Asset management sector ‘remains unattractive’ despite recent sell-off

HSBC slashes target prices for many large UK-listed groups, claiming the sector is not ‘uniformly good value’

Fund managers and analysts have warned investors against plunging back into the asset management sector following the recent market sell-off. 

UK-listed asset managers have seen their share prices tumble by around 25% since July. However, even at these lower levels, analysts at HSBC say the majority of the sector is still not looking attractive.

Assessing a group of the largest UK-listed asset managers, including Aberdeen, Ashmore, F&C, Henderson, Jupiter, Man Group and Schroders, HSBC Bank slashed target prices for every provider except Jupiter.

In a note released at the end of October, HSBC said: “Earnings of asset managers quickly adjust with market movements and hence, despite share prices having fallen by 25% since June end, key valuation multiples are still nowhere close to troughs seen in the past.

“We therefore do not view the sector as uniformly good value.”

Jupiter – which floated last year – remains one of HSBC’s overweights, along with Aberdeen and Man Group.

HSBC is backing Aberdeen to shine because of the strength of its emerging markets and global equities propositions, which it identifies as key areas for future inflows when investor confidence picks up.

Of the other groups it said: “Jupiter is a quality business with an excellent track record and whose management is proactively managing the cost base.

“Man Group is a different beast with a key revenue generator, AHL, that is uncorrelated to equity markets.”

HSBC expects investors to return to markets when the eurozone crisis is resolved – lifting equities from their current discount of 30% to long term P/E ratios.

However, it said flows could be patchy for some time, and given the wide variety of profiles across the asset management space, it was more bearish on the outlook for a number of groups.

These include Ashmore, F&C, Henderson and Schroders which it downgraded
to neutral.

“(The situation) implies inflows to the asset management industry will remain muted,” HSBC said.

“Valuations of asset managers have fallen but are still not cheap enough to justify buying on valuation grounds alone, given the current market conditions.”

Many fund managers are also wary of piling into the sector.

Schroders’ Andy Brough, running the group’s £1.2bn UK Mid 250 fund, said although valuations now looked attractive for a number of the FTSE 250-listed groups, the situation in Europe remained too much of a problem.

“They do look more attractive at these levels, provided the stock market goes up and they see inflows,” he said.

“But it is difficult to see them all going up together, and we want to get more comfortable with the overall state of Europe for now.”

Liontrust’s Anthony Cross, running the top performing £142m Liontrust Special Situations fund, is also eyeing up opportunities in the sector but has yet to commit cash.

He said: “I like Schroders and Jupiter, but I do not hold them currently. What I do not like is groups who rely on star fund managers, or those reliant on performance fees.”

However, some managers have taken the plunge. Old Mutual Asset Managers’ Richard Watts, running the £776m UK Select Mid Cap fund, has taken a 2.6% position in Aberdeen.