Schroders tipped as a 'Buy' after recent dip

Citi has upgraded Schroders PLC to 'Buy' following recent share price weakness, citing improving Q3 trends in traditional asset management, including solid European flows and a significant pick-up in active fund inflows, particularly into fixed income, reaching levels not seen since late 2021. The bank expects Schroders and other covered traditional managers to exceed consensus on flows, AUM, and earnings, positioning Schroders as a relative value opportunity despite Citi's broader preference for alternative asset managers.

Analysis

Citigroup's upgrade of Schroders PLC (SDR) to ‘Buy’ is predicated on a convergence of positive sector-wide trends and company-specific relative valuation. The analysis highlights a significant inflection in the traditional asset management sector during the third quarter, evidenced by the strongest active fund flows since late 2021, particularly into fixed income products. This macro tailwind is expected to lift all covered traditional managers, with Citi forecasting that firms like Schroders will surprise to the upside, exceeding consensus expectations for net flows, assets under management (AUM), and quarterly earnings. Despite a nearly 20% year-to-date appreciation to 390.4p, Schroders' recent share price weakness since August positions it as a relative laggard compared to peers that have already re-rated, creating a tactical entry point. This opportunity is underscored by Citi's contrasting 'Neutral' ratings on peers Aberdeen Group and Man Group. However, the recommendation is qualified by Citi's stated strategic preference for alternative asset managers, which are perceived to offer stronger long-term growth potential for only a modest valuation premium.

Key Decisions for Investors

• Investors may consider initiating or adding to positions in Schroders (SDR) to capitalize on its status as a relative value laggard within a recovering traditional asset management sector.
• Monitor Schroders' upcoming quarterly results closely for confirmation of the expected beats on net flows, AUM, and earnings, which would validate the core of Citi's thesis.
• While pursuing this tactical opportunity in Schroders, maintain awareness of Citi's broader strategic preference for alternative asset managers, suggesting this may be a cyclical trade rather than a long-term structural allocation.