Australian Ethical Shares Flat as FUM Drops 3%

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Australian Ethical Investment [ASX:AEF] shares were flat today after the company issued earnings guidance for FY2022 as FUM (funds under management) fell 3%.

AEF, the ethical investment manager, today released a brief business update along with a guidance note.

AEF expects underlying profit after tax (before performance fees) for the year ending June 2022 to be between $9.8 million and $10.2 million.

AEF saw its stock soar in 2021 before plunging in 2022 as investors unloaded risk and exited frothy positions.

Year to date, AEF is down 65%.

ASX:AEF Australian Ethical Investment stocks chart

Source: Tradingview.com

AEF provides guidance as FUM drops

This morning, Australian Ethical provided earnings guidance for the 2022 financial year, based on unaudited managed accounts.

Underling Profit after Tax (UPAT) is expected to be between $9.8 million and $10.2 million, a 9% increase on FY21, excluding performance fees.

AEF said performance fees on its ‘Emerging Companies Fund’ and the ‘High Conviction Fund’ will ‘only crystalise on 30 June 2022’.  

The FY22 profit guidance means AEF is trading at a P/E of around 50.

AEF’s funds under management were $6.64 billion at 31 May, down 3% from 31 March.

The fund manager attributed the fall to ‘volatile markets’.

AEF also noted that the decrease in April and May was driven ‘primarily by negative investment performance of $340 million’.

Despite the negative investment performance, AEF reported positive net inflows for the period 1 April to 31 May of $150 million, partly offsetting the investment losses.

Net flows for the financial year to 31 May were $990 million, compared to $914 million in the prior comparative period.

AEF flags client redemption

Australian Ethical notified on Thursday that one of its institutional clients will be redeeming its $340 million investment in AEF’s Balanced Fund via several staged redemptions expected between now and November 2022.

The $340 million redemption represents about 1.7% of AEF’s annual revenue for its 2022 financial forecast.

AEF commented:

Whilst this redemption will impact Australian Ethical FUM in the near term, overall solid FUM growth is still expected in FY23 following continued investment in product and channel development, as well as the rising demand for authentic investing.

AEF share price outlook

AEF’s FUM has taken a hit over the past couple of months.

Investor mood has clearly been soured by inflation, interest rates, and recession fears.

CEO of Trillium Asset Management Matt Patsky thinks the ESG sector is resilient enough to withstand the current sell-off:

In each of the downturns in the past…(ESG funds) have not seen significant withdrawals, which is not true for a lot of other different styles. I think when we look through the bull market cycle, we will continue to see more money move in this way.

Now, while stocks may be beaten down right now, the long-term trends that fuelled AEF’s surge in 2021 aren’t going away.

Take renewable energy.

Rising energy prices have elevated the importance of securing one’s energy independence. And renewables are a great means to that end.

So, if you’re interest in the renewables megatrend, I suggest you check out our resident renewables expert Selva Freigedo’s research report.

Read Selva’s thoughts on the role renewable energy has to play, and how you can use that to play the green energy theme.

 

Regards,

Kiryll Prakapenka,

For Money Morning

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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