The ‘worst may be over’ for Standard Life Aberdeen’s embattled Gars fund, Bank of America Merrill Lynch analysts have said.
The bank's call follows a plunge in assets in the strategy from above £40 billion to a recent £10.5 billion. Analysis by Citywire head of fund research Frank Talbot last week revealed Gars had lost £17.2 billion across UK, European and US versions of the fund since the start of last year.
BoAML’s leading sector analyst and managing director for equity research Philip Middleton pointed to a recent slowdown in the pace of redemptions from the portfolio. This has seen outflows fall from £4 billion in Q3 2018 and £7 billion in Q4, to £2 billion in the first two months of this year.
Middleton pointed out that while a year to date return of 3% continued to underperform peers, a return to a three- year figure above zero made it easier to justify a hold decision.
He also noted that many of the fund’s most sceptical holders had already now used the retirement of former head Guy Stern in late 2018 as their cue to exit.
‘We believe improving client risk appetite and positive performance have the potential to slow outflows further,’ wrote Middleton and his colleagues Hubert Lam and Elizabeth Millatis. ‘We see risks that flow assumptions may be better than expected, given stronger markets year to date.’
The house reiterated its buy rating and price target of 315p versus a current 260p. They are currently trading at 265.5p.
That compares to a coverage universe median of 335p. While that is near the middle of the median range, a huge spread of forecasts from a high of 480p from Jefferies to a low of 215p from RBC, puts BoAML among the more cautious of those on a positive outlook.
Standard Life Aberdeen shares have slumped almost 40% since early 2018 as investors fretted at the rate of outflows in a merged and streamlined business, which had been billed as less dependent on client risk appetite. This culminated in last week’s full year 2018 report showing a net exit of £41 billion.
But Middleton said investor gloom on UK asset managers had gone too far. While a number of its peers had recovered somewhat following a period of maximum negativity earlier this year, he said that SLA had yet to follow.
‘The underlying valuation of the asset management business is too cheap compared to outflowing peers and the sector. Our reverse sum of parts [calculation] implies Aberdeen Standard Investments is on 6x 2020 PE, a 50% discount to the UK sector.
‘Other US and European asset managers with outflows trade on 10-11x 2020 PE. Jupiter, for example, trades on 12.5x and has also had considerable outflows in the last six months. SLA has potential for strong catch-up if investors become fundamentally bullish on European markets.’