and not many of them ever beat the indexes on a consistent basis (or even match the index).

Lincs

Thanks Roland

Very comprehensive and well researched / written article. I bought in recently - I have been watching for ages and when the sp dipped to an all time low (and lower than the lowest intraday of 2009) I hit the buy button. Unloved at present but even if a moderate cut to divi it will still leave an appreciable income. There's so much value / history / customer base here that I'm happy to hold.

ken mitchell

Thanks for that superb article Roland. I hold both Abrdn (LON:ABDN) and Jupiter Fund Management (LON:JUP) so yours was a very helpful update.

Years ago I held Abrdn (LON:ABDN) but sold around £4 several years ago as the share dropped ever lower despite ABDN buying back quite heavily for over 5 years. I bought again around £1.40 as that seemed such a bargain price, with the varying parts of Abrdn (LON:ABDN) worth a lot more than the current market cap. I.e break up potential or a bid?

Those buybacks were an awful waste of money as the share fell 70% but with the one plus that there are now far fewer shares in issue. I feel that around the current £1.30 nearly all the past bad news is priced in, but recovery potential isn’t. And there’s a good chance the big 10% dividend can be maintained.

mikebianchi

1st Nov '24

Thanks Roland great job as always. I have JUP and also LIO unfortunately, this has absolutely tanked recently same issue declining AUM. The gyrations of yesterday wont help sentiment one bit ie to reinvest in UK.

Any thoughts on LIO ?

You really would think things wou;ld turn for these companies, just look back 5 plus yrs

Fegger

3rd Dec '24

Am using the helpful free regular investing facility offered by Interactive Investor to buy a small amount of ABRDN each month with a view to benefitting from pound cost benefits over a mid term perspective.

Are the StockRanks highlighting opportunities in fund managers?

Abrdn (LON:ABDN)

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Roland Head

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