Don’t give up on St James’s Place, Hargreaves Lansdown, Abrdn and Schroders just yet, says broker
London’s wealth managers – the likes of Hargreaves Lansdown, Liontrust, Ashmore, Schroders and Abrdn – have had a tough time lately.
The industry is facing huge structural issues, such as the shift towards cheaper passive funds and so-called alternative assets. Meanwhile, as interest rates have increased over the past year, investors have dumped underperforming UK equities in favour of cash.
According to the Investment Association, UK retail investors dumped nearly £12bn of shares in London-listed companies in the year to the end of October, suggesting outflows for the year hit a 20-year high.
Similar figures from Calastone showed UK investors deposited £4bn in money market funds in the year to the end of November.
Considering this backdrop, it didn’t come as a surprise when Peel Hunt analysts in November slashed their outlook for total managed assets in the industry by an average of 15 per cent from the full-year figure in 2022.
However, analysts at Panmure Gordon have now said they believe there is value to be had in the UK investment management sector.
The firm has reiterated its ‘buy’ ratings for many of the country’s investment platforms and money managers, including Hargreaves Lansdown, Liontrust, Ashmore and Abrdn on the grounds they could offer long-term value for investors.
London equities have been trading at a near 20 per cent discount to international peers, and these companies are no different.
“We start the year in a more optimistic frame of mind,” Panmure’s analysts said in a note published on Thursday.
“The UK market is cheap; the sector is cheap within that; flows may not turn soon, but with a peak in the rate cycle now in view the equity-led nature of the sector’s investment exposure will come back into favour,” they added.
Panmure analysts argued the end of the rate-hiking cycle, alongside falling inflation, would lead to improved equity performance and reduce the allure of fixed-income funds for investors.
“We do, however, expect inflation to remain an issue even if headline rates fall and so the retail platforms, with a greater exposure to the ‘mass affluent’, are perhaps under more pressure,” they added.
In wealth management, Panmure analysts favoured fund platforms with more of their assets exposed to pensions, including AJ Bell, as they argued pension savers were more likely to stay invested and stick with one provider than those investors using general investment accounts or ISAs.
“St James’s Place is going to be a long haul but is too cheap,” they said. “Quilter and Brooks Macdonald offer more value than their ratings discount, especially in a consolidating sector.”
Among asset managers, Schroders shares have dipped nearly six per cent in the past year, while Liontrust has lost nearly half of its value and Jupiter more than 35 per cent. Abrdn has fallen more than 10 per cent over the past 12 months.
They added that while Abrdn had “bounced strongly”, the firm continues to appear exposed on costs, with a “bloated headcount” and individual staff pay markedly lower than peers.