The Ashmore (LSE: ASHM) share price broke out to new highs this week and is buoyant today on the release of the company’s half-year results report.
Some investors look for shares breaking new ground because the situation usually demonstrates the presence of an up-trend in the price. I reckon trends are good thing to keep an eye on because, statistically speaking, a trend is more likely to continue than it is to handbrake-turn and change direction.
Strong operational progress
Often, strong operational progress in the underlying business backs a price up-trend. And that’s the case with Ashmore, which earns its living as an asset manager specialising in emerging markets. Although I reckon it doesn’t really matter what area of the market the firm chooses to focus on, because not much income comes from performance fees.
Indeed, the recent success of the business is all down to collecting management fees. Today’s report reveals to us that just over 95% of net revenue came from the fees charged for managing clients’ money, around 2% from performance fees, 1.5% from foreign exchange, and the rest from other sources.
My guess is that, these days, many asset management companies don’t earn their big bucks from the stunning performance of the investments they manage – after all, the markets have been difficult for some time!
In the first six months of the trading year to 31 December 2019, assets under management (AuM) increased by 7% and are now 28% higher compared to the equivalent period the year before, at just over $98bn. That’s a lovely lot of other people’s money, and the uplift demonstrates the firm has been good at attracting new business.
Rising earnings and dividends
And that’s why it seems important for Ashmore to specialise. Emerging markets clearly attract the company’s clients. Net inflows in the period reached $5.7bn, which isn’t to be sniffed at. Meanwhile, the firm scored a positive investment performance in the period of $0.9m, which strikes me as being a less-impressive figure.
However, active management “continues to deliver long-term outperformance,” the firm said in the report. Some 75% of AuM outperformed their benchmarks over three years, 98% over five years, and 24% over one year. The directors reckon outcome reflects a combination of market volatility and “adding risk at attractive price levels in line with Ashmore’s disciplined investment approach.” In other words, buying investments when the valuations look depressed — classic Warren-Buffett style.
Diluted earnings per share shot up by 56% in the period and the directors displayed their confidence in the outlook by slapping 5% on the interim dividend. Chief executive Mark Coombs confirmed in the report there’s a “compelling” incentive for investors to increase their allocations to emerging markets “in pursuit of higher risk-adjusted returns” compared with those that are available in the developed world.
I reckon such attractions could keep the new money rolling into Ashmore’s funds enabling the management income to keep on growing. Meanwhile, with the share price close to 575p, the forward-looking dividend yield is just over 3.5% for the trading year to June 2021, which I see as attractive.