Image source: Getty Images
The aberdeen share price (LSE: ABDN) has been on a tear recently. Since the tariff-induced sell-off, the stock is up 45%. The firm finally swung back to profit last year and with its fund outflows beginning to stabilise, I’m turning increasingly bullish on its outlook.
Leading asset manager
Over the last 10 years, aberdeen has made for a poor investment. Once the second-largest asset manager in Europe, the stock has fallen 70% from its peak in 2015. However, despite this, it still has over £500bn in assets under management.
The downturn of the business is long and complicated. But in recent history its woes really boil down to two reasons. Firstly, the rise of low cost passive investment funds and ETFs, notably those tracking the S&P 500 and the Magnificent 7 stocks. Secondly, a waning of investor interest in emerging markets (particularly China), where it has a long heritage and expertise in investing.
In 2024, though, the first glimmer of light emerged. Its largest division, Institutional and Retail Wealth, posted net inflows of £300m, after years of huge outflows.
Evolving consumer market
The number one reason why I like the stock is because of interactive investor (ii), its direct-to-consumer (D2C) offering. Since its acquisition in 2022, the platform has gone from strength to strength. Last year, net inflows doubled to £5.7bn. In particular, it has seen extraordinary growth in SIPP accounts.
The D2C market is the fast growing sector in asset management. Today, ii accounts for 20% of a market worth nearly £400bn. But even that is a fraction of the estimated £4.6trn in the UK savings and wealth market. It’s little wonder that the D2C market is growing at 13% per year.
Product innovation is one of ii’s greatest strengths. Its ability to attract both experienced and novice private investors to the platform has turbocharged growth. Last year, it launched ii Community. A Reddit-type forum, this enables people to discuss stocks, compare portfolios and get inspiration from other investors.
Juicy dividend
aberdeen’s dividend has been frozen at 14.6p per share for some time now. Over the medium-term it’s not expecting to grow dividend per share.
Dividend cover does look precarious. It’s only covered 1.2 times by adjusted capital generation. On a net capital generation basis, the cover is only 0.9 times. Any number less than one does ring alarm bells for me. The business will not increase payouts until cover reaches at least 1.5 times adjusted capital generation.
Despite capital generation growing strongly, the business is nowhere near out of the woods yet. Its equities portfolio continues to lag badly. Only a third of its actively managed funds outperformed a benchmark last year. That hardly incentivises institutional investors to park capital in its funds.
However, I continue to view the stock as a good long-term bet. Excessive valuations in US equities, geopolitical risks, inflation, and spiralling government deficits highlight the huge risk investors face navigating today’s markets. I genuinely believe the next 10 years will look nothing like the previous decade. That could bode well for active managers like aberdeen.
With an 8.3% dividend yield on offer, I’m being handsomely paid to wait for a recovery. That’s why I recently bought more of its shares for my portfolio.
