Specialist emerging markets asset manager Ashmore Group (LSE: ASHM) has had a great start to 2019, its share price up a quarter boosted by this year’s wider stock market recovery. It’s climbed another 3.5% today after posting 11.2% growth in assets under management during the first three calendar months of 2019, up $8.6bn to $85.3bn.
This was made up of net inflows of $5bn and positive investment performance of $3.6bn, so Ashmore is shining on both fronts. The £3.36bn FTSE 250 group said client demand remains strong across its broad spread of investment themes, with healthy institutional inflows from existing clients.
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CEO Mark Coombs said client activity levels picked up through the quarter following a slight pause at the end of 2018: “This reflects a number of ongoing positive factors including investors’ light positioning in emerging markets.”
Its clients were also finding value after a tricky 2018, while stepping back from developing markets due to “slowing growth and political challenges.” This has left Ashmore well-positioned for continued growth, he concluded.
Fund managers are effectively a geared play on the stock market or, in Ashmore’s case, emerging stocks. In 2017, the emerging market MSCI index surged 37.28%, and Ashmore’s share price surged too. Last year, the index fell 14.57%, with a predictable consequences. The index is up 9.92% year-to-date and Ashmore is riding higher. You get the picture.
The key is to avoid buying at the peak of the cycle when the share price is excessively valued. Possibly we could be there, with the group trading at 18.5 times forecast earnings. Recent growth has driven down the yield, now a forecast 3.7%, with cover of 1.4. Personally, I would prefer to buy Ashmore when it’s down, rather than up. Roland Head got his timing right, tipping the stock a couple of months ago. It may fit better on your watchlist than in your portfolio right now.
Fellow FTSE 250 company Halfords (LSE: HFD) has caught my attention due to its high yield and low valuation. The motoring and cycling product and service retailer now offers a forecast income stream of 7.4%, covered 1.4 times by earnings, yet trades at just 9.8 times forward earnings.
The stock has had a rotten year, falling more than 33% in the past 12 months. That’s Halfords’ punishment for delivering its fair share of disappointing news. Last May, investors had to absorb a 5% drop in underlying pre-tax profits to £71.6m, albeit largely due to £25m currency headwinds.
In January, it reported a 1.7% fall in like-for-like group revenues for the 14 weeks to 4 January. That was due to mild weather and weaker consumer confidence, which knocked discretionary sales of pricier adult bikes, although cycle accessories and children’s cycling held firm.
Some investors will be tempted by the group’s strong cash flows and healthy balance sheet, but you must set that against weak consumer confidence. Forecast earnings growth looks flat this financial year and only improve slightly next, yet many of the group’s problems are surely locked into today’s dirt cheap share price. Throw in low levels of debt and Halfords could make a tempting contrarian buy for income seekers.