Will the abrdn share price turn around in the second half of 2022?

Continued outflows, an unceremonious exit from the FTSE 100 and an underperforming flagship fund have done little to help the abrdn share price this year. To persuade investors to stick with it, the fund manager is promising to deliver a substantial payout this year.

abrdn [ABDN.L] is planning to return more than £500m to shareholders before the end of the year in the hopes of seeing off disquiet over it was booted off London’s leading index. To do this, abrdn will sell off stakes in other companies and will have to attain approval from the regulator.

The background to this is the rough few years abrdn’s share price has had. Rising outflows and the underwhelming performance of headline funds have seen the stock’s fortunes plummet. The abrdn share price has fallen more than 40% this year and 13% over the past month following poor half-year results.

In a fresh blow for the money manager, abrdn was ejected from the FTSE 100 at the end of the summer. Relegation to the mid-cap FTSE 250 not only comes from a loss of face, but there’s the danger of further outflows as funds that track the FTSE 100 sell holdings in abrdn.

abrdn’s Global Absolute Returns Strategies fund loses pace

abrdn was formed five years ago from the merger of the UK’s two biggest fund managers — Aberdeen Asset Management and Standard Life — and has struggled ever since.

One of the most striking examples of abrdn’s problems has been the performance of its Global Absolute Returns Strategies Fund (GARS). Having once been the UK’s largest mutual fund, GARS is now reportedly bleeding investors. At its peak in 2016, the fund oversaw £27bn in assets, but this has been drained to £1.6bn, according to Morningstar data. This year the fund has already lost a hefty £484m as investors ditch the fund.

The fund aims to generate gains over the medium to long term, regardless of market conditions.  However, that hasn’t been happening with investors down 1.4% on a three-year basis (as of 16 September). Year-to-date the fund has shed almost 10% in value.

Not helping the investment case were half year results for 2022. In August, the company reported a £320bn pre-tax loss for the first half of 2022. abrdn blamed poor performance on the “sharp rotation from growth to value”, which hurt the performance in equities and multi-asset classes and political uncertainty.  Fee-based revenue in the first half of the year dropped 8% at £696m and operating profits were 28% lower at £115m.

Can abdrn turn things around?

abrdn has been trying to pivot its strategy under CEO Stephen Bird. In May, it picked up fund supermarket Interactive Investor for £1.5bn as part of a plan to tap into the UK’s legion of retail investors. It has also sold off some parts of its business in order to save costs, the latest of which was its stake in India’s HDFC Life, which was sold for £262m.

The money manager is hopeful that the second half of the year would be better as market conditions eased, although investors may not have been pleased that abrdn said that its ambitions for revenue growth and an improved cost to income ratio will take longer to achieve than originally expected.

Turning things around will be tough for abrdn. The macroeconomic headwinds facing the UK and the rest of the world are not to be underestimated, and the threat of recession is very real.

To be fair, a lot of abrdn’s funds perform ahead of their benchmarks but persuading investors to remain invested is a challenge. Whether the promise of a shareholder payout worth £500m is enough remains to be seen. A tangible turnaround in revenues and profits would help the investment case — something that can’t come soon enough for abrdn.

Analysts polled by the Financial Times have a 12-month median price target of 175p on the stock. While that represents a substantial upside on Friday’s close, it’s sobering to see that out of the 17 analysts offering ratings on the stock, five rate Abrdn a ‘hold’ and seven offer an ‘underperform’ rating.