Image source: Getty Images
One look at the long-term share price chart abrdn (LSE: ABDN) will be enough to scare off many potential investors. Over the past 10 years, the stock has fallen nearly 80 percent and has long been downgraded to FTSE 250. But in the same way that a big company with crazy numbers can sometimes make a bad investment, so the opposite is also true.
The constant woes
Its most recent trading update back in October showed that the company continued to see redemptions outpace deposits. By 2022, total outflows have reached £25bn.
Over the past few years, active fund managers have really struggled to match the positive returns of passive investment strategies. Basically, unless the manager was invested in US stocks and specifically 7 Magnificent stocks, they had no chance of beating the market.
Undoubtedly, last year was a difficult year for UK listed shares. It was the same story for many companies in S&P 500 again. A risk-free rate of up to 5% from the Treasury market means that investors have a real choice of where to put their money. Unless rates drop significantly by 2025, this process will undoubtedly reduce the fund’s inflows.
A light bulb
Research from the Office for National Statistics, shows that today only 4% of pension funds and insurance companies have assets in UK shares. This is down from a level of around 50% 30 years ago.
This long-term structural change in the allocation of funds between institutional investors has forced the business to diversify to get closer to the ultimate investor. interactive investor (ii), its direct-to-consumer (D2C) offering, has shown remarkable growth since its acquisition.
In H1 2024, ii delivered 4% customer growth to 422,000. Within this, SIPP accounts grew by 17%. Total imports were 10% higher than the full year 2023.
How big can ii be Hargreaves Lansdowne it is discussed. Either way, I expect the D2C market to grow exponentially in the coming years.
Effective management
Despite the success of ii, only returns from growth in both abrdn’s investment and adviser divisions will move the needle on its share price.
The recent spike in UK gilts, to their highest levels since 2008, indicates challenging times ahead. US Treasuries have also been rising.
To me, this volatility in the bond market highlights the importance of having an effective investment strategy. abrdn is a leader in this space. In H1, 89% of its bond funds outperformed the benchmark.
If equities begin to show upward volatility as well, the dominance of passive investing may begin to be tested. With 73% of MSCI World Index in US stocks, and the Magnificent 7 makes up 23% of the total index, so everyone is on the same side of the boat.
I don’t know if the US stock market is going to crash, but my guess is a lot of volatility in the coming years. And effective managers thrive on flexibility.
abrdn is a dangerous game. But with an 11% dividend yield on offer and a share price in the doldrums, I’m starting to see the real value, which is why I picked up some of its shares recently.
Source link
