Why are hedge funds shorting abrdn, Ashmore and Hargreaves stock?

The share prices of UK asset managers including abrdn, Hargreaves Lansdown and Ashmore have come under pressure recently. Hedge funds are betting that the downward trend will continue as the firms continue to face headwinds.

Ashmore [ASHM.L], abrdn [ABDN.L] and Hargreaves Lansdown [HL.L] are being heavily shorted, according to a Financial Times analysis last week. This is because the asset managers tend to focus on rising asset prices, which is putting them at risk as equities tumble.

Florian Kronawitter, founder of White Square Capital, told the Financial Times that shorting asset managers is “a play on US bond yields”. As they rise, equity valuations fall and the resulting lower equity prices mean asset managers receive lower income from fees.

Ashmore and abrdn have been regulars in the FTSE’s top-10 shorted stocks, according to Morningstar last month. Data from the Financial Conduct Authority on daily short positions shows that short interest in abrdn was up marginally from 4.74% on 10 August to 4.75% on 27 September. Ashmore’s rose from 4.7% to 5.1% and Hargreaves Lansdown’s jumped from 4.1% to 5.5%.

Citadel is shorting all three stocks, while BlackRock [BLK] has a 1.5% short position against abrdn and a 1% position against Hargeaves Lansdown. Meanwhile, JPMorgan [JPM] is shorting 0.6% of Ashmore’s shares, the smallest of five positions in total, and Point72 has a 1.1% position spread across two of its funds.

Abrdn’s turnaround plans fail to inspire

Headwinds have resulted in the abrdn share price declining 39.2% year-to-date, at 135.15p as of 27 September. The stock was also relegated from the FTSE 100 to the FTSE 250 in August.

Abrdn is currently undergoing a restructuring and cost-cutting strategy. Around 80% of revenue comes from asset management. Fees from investment funds fell 11% in the first six months of the year, which underlines the need to diversify.

RBC analyst Mandeep Jagpal isn’t convinced by turnaround plans. “[P]rofits are mainly coming from the investment vector so it’s still an asset management business at its core,” Jagpal told Bloomberg.

The 16 analysts polled by the Financial Times on 22 September offer a consensus ‘underperform’ rating, and seven MarketBeat analysts recommend a consensus ‘reduce’ as of 27 September.

Nonetheless, analysts see an upside for the abrdn share price over the coming 12 months. The 14 analysts offering targets to the Financial Times have a median target of 161.50p, an 19.5% increase from the latest close, and seven MarketBeat analysts offer a slightly higher target of 168.57p.

Emerging markets lowers Ashmore’s profits

The emerging markets investment manager reported a profit slump in its fiscal year ending in June. Pre-tax profits declined to £118.4m from $282.5m the year prior. Meanwhile, assets under management fell 32%.

The disappointing results were attributed to a “combination of geopolitical tension, high inflation figures and central banks tightening monetary policy”, which weakened investor appetite for risk.

Despite this, the Ashmore share price has recovered by 4.3% in the past month through 27 September with the company signalling that it is confident that emerging markets will rebound. As analysts at Peel Hunt explained in a note to clients seen by TipRanks, “Ashmore’s latest earnings were broadly in line with their estimates. There remain many reasons for longer-term optimism, albeit there are still clear short-term uncertainties.”

With the Ashmore share price falling 27.3% year-to-date to 207.6p on 27 September, the 12 analysts sharing stock recommendations with the Financial Times maintain a consensus ‘hold’ rating, as do five MarketBeat analysts.

Hargreaves Lansdown may struggle for growth

The Hargreaves Lansdown share price is up 8.9% in the past month at 895.6p as of 27 September, amidst a 31% decline since the start of the year. The stock has been caught up in the broader sell-off in growth stocks.

“There’s a fairly broad church of people who think that such high growth will be difficult for Hargreaves Lansdown to sustain in future,” Jefferies analyst Julian Roberts told the Financial Times.

Indeed, pre-tax profit fell 26% year-over-year from £366m to £269.2m in the 12 months to the end of June. Assets under administration fell 9% and net new business inflows dropped 37% from the year prior.

Nevertheless, analysts are generally positive about the outlook for Hargreaves Lansdown. The 20 Financial Times analysts offering recommendations as of 22 September, and seven MarketBeat analysts, offer a consensus ‘hold’ rating. The 18 analysts sharing 12-month price targets with the Financial Times have a median target of 980p, a 9.4% upside from the latest close.