Why the Standard Life share price could be flashing a warning for 2019

Despite its big yield, this is why I’m avoiding shares in Standard Life Aberdeen (LON: SLA).

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In early October, I punched out an article asking if the Standard Life Aberdeen  (LSE: SLA) share price is heading for 200p. Back then it was at 298p and now it’s close to 242p, so it’s getting there.

I’m avoiding the stock. The downtrend in the share price seems relentless and the valuation numbers suggest that something could be wrong. The forward-looking price-to-earnings multiple for 2019 sits just above 10 and the projected dividend yield is a gargantuan 9.6% or so. That’s worrying. I consider any yield above 7% to be potentially unsustainable, and I think this big yield combines with the downtrend in the share price to flash a warning for investors for 2019 that says, “proceed with extreme caution!”

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The traders have been trading

The back-story is that Standard Life (the insurance company) merged with Aberdeen Asset Management (the asset management firm) during 2017. Then in 2018, the enlarged firm sold off its insurance business to Phoenix Group and Standard Life Aberdeen became an asset management business similar to the old Aberdeen Asset Management.

There hasn’t been any real news from the firm since I last covered it, but there has been a long list of notifications about its trading in other companies’ shares. That’s what asset managers do, of course, but it drives home the point that the firm’s fortunes depend on the prowess of its traders or the lack of it. The firm’s half-year results revealed that things hadn’t been going that well and Assets Under Management and Administration (AUMA) from continuing operations had fallen by 2.6% year-on-year with the directors saying, “net flows remain a challenge.”

So investors pulling their money out of SLA’s funds have been exceeding those depositing money. And I can see more of that happening if those SLA traders don’t go on to perform well and score some decent returns for the funds they manage. But, as I’m sure you’ve noticed, trading on the stock market has been challenging for everyone lately and I’m sure that’s the same for the traders employed by SLA. Who are they, anyway? I get a nasty image leaping into my mind of spotty young shoeshine boys in the vein of The Wolf of Wallstreet, but I’m sure that’s just my over-active imagination running away with itself! However, it underlines the fact that if we invest in Standard Life Aberdeen, we add another layer of share-picking that influences our investment returns.

Why subject yourself to the effort and risk?

Do you need another layer of share-picking? After all, if you are choosing shares such as Standard Life Aberdeen, you are the share picker. And if you owned shares in SLA, would it really be worth the hours you’d need to spend sifting through the companies Regulatory News Service (RNS) feed — which is full of the firm’s trading announcements — to find the rare nuggets of financial information you’d need to monitor your investment in the company? I think that’s a serious consideration when you can choose to invest in so many other, straightforward and decent companies instead.

Financial firms such as Standard Life Aberdeen are cyclical beasts that tend to exaggerate the movements of the general indices, and I’d avoid them if there is even the whiff of a bear market in the air. For me, the decision is clear with SLA. I’m staying away.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Life Aberdeen. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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