2015 was a bumpy year for stock markets and that would typically signal a bumpy year for financial stocks, but it hasn’t worked out that way. Fund managers and financial advisers can buck the market, as two of these three companies have done to great effect.
Aberdeen’s Asset Trap
Asset manager Aberdeen Asset Management (LSE: ADN) is the unhappy exception having endured a dismal year, its share price down 30% thanks to growing concerns over the fate of Asian and emerging markets, where it specialises. Net outflows of a punishing £34bn cut assets under management to £284bn, as disgruntled investors fled for the exits. That is what happen when investment fashions change.
The successful integration of new acquisition Scottish Widows Investment Partners marginally boosted profits to ÂŁ491.6m, but did little to reverse the downswing in sentiment. Chairman Martin Gilbert has warned things could get worse before they get better, and I reckon 2016 could be sticky because we haven’t yet mined the bottom of China’s misfortunes. Someday, market sentiment will reverse, and the cycle will swing in favour of Aberdeen again.
Year-end net cash of £568m puts it in a strong position and allowed management to increase the full year dividend by 8.3%, so there are reasons to buy. Aberdeen trades at just 9.44 times earnings and yields a juicy 6.83%, which should keep you happy until the company recovers, or is acquired.
Lansdown Goes Up And Up
Market troubles should have left investors in Hargreaves Lansdown (LSE: HL) fretting but instead they have plenty to celebrate, with the stock up 55% this year. It has leapt 22% in the last three trouble months alone, against a 1% drop on the FTSE 100 over the same period.
Hargreaves has clearly decoupled. That is tribute to its booming business model, resort adding another 24,000 new clients in the first quarter of this year, 140% year-on-year, taking total client numbers to a record 768,000. While Aberdeen is losing money, Hargreaves enjoyed net new business inflows of £1.43bn, up 47% on Q1 last year. The company has negotiated many pitfalls, including the financial advice overhaul Retail Distribution Review and the shift to low-cost funds, while maintaining profits and reputation.
Operating margins of 50% and return on capital employed of 85% help to explain the pricey valuation of 44 times earnings. The only problem with Hargreaves is that it is so expensive.
Go With The Inflow
Global asset manager Schroders (LSE: SDR) has also shrugged off market volatility to grow 14%, demonstrating to Aberdeen the benefits of diversifying rather specialising. Recent Q3 results showed pre-tax profits up 16% to ÂŁ404.4m, despite a ÂŁ27m currency headwind. Net inflows over the nine months to 30 September shame Aberdeen at £7 billion, taking total assets under management to ÂŁ276 billion. It isn’t cheap at 17.58 times earnings and yields a modest 2.68%, but looks a good solid long-term buy to me.
Hargreaves Lansdown and Schroders have negotiated this year’s market storms with aplomb. But Aberdeen has exciting recovery potential, if you are feeling optimistic, and brave.