Shares in Standard Life Aberdeen (LSE: SLA) have put in a disappointing performance this year. Since the beginning of 2018, shares in the retirement savings business have lost 37%, excluding dividends, underperforming the FTSE 100 by 31%.
So why have investors rushed to sell? Today, I’m going to take a closer look at the reasons I believe are behind the slump.
Special dividend
For starters, it’s worth pointing out that some of the recent declines are due to the company’s return of capital. Following the sale of its UK and European insurance business to Phoenix Group, the firm has returned £1bn to investors via a B share scheme. Even though the scheme (worth 34p per share) was accompanied by a share consolidation to maintain share prices at comparable levels, the value of this capital is no longer reflected in the current share price.
Struggling GARS
Then we have the problems at the group’s best-known division, its Global Absolute Return Strategies Fund (GARS). During the past two years, as equity markets around the world have churned steadily higher, GARS has struggled to produce a positive return. For the three years to October 10, the fund had provided an annualised return of -1.4% for investors.
Considering this performance, it’s not surprising that outflows are currently on track to hit a record £12bn in 2018. If this continues, Standard Life’s profitability will suffer.
Outflows
Money flowing out of the GARS strategy is only part Standard’s outflow problem. Investors are pulling money from virtually all of the group’s investment funds.
During the first half of 2018, the company suffered net outflows of around £17bn, taking overall assets under management to £610.1bn, from £626.5bn at the end of 2017.
Sector problems
Having said the above, it’s worth noting that Standard isn’t the only long-term savings manager suffering in the current environment. After recent declines, shares in the group are changing hands for 9.9 times forward earnings, which is around the same as larger peers such as Legal & General (8.2) and Aviva (7.1).
In fact, these multiples imply the stock could fall further before it looks cheap compared to peers.
Split identity
Furthermore, it would be easier to place a value on Standard’s shares if we knew what the company was. After selling the bulk of its remaining insurance assets to Phoneix, and completing the merger with asset manager Aberdeen Asset Management, the firm has been touting its position in the market as an asset-light, high return on capital asset manager.
However, after losing some significant investment mandates from the likes of Lloyds Bank and St. James’s Place, Standard looks less like an asset manager than ever before. Meanwhile, the group is still integrating Aberdeen.
It seems that while this transition is ongoing, investors have started looking elsewhere for income and growth.
The bottom line
These are the five reasons why I believe shares in Standard Life have underperformed year-to-date.
Having considered all of the above, I’m happy to continue holding onto my shares for the foreseeable future because, in my view, this company has a tremendous brand. And while it might be struggling today, I think it could only be a matter of time before the business gets back on track.
With a prospective dividend yield of 7% on offer, I’m happy to sit back and wait for the turnaround.
