Great summary, thank you! Also good comments and your thoughtful response to comments just adds to the original piece. The tricky issue for me is summarised in your comment "At the end of the day, it's a cyclical business. I think earnings growth will come when EM has a sustained bull market and managers are forced to turn their underweights into overweights." I find that EM call particularly hard to make, especially when so many so-called 'macro' experts can't seem to get it right.
Hi Paul, thanks for the feedback. This is very likely, but the timing is quite tricky to get right. It is quite possible that the market will start to look ahead to improving EM fundamentals when the time is right, before the thesis has been confirmed by rising AUM. At which point you are likely paying a sharply higher price.
You're not missing anything. The growth they're talking about is basically going from low 16s to high 16s since about 2016 from memory. Given the headwinds to the business, it likely wouldn't have been wise to push it aggressively since Covid. I suppose it's more of a statement of intent for when things pick up.
Thanks Pete, on page 192 of the Annual Report they list $323m in net management fees against average AuM for the period of $82.8b, which works out at 39bps as an average charged across assets. The only adjustment they make to get to the net figure is taking out £3.5m of distribution costs.
I can remember seeing an item in their filings breaking down fees by asset class and it's only alternatives that charge over 1% and that's comparatively small atm. Equities were around 45-60bps and bonds obviously lower, from memory. Maybe some retail funds could charge more, but that would be a low % of their clients, I'd say.
Personally I'm a dollar bear, but I have been for a while so we'll see. It would certainly be an obvious shot-in-the-arm to the AuM translation. Cheers, Guy
That makes sense. Thanks. I think the deck says retail has dropped from 15% of AUM to 4%. Might have that wrong but intuitively makes sense - retail advisory is short term and this stuff hasn’t been performing, and for the last few years the focus in the UK and Europe has almost entirely been on fees.
Ok, so we think they’re institution-dominant and institutions get much lower fees.
Great note - thanks. Definitely worth a look. I'm curious about the reduction in AUM from 2020/21 to 22/23. Do we know how much of this was redemptions/ouflows vs losses in the underlying? Also, have you spoke to mgmt. about their perception of the stock price (given it's been flatish since IPO) Thanks!
The fall in AuM was quite balanced between redemptions and losses over that period. For 21/22 total AuM fell by $30.4b, with $13.5b in net outflows and $16.6b in negative performance.
I haven't spoken to management, so no further insights on if they would seriously pull the trigger on share repurchases at these prices. My guess would be no, given the reduction in AuM and how strongly they believe in the dividend.
Pete, I mean that Ashmore are in the deepest of deep value, which has been just about the worst place to be since the pandemic. EM has been shocking in general, but deep value within EM has been a bloodbath, so they have really been caught fishing in the wrong pond. Having said that, the asset class (and likely their portfolios too) look extremely cheap here imo and are priced to do very well going forward.
By the way, I think the fees you quote are actually margins. That's what the presentation says. Looking at their retail funds, most of the AUM seems to be in funds with c.1.5% fees. I'm sure it's lower for institutions. They make a good case that you can't invest passively in EM bonds because 85% of them aren't in an index, but 1.5% still eats a lot of the spread over DM bonds. My view is that what this really needs is a weak dollar - I am not sure the bonds themselves are cheap enough to drive meaningful allocations of capital towards Ashmore, but the currencies might well be. Interested in your thoughts.
Psychologically, it certainly would have put some jitters around the asset class, but I don't think Ashmore is particularly exposed at the company level. China isn't one of the markets they have local operations in.
They seem to be genuinely contrarian, so I'm guessing they would be looking at the wreckage now.
Thanks, I appreciate that. I will definitely look up those insights too.
Often when I can imagine something going lower in the near-term, but can make a solid bull-case for the next 5-7 years, I just have to bite the bullet and buy/hold.
Obviously the market sees a continued deterioration in AuM and performance, but the valuations are at such a cheap starting point as is.
Beautiful piece thanks. I already own this one and hold high hopes for it. I’m not convinced on performance against benchmark by a number of its funds but as you say tailwinds should gee that along. Their website offers some deep insights eg the case for local currency bonds article on 28 July
Thanks mate! They like having the huge cash buffer. Management mention it in most reports and like the flexibility it gives them, so I expect most of it will remain there for now and be used as seed capital to start new funds in the coming years. It does also give rock-solid support to the large dividend though and there is a share buyback authorisation current, so that could be another avenue.
Thanks for sharing. I think it’s a great idea and a good valuation. I’m missing EPS growth over the years. However I opened a small observation position because I really like the story and valuation.
Thanks! At the end of the day, it's a cyclical business. I think earnings growth will come when EM has a sustained bull market and managers are forced to turn their underweights into overweights.
I think that we are nearing a cyclical bottom. The highest risk here is that I’m too early and inflation triggers more unrests in EM (Niger, etc.) resulting in further downward re-ratings but the cash position and experienced insiders should give some buffer.
This is a genuine concern. Often a sell-off even in Developed Markets can still result in capital flight from EMs, regardless of valuation. Cheap can always get cheaper, but I maintain the view that the next decade will be one of EM outperformance.
No, I'm not yet. I wrote the article to force myself to think more deeply about the company. I got more bullish as I wrote it, so I will update you if/when I buy it.
Good piece, Guy, makes a lot of sense.
Great summary, thank you! Also good comments and your thoughtful response to comments just adds to the original piece. The tricky issue for me is summarised in your comment "At the end of the day, it's a cyclical business. I think earnings growth will come when EM has a sustained bull market and managers are forced to turn their underweights into overweights." I find that EM call particularly hard to make, especially when so many so-called 'macro' experts can't seem to get it right.
