UBS downgrades Standard Life due to GARS fund outflows

24th Jan 2017 09:45

(ShareCast News) - UBS downgraded Standard Life to 'sell' from 'neutral' and lowered its price target to 310p from 320p on expected earnings pressures from increased outflows from Standard Life Investments.The Swiss bank changed its rating on its expectation that earnings pressure will emerge in 2017 on SLI due to increased asset outflows from its flagship £42bn Global Absolute Return Strategies (GARS) fund, which is sold on its aim to provide positive investment returns in all market conditions over the medium to long term.The insurer's share performance is strongly linked to flows and performance of GARS but the fourth quarter of 2016 is estimated to see net outflows increase to around £3bn (including a large UK outflow) compared to the £1.5bn the the third quarter last year.According to UBS analysts GARS outflows are being particularly caused by structural trends that will be difficult to reverse at least in the near-term.This includes current performance below its benchmark, fund size constraining scope for longer-term investment outperformance, pension consultants putting the fund on 'watch' and risks to industry multi-asset flows which could fall toward 2013 levels potentially.The total forecasted multi-asset outflows are £3.9bn for the full year 2016 and £6bn over the full year 2017 resulting in earnings growth of 4%, which is half that of consensus. The bank expects good progress on costs but feels falling revenue will put pressure on ratios.UBS is however positive on asset growth of 8% per annum to 2018 for UK Life and that the company's 24.1% stake in merged HDFC Life and Max Life could be a source of upside over the medium term.The earnings per share estimates for 2017 fell by 9% to 27.28p.Standard Life's share price fell by 2.76% to 341.47p at 1057 GMT on Tuesday.