abrdn (LSE: ABDN) shares are popular among income chasers. Currently, the stock yields over 7%. But if I had bought £5,000 worth of shares in the asset management company five years ago, would I now be sitting pretty?
Falling knife
On 13 December 2017, the abrdn shares closed at 489p. Today, I can pick them up for 189p. That’s a whopping 62% decline. Therefore, my £5,000 would now be worth only £1,900.
As a renowned income champion, dividends totalling £1,000 over that timeframe would have cushioned the blow somewhat. But my investment would still be down 42%.
The proverbial falling knife is the best way I would characterise abrdn shares. Indeed, they have now been in a downward trend for nearly eight years.
New name, same old challenges
Competition in the investment industry is intense. One way a firm can seek to differentiate itself is through its brand. The likes of Vanguard and Blackrock illustrate this point all too well.
A key part of the company’s strategy to arrest capital outflows was by rebranding. Last year, it changed its name from Aberdeen to abrdn. Management might view the new name as distinctive and attractive, but I view it as nothing short of a PR disaster.
Considering the bewildering array of funds available for investors to choose from, I fail to understand how a name which is unpronounceable provides it with a competitive edge.
The company’s half-year results in August have done nothing to inspire me, with all key financial metrics heading in the wrong direction. Revenue was down 8%, adjusted operating profit fell 28%, and cost income ratio rose by 4%.
Green shoots
However, in the last couple of months, the abrdn share price has risen 40%. This I mostly attribute to it being clearly oversold. But can it maintain this momentum?
Asset management is a classic pro-cyclical business whose fate is tied to the performance of financial markets. And 2022 has been a terrible year for both equities and fixed income assets.
But there are signs the business is beginning to turn things around. Institutional and Wholesale outflows were limited to 1% of assets. I am also encouraged by the fact it is focusing on a number of growth themes, such as real assets and logistics.
In real assets, in 2021 it bought a majority share in Tritax, which provides it with access to the fast-growing logistics and e-commerce real estate market. Early signs are promising. Investment performance across the real asset class over the past three-year period has improved from 52% to 75%.
Outside of its core asset management business, it recently acquired interactive investor. A leading subscription-based platform, the acquisition provides it with exposure to the fast-growing direct investment segment of the consumer market.
Although it is making strides in diversifying revenue streams, its investment business still accounts for over 80% of revenue.
The prime driver of flows in the long term is investment performance. Over a five-year period only 61% of its funds are ahead of benchmark. In a cut-throat sector, that is not a differentiator.
On the back of a likely recession, I am expecting equity markets to struggle in 2023. In such a scenario, fee-based revenues will decline. Therefore, I will not be buying abrdn shares any time soon.
