China Overshadows Aberdeen

Investors aren't warming to the emerging-market specialist's diversification strategy

Less dismal news from China helped shares in Aberdeen Asset Management snap a four-day losing streak on Friday. But by the thinnest of margins. And that's not a great sign for the emerging market specialist.

Shanghai Volatility

Benchmark's change over the previous day in percent

Source: Bloomberg data

Aberdeen has tried to stress its efforts to diversify of late. Investors aren't buying it. The stock price is marching up and, mostly, down in step with emerging markets. This chart compares the stock price over the past year to an ETF that tracks the MSCI emerging markets index.

On Friday, after the Shanghai Composite Index closed 2 percent higher, Aberdeen's shares rose as much as 3 percent, before closing up 0.1 percent. Over the past year, though, Aberdeen's shares are down more than 40 percent, about twice the average decline of its peer group.

A Rebound of Sorts

Source: Bloomberg data

One concern is that if there's any diversification at Aberdeen it's in the breadth of its problems. The firm saw significant outflows across each of its strategies: equities, fixed income, multi-asset and property last year. Net outflows from Aberdeen's funds totaled 33.9 billion pounds ($49 billion) in the year through September. CEO Martin Gilbert warned last month that 2016 will be difficult too. And China -- which drives much sentiment on emerging markets as a whole -- looks even worse now than it did then.

Aberdeen Tracks Emerging Markets

Source: Bloomberg data

Barclays analyst Daniel Garrod notes that around two-thirds of Aberdeen's assets under management saw significant outflows last year, with negative sentiment persisting into 2016. Recent under-performance across many of its biggest funds gives little reason for optimism, he notes, while plans to deliver 50 million pounds in annual cost savings are not expected bear fruit until 2017. By then, management must hope the mood has already changed on emerging markets.

Some investors might be drawn to Aberdeen's dividend yield of 7.6 percent, which compares well with the sector's 4.2 percent average, according to Bloomberg data. The company is debt-free and cashflow positive, so the dividend looks secure for now. In the meantime, though, there is little to indicate a significant turnaround in the stock price is in the works. 

Gilbert ruled out selling the business earlier this year -- a prospect that had sent the stock briefly soaring -- while a major acquisition by Aberdeen would be tough to execute when management has its hands full fighting fires in emerging markets.

A shift in investment style away from emerging markets would be an odd (and risky) move, given the firm has spent years building its reputation as an investor in those areas. Besides, Gilbert has been clear he believes in emerging markets in the long-term and asks shareholders to be patient too.  When the money manager reports half-year results later this month, headwinds from China will surely test their faith severely.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Duncan Mavin in London at

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    Edward Evans at

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