While 2013 was a bad year for shortselling, the new year has proven to be fruitful so far for some bearish bets. Short interest in Ashmore Group plc (LON:ASHM) (OTCMKTS:AJMPF) and Aberdeen Asset Management plc (LON:ADN) increased in the past month. Both companies are UK-based investment managers which specialize in emerging markets. Short interest in Ashmore Group has increased from 3.3% at the end of 2013 to 6% this year. Short interest in Aberdeen amounts to 3.77% of outstanding shares.
Odey shorts Ashmore Group and Aberdeen
Ashmore has been under the eyes of some well-known hedge funds over the last year who have patiently stuck to their bets against the asset manager. Currently Odey Asset Management, a London-based long/short equity fund, holds the largest short against both Ashmore Group plc (LON:ASHM) (OTCMKTS:AJMPF) and Aberdeen Asset Management plc (LON:ADN). Odey’s bet amounts to 3.24% of Ashmore’s and 2% of Aberdeen’s outstanding shares. The flagship Odey European netted a return of 25.7% in 2013 and rose another 0.7% through the first two weeks of January 2014.
Outflows rose in final quarter of 2013
These specialists in emerging markets gave a tough time to hedge funds, Odey’s bet looked like a big miss when Ashmore Group plc (LON:ASHM) (OTCMKTS:AJMPF) was reporting rising inflows in the mid of 2013. However the year-end financial statement has failed to impress the market as final quarter saw $3.5 billion in outflows, reversing the trend of net inflows in the three prior quarters. The asset manager saw $13.4 billion inflows over the course of 2013, and AuM closed the year at $77.4 billion. Ashmore has received several downgrades from analysts in the past weeks, where Goldman Sachs, RBC Capital Markets cut their price targets, as shares fell more than 15% in this year.
Reducing EM exposure with acquisitions
Aberdeen Asset Management plc (LON:ADN)’s share price suffered a loss of 22% in 2014, and the asset manager reported outflows of $7.32 billion in the last quarter of 2013. The recent plunge in shares was also caused by negative sentiment around Aberdeen’s acquisition of Scottish Widows Investment Partnership. Jefferies analyst Jason Streets reasoned that Aberdeen has failed to turn its acquisitions into profit-makers in the past few years and thus downgraded the stock. Prior to the SWIP acquisition, Aberdeen’s exposure to EMs and Asia-Pacific amounted to 40% of AuM, which is now expected to fall to 24%. An RBC Capital Markets analyst saw this development as a positive for the company which could reduce the risk it faces in EMs.
Rob Citrone’s Discovery Capital, Lansdowne Partners also hold 0.55% and 0.83% of the company’s shares short whereas Marshall Wace and Wellington Management are betting against Aberdeen Asset Management alongwith Odey.
Canaccord remains bullish on Ashmore
In these tough times, Canaccord Genutiy’s Arun Melmane and Robin Savage upgraded Ashmore to Buy from Hold in their February report. The analysts reason that Ashmore has a much better chance of weathering the downturn in EMs than any competing investment manager. Ashmore’s exposure to EM debt is considered one of its weakest links, however Melmane and Savage note that Ashmore is diversifying its product and seeding new funds which will cushion its strategy against volatility in emerging markets.
At the same time Morgan Stanley expressed negative views over the current fundamentals of the emerging markets and thus related investment managers. Their recent research report noted weakness in EM flows and reduced EPS estimates and price targets for both Aberdeen Asset Management plc (LON:ADN) and Ashmore Group plc (LON:ASHM) (OTCMKTS:AJMPF). MS said that the effects of QE taper, reduction of exposure to China and devaluation of EM debt, are pressuring these markets in the near-term. However the report said that in the longer term, emerging markets still have a brighter outlook.