FTSE 250 incumbent Ashmore Group (LSE:ASHM) has seen its share price drop recently but FY 2021 performance exceeded forecasts. Should I add the shares to my holdings at current levels? Let’s take a look.
Emerging markets investment
Ashmore is an investment management firm with a focus on and over 20 years experience in emerging markets. The firm manages close to $100bn worth of assets currently.
Emerging markets are defined as economies between the stages of developing and developed. The emerging market phase occurs when economies see their most rapid growth, as well as their greatest volatility. Some examples of emerging markets economies right now include India, Mexico, Russia, and Saudi Arabia.
As I write, shares in Ashmore are trading for 294p, whereas at this time last year, shares were trading for 32% higher, at 434p. Emerging markets are usually hit hard by macroeconomic issues hence why the shares have dropped. Could current levels present an opportunity to buy cheap shares?
For and against investing
FOR: Ashmore’s most recent and past performance, prior to the pandemic, has been excellent. I understand the past is not a guarantee of the future but I use it as a gauge nevertheless. I can see that Ashmore’s revenue increased for three years in a row between 2018 and 2020. Coming up to date, Ashmore reported 2021 results in September which were promising against the macroeconomic backdrop. Revenue declined 9% compared to 2020 levels but profit increased by 28% and it maintained a good cash flow to support a robust balance sheet. Overall assets under management increased and a dividend of 16.9p per share for the year was declared.
AGAINST: When macroeconomic shocks occur, such as a pandemic and market crash, emerging markets can be the most volatile. This is the reason why 2021 performance was less than in 2020 but still exceeded forecasts. Increased volatility is not every investor’s cup of tea and some prefer safer investment opportunities and vehicles.
FOR: At current levels, Ashmore looks cheap with a price-to-earnings ratio of just nine. In addition to this, the FTSE 250 average dividend yield is close to 2%. Ashmore’s is twice this amount, at over 4%, which means I would make a healthy passive income if I were to buy shares. It is worth noting that dividends can be cut or cancelled entirely, however.
AGAINST: The continued implications of the pandemic and macroeconomic issues such as rising inflation, rising costs, and supply chain crisis will put pressure on emerging markets even more than on developed economies. This could result in less returns and progress for Ashmore which could put investors off right now.
FTSE 250 opportunity
Right now I would happily add Ashmore shares to my holdings. I am always on the lookout for a diversified portfolio and Ashmore gives me access to emerging markets. It has a good record of performance and I believe longer term it will return to these levels once macroeconomic issues settle down. I understand I would need to be patient but I invest for the long term anyway.
At current levels, Ashmore is cheap and provides a passive income too, which is a bonus. I am expecting some volatility as this is par for the course with emerging markets economies. I think it is a good FTSE 250 opportunity for my portfolio.