The second half of 2011 was a good time to be a shareholder in Ashmore Group, the specialist emerging market fund manager. It was not such a good time to be invested in its funds. Revenues, profits and dividends were up; assets under management were down.
But its customers kept the faith, with net inflows slightly positive. And Ashmore put a bullish gloss on its performance as it reported unaudited interim figures for the six months to December 31 on Thursday morning. It would be bullish, of course. But it has a case.
Here is what happened to assets under management, comparing the position at December 31 to that at June 31, 2011:
Of eight investment “themes”, only blended debt delivered a positive performance, of $200m, while corporate debt was flat. The rest lost $6.3bn between them. Not a good six months for investors then – though Ashmore still managed to increase revenues by 4 per cent during the six months over the previous period, with a 2 per cent increase in pre-tax profits to £129.8m. It plans to pay an interim dividend of 4.25p a share on April 4, up from 4.16p in the previous six months.
In spite of the tough environment, though, investors kept coming, with gross subscriptions outpacing gross redemptions – just – by $700m.
In retrospect, it’s not immediately obvious why. If you’d put your money into the S&P 500 during the second half of last year, for example, you’d have been quids in. But markets, as is well known, can remain irrational for longer than you can remain solvent and the fundamental case for investing in emerging markets – even given the unpredictability of investors’ risk-on, risk-off behaviour – remains strong.
Here is how Mark Coombs, Ashmore’s chief executive, assessed the outlook:
The consensus forecasts for global GDP growth have reduced over the last six months but it is clearer than ever that emerging markets are the driver of global growth. Slowdown in emerging markets is likely to be slight and healthy, taking pressure off inflation. The gap between emerging and developed market growth may widen even more in 2012. The developed world is consumed by the requirement for further deleveraging and impacted dramatically by the significant quantitative easing undertaken to date and the likelihood of more to come. We expect that quantitative easing in direct or disguised form will continue to bolster asset prices, including in emerging markets, which will also benefit from the US desire for a weaker dollar.
It might not be an easy ride but it should be a profitable one:
The impact of negative events in the developed world can be expected to cause volatility in many markets, including in emerging markets, but without dislodging their relatively superior growth prospects and relative portfolio investment attractiveness.
And Coombs can’t quite prevent a note of schaudenfreud from creeping in:
Negative developed world events are happily having a profound impact on perceptions of relative risk globally, challenging the concept of ‘risk free’, the simple association of risk with short term volatility, and prejudices about emerging markets. Many of the asset classes in emerging markets can now not only be considered as higher returning than their developed market equivalent, but also as safer.
Assuming, that is, that markets start behaving rationally. As Coombs concludes:
There remains an extremely compelling prospect for substantial, long term, profitable growth. We just have to keep performing and delivering it.
Well, emerging market investors have certainly been rewarded in the early weeks of 2012. Let’s see if they go on keeping the faith.