Ashmore confident on net inflows after softer second quarter

The emerging markets-focused asset manager enjoyed $0.5bn of net inflows in the second quarter ending 31 December, with a negative investment performance of $0.2bn, resulting in AuM growth of $0.3bn to $76.7bn.

Analysts on average expected AuM to end the quarter at $76.6bn, following growth of 3.4% in the first quarter to $76.4bn, helped by net inflows of $1.9bn.

"Despite the more challenging markets experienced for much of 2018, client flows remain resilient reflecting investors' very low allocations to emerging markets and recognition of the value available," said chief executive Mark Coombs.

Net inflows were seen in the corporate debt, blended debt, equities, multi-asset and overlay/liquidity themes. There was a small net outflow in the local currency theme, and the external debt and alternatives themes were flat during the period.

The sharp global equity selloff starting in October only led to modest decline in the group's investment performance, with positive performance delivered over November and December.

Blended debt, alternatives, external debt had slightly negative performance over the three months.

EM currencies delivered positive investment performance, as the US dollar weakened, while performance was flat in equities, corporate debt and overlay/liquidity.

Keeping true to the FTSE 250 company's success in pursuing a value-based investment philosophy, investment managers took advantage of the indiscriminate mispricing of assets and, as is typical at such points, there was some moderate underperformance of benchmarks over the shorter term.

Said Coombs: "The effect of tax-related stimulus on the US economy and its support for the US dollar started to fade towards the year end, removing the main headwind for emerging markets outperformance.

"The reduction in emerging markets asset prices despite improving economic growth suggests underweight investors will continue increasing allocations to emerging markets, and a return to the positive market trends experienced in 2016 and 2017."

Ashmore shares, which had picked up 12% since last August's 12-month low, were down 2% by 1030 GMT on Tuesday morning at 371.2p.

Broker Shore Capital noted that the emerging market debt asset class, Ashmore’s core expertise, exhibited a much more resilient performance than global equities in this quarter.

ShoreCap said its current forecast for the full year to end June are for net inflows of $3.7bn and for positive investment returns of $1.6bn to give a closing AuM figure of $79.3bn.

"Based on today’s update we would not expect to make material changes to these assumptions, with actual net inflows for H1 at $2.4bn and a marginally positive figure of $0.1bn for market movements/investment performance."

Analysts at Numis said that the second-quarter net flows were however weaker than the $1.3bn average estimate and performance slightly better than the $1.0bn decline expected by the consensus.

"Net flows therefore continued to slow, with this being the weakest quarter since calendar Q4 2016. We continue to see risks to the downside on net flows in 2019 and believe consensus at +$6bn+ is somewhat complacent... and likely not factoring in the lag between weakening EM sentiment and flows.

"We are not sure that we agree with management's outlook assessment in the short term: "The reduction in emerging markets asset prices despite improving economic growth suggests underweight investors will continue increasing allocations to emerging markets, and a return to the positive market trends experienced in 2016 and 2017."

Numis downgraded its recommendation to 'reduce' from 'hold', which the analysts considered a short term recommendation as they remain long term.