In its latest asset manager report, JP Morgan Cazenove predicts both firms will reveal net outflows of €1bn (£890m) in their second quarter updates later this week.
Both asset managers posted outflows in the first quarter. Jupiter posted redemptions of £1.3bn exceeding already bearish analyst estimates, while Schroders’ asset management business saw AUM slide from £389.8bn to £382.1bn.
Ryan Hughes head of active portfolios at AJ Bell Investments says Jupiter and Schroders face similar headwinds. Both firms have a very mature book of business and large value bias strategies, which may have suffered from recent performance issues, prompting investors to rotate.
But he doubts Schroders and Jupiter will be alone in their struggle to retain assets.
“We should remember that both of these groups are very, very large,” says Hughes. “It is difficult for people to continually grow. And it has been a challenging market for asset managers to raise assets over the first six months of this year, particularly given a UK equity market that is unloved by overseas investors and shunned by UK investors doesn’t necessarily help.”
Jupiter boss Maarten Slendebroek has previously cautioned investors that the firm’s future flow pattern will be “less predictable” as it continues to diversify its business outside the UK.
More pain for Dynamic Bond
The Jupiter Dynamic Bond fund, run by Ariel Bezalel (pictured), continued to drive net outflows, according to the reports.
Both JP Morgan Cazenove and Numis put redemptions from the £7.1bn Sicav vehicle around £1bn in Q2.
However, a monthly breakdown of net flows over the three months in the Numis report showed redemptions have marginally slowed from £377m in April to £313m in June.
JP Morgan Cazenove maintained a ‘neutral’ recommendation for Jupiter. Although it notes Jupiter has relatively high profitability, consistently good long-term investment performance, a balance sheet that offers a 7% yield and a quality management team, it says the fund flow concentration risk remains a key concern.
“We would still like to see sustained improvement in Dynamic Bond flows and/or a share price with a greater margin of safety, before turning positive in the short term,” adds Numis senior analyst David McCann.
The UK stockbroker has maintained its ‘hold’ recommendation on the basis of a temporary and more conservative target price of 441p per share. Jupiter’s shares were hovering at 444p on Tuesday.
“We still see attractive medium to long term value in the shares but are mindful that it is quite possible the share price could fall further in the short term before returning to medium to long term growth,” McCann says.
Fixed income divide
Hughes says the Dynamic Bond fund’s woes can be explained by the fact that “fixed income continues to divide opinions”. He says increasingly the people he talks to, including advisers, have been allocating more toward absolute return strategies and away from fixed income.
“People are beginning to look elsewhere as they see the potential for yields to go up from here,” says Hughes. “The 10-year US treasury is hovering around 3%, which causes a lot of people to reassess what kind of allocation they want.”
Jupiter declined to comment ahead of its Q2 results on Friday.
A spokesperson for the fund group has previously said that outflows from the Dynamic Bond fund were linked to performance and Bezalel’s decision to adopt a more cautious stance.
Bezalel has been running a “meaningful allocation” to AAA government bonds (roughly 30%) and less credit-risk than many competitors, the spokesperson said.
However, the Jupiter Strategic Bond fund, a UK-domiciled mirror version of the Sicav fund, took in net inflows last quarter. In sterling terms for the year to date, the Dynamic Bond fund is down -2.21%, while the Strategic Bond fund is down -1.46%.
Boring Schroders
Unlike Jupiter, Schroders was not flagged unanimously by analysts as ending the period with net outflows.
Numis did not provide separate Q2 flow data for the fund group in its report. Over the half year it expects the FTSE 100 company will see net flows of £10.9bn and performance of £2.7bn.
McCann said Schroders is “a little dull and boring”, but is ” by far the most diversified UK-listed asset manager by asset class, geography and client type.
As such he thinks growth will be in line with or better than the sector average over the long-term. Numis has since upped the group’s diluted adjusted earnings for 2018 by 3% to 226p.
“We believe it is likely to outperform, possibly significantly, in weaker markets,” adds McCann.
JP Morgan Cazenove analysts say they are constructive on the group, noting Schroders has “an undeniably strong balance sheet” and a shareholder structure that supports a long-term approach to the business by the management.
But it says, “flow momentum has been relatively subdued, with annual net flows/AUM steadily declining from a robust c9% in FY14 to a meagre 0.4% in FY16”.
Schroders declined to comment ahead of its interim results on Thursday.
