LONDON (Reuters Breakingviews) - Ashmore is giving emerging market funds a spot of good news. The developing economy specialist is seeing rising profits and demand for its products. That’s heartening, given the triple threat of Trumpian protectionism, Federal Reserve rate rises and the steady pressure on fees.
Ashmore’s results come at a tough time for rival Aberdeen Asset Management, which saw 10 billion pounds of outflows in the three months to December. Emerging market assets look particularly fragile: U.S. President Donald Trump’s election and promise to “make America great again” should make funds flow from emerging markets to developed ones, if protectionist policies and a rising dollar spur faster rate rises.
So far this isn’t happening. Ashmore’s assets under management were relatively flat for the six-month period to the end of December but up 5 percent in the year, while operating profit rose 33 percent. Although Trump’s presidency has generated a lot of alarm, returns on the $9 trillion of negative-yielding developed economy debt are still ghastly. EM debt isn’t massively expensive: the spread on the JPMorgan EMBI hard currency index is still more than 1 percent above its level in 2013. And the premium offered by EM debt over developed ones could fall as risk-free rates rise.
Ashmore also looks resilient to the other big threat - the onslaught of passive management and investor preference for low-fee products. Some 91 percent of its funds beat benchmarks in the six months to the end of December. The range of investments and performance in emerging economies should make outperformance easier. And, even as passive managers eat their way into developed assets, less than 10 percent of emerging ones are yet captured by benchmark indices.
How much longer can such trends last? Trump is unpredictable, and may reverse course if cornered – though the pain of the fallout will depend on the speed of tightening. As passive funds reach saturation point in developed economies, they will train their sights more on the untapped pool of emerging ones. Smart beta funds, a halfway house been active and passive management, may be better at matching active manager performance.
Ashmore is now trading at nearly 17 times forward earnings, versus a sector average of 13, according to Eikon. That reflects Ashmore’s relative strength, but ignores the first rule of investing: past performance is no guarantee of future results.
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