Tech versus the rest in Q2-24
Among London-listed asset managers, only Polar Capital managed strong investment returns AND strong net flows. But will the July 'great rotation' out of big-tech mark a change of fortune for others?
‘Divergent’ is probably the best way to describe asset managers’ AUM movements in Q2-24. A standout on the positive side was Polar Capital, with a strong investment performance AND strong net flows driving a 7.4% quarterly AUM gain. Sustainable investing specialist Impax and emerging markets fixed income specialist Ashmore had tough quarters.
Good returns in tech (but not much else)
A fair amount of that divergence was driven by asset-class-related investment returns. This was most evident when comparing the returns of ‘tech versus the rest’.
While the (tech-heavy) NASDAQ 100 was up 8% over the quarter (and the CNBC Magnificent-7 Index up 15.8%), the MSCI ACWI and FTSE All Share Index were up 3%. That tech out-performance certainly helped Polar’s strong investment performance relative to others (it has c45% of AUM in tech strategies).
City of London Investment Group (CLIG) also had a strong investment performance, with its emerging markets exposure (c35% of AUM) contributing significantly (MSCI Emerging Markets Index +5% over Q2).
On the flipside, as Impax has recently emphasised, its AUM focus on ‘quality growth’ equities (which over-indexes on smaller-cap equities with limited exposure to the ‘mag-7’) hurt its investment performance. The FTSE Environmental Technology 100 index was up just 0.9% in Q2, and while not a hugely applicable benchmark for Impax more generally, the 3.6% fall in the Russell 2000 index in Q2 certainly illustrates the weaker performance of smaller cap equities in the period.
Worthwhile mentioning at this point though, is that some of the above relative asset class trends have certainly reversed in Q3 (to date). Over July 2024, the NASDAQ 100 fell 1.6%, the MSCI ACWI was up 1.5%, the FSTE All Share up 3.1%, and the Russell 2000 was up 10.1%!
So, a continuation of the trends of Q2 is not looking certain at all.
Mixed bag of net flow results
When it comes to net flows, Q2 was a mix of company-specific stories and sector wide trends. Investor nervousness prevailed with most managers recording net outflows.
Private markets specialist ICG had a strong quarter of fundraising with $4.7bn raised. Polar Capital’s strong flows were not a technology story as one might assume given its large exposure to the tech sector, but driven by its high-flying Emerging Market Stars funds (although Healthcare, Insurance, AI, Japan, and UK Value also had positive flows). And Man Group’s positive flows were driven by its Total Return and Long-Only strategies, in a change of client behaviour compared to 2023, when Absolute Return strategies (designed to make money in rising and falling markets) had the strongest net flows.
But other managers had a tougher time. Particularly hard-hit were Impax and Ashmore. Impax’s outflows were dominated by its wholesale channel. And Ashmore suffered heavy outflows in its blended debt strategies (US$ and EM currency debt).
Jupiter’s net flow situation, grim at first glance, is nuanced. While its net outflows were £3.4bn, most of these were already ‘known’. £2.8bn related to the departure of Value equity fund manager Ben Whitmore (and others) which was announced in Jan 24. And £0.8bn was due to the restructure of the deal with Chrysalis Investment Trust. ‘Underlying’ net outflows were (only) £0.2bn. There was a refreshingly open discussion about these points in Jupiter’s H1-24 results analyst call.
Liontrust continued to leak assets, especially from its UK retail funds and MPS arm, so did Premier Miton, especially from its multi-asset funds and equity funds (fixed income funds had positive net flows). And in contrast to Polar, CLIG was hurt by its large EM exposure with clients continuing to withdraw funds from that asset class.
Cautiously positive noises on the outlook
Most asset managers displayed cautious optimism on their AUM outlook. For example:
Polar: "While the pipeline of investor interest for our fund range remains strong, and it has been pleasing to have two consecutive quarters of net inflows, many investors are still grappling with multiple geopolitical and market risks, and therefore the potential for further redemptions remains.
Jupiter: There are reasons to be cautiously optimistic. Our underlying outflows were small at just £0.2bn and we saw an increase in gross flows to £7.5bn, driven by an improvement in demand from retail clients… As we look forward, like other market participants, we are beginning to see early signs of client sentiment shifting more favourably in the UK…”
Premier Miton: "We have seen an improvement in the outlook for fund sales during the Quarter… Falling interest rates are likely to be the catalyst for an improvement in fund sales more generally and we expect that rates will start to decline as we move through the latter half of 2024 and into 2025.”
Impax: "Aggregate net flows for the quarter to 30 June remained negative and dominated by our wholesale channel, despite a notable easing of outflows from key parts of our European distribution structure. Following a busy period for our direct sales team, our pipeline of potential new business is healthy.”
Certainly, if the great-rotation out of big tech continues, a number of London-listed asset managers could benefit because of their asset class focus outside of that space. But it’s early days to make a call on that.
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Disclosure: At the time of writing, Paul Bryant was a shareholder in a number of the companies mentioned in this publication, and covered Impax Asset Management, Polar Capital, and Mercia Asset Management as an analyst on behalf of Equity Development Limited. Read Equity Development’s research on Impax Asset Management here, on Polar Capital here, and on Mercia Asset Management here. (Please read this link for the terms and conditions of reading Equity Development’s research).