Hi Paul, thanks for the feedback. This is very likely, but the timing is quite tricky to get right. It is quite possible that the market will start to look ahead to improving EM fundamentals when the time is right, before the thesis has been confirmed by rising AUM. At which point you are likely paying a sharply higher price.
They talk about growing dividends but the dividend has been the same for years, 0,17. I'm missing something?
You're not missing anything. The growth they're talking about is basically going from low 16s to high 16s since about 2016 from memory. Given the headwinds to the business, it likely wouldn't have been wise to push it aggressively since Covid. I suppose it's more of a statement of intent for when things pick up.
Ok, thanks!
Thanks Pete, on page 192 of the Annual Report they list $323m in net management fees against average AuM for the period of $82.8b, which works out at 39bps as an average charged across assets. The only adjustment they make to get to the net figure is taking out £3.5m of distribution costs.
I can remember seeing an item in their filings breaking down fees by asset class and it's only alternatives that charge over 1% and that's comparatively small atm. Equities were around 45-60bps and bonds obviously lower, from memory. Maybe some retail funds could charge more, but that would be a low % of their clients, I'd say.
Personally I'm a dollar bear, but I have been for a while so we'll see. It would certainly be an obvious shot-in-the-arm to the AuM translation. Cheers, Guy
That makes sense. Thanks. I think the deck says retail has dropped from 15% of AUM to 4%. Might have that wrong but intuitively makes sense - retail advisory is short term and this stuff hasn’t been performing, and for the last few years the focus in the UK and Europe has almost entirely been on fees.
Ok, so we think they’re institution-dominant and institutions get much lower fees.
Yes, but attempting to shift towards equities and alts where the fees are higher.
Great note - thanks. Definitely worth a look. I'm curious about the reduction in AUM from 2020/21 to 22/23. Do we know how much of this was redemptions/ouflows vs losses in the underlying? Also, have you spoke to mgmt. about their perception of the stock price (given it's been flatish since IPO) Thanks!
Would imagine at least some of the AUM drawdown was just due to rising rates.
Guy, what do you mean when you say they were contrarian during covid, and it cost them?
Thanks! Really interesting idea.
Hi Paddy and Pete,
The fall in AuM was quite balanced between redemptions and losses over that period. For 21/22 total AuM fell by $30.4b, with $13.5b in net outflows and $16.6b in negative performance.
I haven't spoken to management, so no further insights on if they would seriously pull the trigger on share repurchases at these prices. My guess would be no, given the reduction in AuM and how strongly they believe in the dividend.
Pete, I mean that Ashmore are in the deepest of deep value, which has been just about the worst place to be since the pandemic. EM has been shocking in general, but deep value within EM has been a bloodbath, so they have really been caught fishing in the wrong pond. Having said that, the asset class (and likely their portfolios too) look extremely cheap here imo and are priced to do very well going forward.
Cheers, Guy
By the way, I think the fees you quote are actually margins. That's what the presentation says. Looking at their retail funds, most of the AUM seems to be in funds with c.1.5% fees. I'm sure it's lower for institutions. They make a good case that you can't invest passively in EM bonds because 85% of them aren't in an index, but 1.5% still eats a lot of the spread over DM bonds. My view is that what this really needs is a weak dollar - I am not sure the bonds themselves are cheap enough to drive meaningful allocations of capital towards Ashmore, but the currencies might well be. Interested in your thoughts.
Presumably the bear case has been the ongoing implosion in Chinese junk bonds?
Psychologically, it certainly would have put some jitters around the asset class, but I don't think Ashmore is particularly exposed at the company level. China isn't one of the markets they have local operations in.
They seem to be genuinely contrarian, so I'm guessing they would be looking at the wreckage now.
Thanks, I appreciate that. I will definitely look up those insights too.
Often when I can imagine something going lower in the near-term, but can make a solid bull-case for the next 5-7 years, I just have to bite the bullet and buy/hold.
Obviously the market sees a continued deterioration in AuM and performance, but the valuations are at such a cheap starting point as is.
Beautiful piece thanks. I already own this one and hold high hopes for it. I’m not convinced on performance against benchmark by a number of its funds but as you say tailwinds should gee that along. Their website offers some deep insights eg the case for local currency bonds article on 28 July
Great write up and idea. What is the plan with the cash position?
Thanks mate! They like having the huge cash buffer. Management mention it in most reports and like the flexibility it gives them, so I expect most of it will remain there for now and be used as seed capital to start new funds in the coming years. It does also give rock-solid support to the large dividend though and there is a share buyback authorisation current, so that could be another avenue.
Thanks for sharing. I think it’s a great idea and a good valuation. I’m missing EPS growth over the years. However I opened a small observation position because I really like the story and valuation.
Thanks! At the end of the day, it's a cyclical business. I think earnings growth will come when EM has a sustained bull market and managers are forced to turn their underweights into overweights.
I think that we are nearing a cyclical bottom. The highest risk here is that I’m too early and inflation triggers more unrests in EM (Niger, etc.) resulting in further downward re-ratings but the cash position and experienced insiders should give some buffer.
This is a genuine concern. Often a sell-off even in Developed Markets can still result in capital flight from EMs, regardless of valuation. Cheap can always get cheaper, but I maintain the view that the next decade will be one of EM outperformance.
Are u invested?
No, I'm not yet. I wrote the article to force myself to think more deeply about the company. I got more bullish as I wrote it, so I will update you if/when I buy it.
personally no, but I put it in watchlist and I could be in the future. It's quality and not expensive