Ashmore shifts gear as emerging market tide turns

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Pre-tax profits at the group, which has been knocked hard by two years of difficult conditions for emerging markets, dropped by 8% in the 12 months to June 30, to £167.5 million, Ashmore said in a full-year results statement on September 6.

Its revenues from fees on assets managed dropped by more than a fifth, due to $ 7.5 billion in outflows from its funds during the year, taking assets down 11% to $ 52.6 billion.

However, finance director Tom Shippey said Ashmore’s retail client base – which makes up about 10% of its money but tends to move more quickly than larger institutional investors – had begun to return during the past 12 months.

He told FN: “There have been net inflows into our European Sicav fund range and our US 40 Act funds. There tends to be a bit of a lag for institutional clients, who like to see a period of consistent relative outperformance, but we have begun to see that through February to June, and we would expect to see activity levels pick up from now on.”

At the time of Ashmore’s trading update in July, analysts at research firm Liberum said the firm was “close to an inflexion point”, predicting net inflows of $ 3 billion in 2017 and $ 6.4 billion in 2018.

Shippey said areas of focus for the firm are emerging market local-currency debt, and a blended-debt fund that invests across dollar-denominated debt, local-currency debt and corporate bonds in emerging markets. Both had been “heavily oversold” this time last year and had performed strongly since, he added.

Overall, 69% of the firm’s funds beat their performance targets over the 12 months to June 30, Ashmore said, up from 23% a year ago. Shippey put this down to a series of investments this time last year, in “good quality credits where market sentiment was weak”, but which had led to “quite strong outperformance” as markets recovered.

Shippey said Ashmore had been keeping a close eye on costs during two lean financial years, between June 2014 and this year – “not a hiring freeze, but where we have natural turnover, being careful about replacing”.

But he said this had begun to change: “While the absolute level of employees fell throughout the year, from 285 to 266, there has been a shift in balance between what I call the ‘global’ business – that’s head office here in London – and our local-market franchises on the ground in places like Colombia, Riyadh [Saudi Arabia] and Jakarta [Indonesia].

“I would expect that to be continuing,” he said, as appetite from investors in those regions for investment into other areas in the developing world continues to grow.

Despite the firm’s upbeat tone, the stock market reacted negatively to the results, with Ashmore’s shares down 3.7% to 341.8p by 9.13am BST on the day of the results announcement, before recovering to above 350p later in the morning. Ashmore’s shares are up 27% since the start of the year, however, as emerging market sentiment bounced back from January’s lows.

Ashmore and rival fund manager Aberdeen Asset Management are often used as a proxy for the performance of emerging markets as a whole, given their large concentration of assets in these regions.

Regulatory filings showed that hedge funds have gradually reduced their short positions, or bets that a share price will fall, in Ashmore over the past year.

Short positions in Ashmore stood at 4.6% as of August 30, the latest date for which data is disclosed, down from 9.8% on September 9, 2015. Short positions in Aberdeen Asset Management stood at 1.8% as of September 1, down from 5.7% on February 11.

Ashmore declined to comment on the short positions and Aberdeen Asset Management was not immediately available for comment.

Additional reporting by Stefanie Eschenbacher

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