It doesn’t matter if your portfolio is worth £5,000 or £5bn, volatile markets make investors jumpy and often cause them to liquidate holdings. Some of the UK’s largest asset managers are finding this out the hard way as collapsing confidence in emerging markets, Brexit and Eurozone stagnation send institutional investors withdrawing their money at a rapid clip.
But with astounding margins, healthy balance sheets and substantial dividends, is now the time for investors to take a closer look at these companies?
The woes at Aberdeen Asset Management (LSE: ADN) stem from its focus on emerging markets, which has sent share prices on a one-way roller coaster ride of late as rising US interest rates and slowing Chinese growth send shock waves throughout the developing world.
Spooked investors withdrew £8.9bn last quarter, marking the 13th straight quarter of net outflows. Unsurprisingly, this hit Aberdeen’s bottom line hard and revenue shrunk 20% and operating profits fell a full 50% year-on-year at interim results.
Net operating margins also collapsed rather spectacularly, down from 31.2% to 19.2% over the same period. However, with no debt on the books and dividends yielding 6% should contrarian investors dip their toes in the water?
I don’t think it’s time for that yet. Emerging markets will turn around eventually and boost Aberdeen’s fortunes. But with falling earnings not expected to cover dividend payouts this year, the company may not be able to maintain shareholder payouts during what could be a sustained downturn in markets from Brazil to China.
Aberdeen’s shares could have further to fall if dividends are slashed and at 17 times forward earnings aren’t yet in bargain basement territory.
Bashed by Brexit
Dividends are also reaching impressive heights at Jupiter Fund Management (LSE: JUP), where analysts are forecasting a 5.7% yield for shareholders this year. Even better, relatively resilient earnings are expected to cover dividends for the next two years.
So, with a great yield, net cash and net operating margins an eye-watering 50.8% in June, why are shares trading at a relatively sedate 14 times forward earnings? The answer is… Brexit.
If retail and institutional investors begin withdrawing cash from their portfolios as happened at Aberdeen, then shares of Jupiter can be expected to follow a similar downward trajectory in the coming quarters.
While the effects of Brexit on investors’ psyches won’t be fully clear for many, many months, Q3 results in October should give us some indication as to how Jupiter’s funds are holding up. If investor confidence can be maintained, this well-run company could be a stellar long-term holding.
Play the long game
Despite its storied name Schroders (LSE: SDR) hasn’t been immune to industry headwinds and in the three months to June it saw £2bn in net outflows from its funds. However, margins remained steady year-on-year and earnings still covered dividends 2 times over last year.
This is a prime example of Schroders’ more staid and long-term approach to business, driven largely by the fact that the Schroder family retains a 47% stake. This is something that Foolish investors should love to see as family-controlled companies, while bringing their own corporate governance headaches, can often be relied on to ignore short-term fads and focus on long-term wealth generation.
That’s why, despite the company’s 3.12% yield lagging competitors, Schroders’ mix of institutional and retail clients, geographic diversification and high margins still set it up to be a long-term winner in my eyes.
But what did Schroders' management blame for outflows last quarter? You guessed it, Brexit. However, that doesn’t mean you should follow the crowd and let Brexit stop you from investing.
The Motley Fool believes this period of market turbulence has created a great opportunity to snap up quality companies at bargain prices and re-examine your whole portfolio.
That’s why their top analysts have put together this free report, Five Steps To Surviving Brexit, filled with great advice to help your portfolio in this volatile time.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.