All investors love a good deal, and after dropping 20% ​​in just one week, abrdn actions (LSE: ABDN) seems to me to be a serious matter.

Decline in net flows

In its third quarter update on October 24, the company shocked the market by announcing new capital outflows of £3.1 billion. For the first nine months of 2024, outflows totaled £2.1 billion.

Investment and advisory activities were responsible for the largest decline. Interactive Investor, its direct-to-consumer (D2C) offering, continues to grow and recorded net inflows of £1.2 billion during the quarter.

For too long, the company failed to stop capital outflows. In 2023, customers withdrew £13.9 billion from its funds. This followed £10.3 billion in 2022.

Passive investment strategies

There are many reasons why clients have withdrawn billions from their investments over the years. A key element for me was the rise of passive investment.

Over the past year, the S&P500by far the largest and most important index, increased by an astonishing 40%. Very few, if any, active investment managers can boast such returns.

Indeed, since the end of the global financial crisis, we have seen a steady increase in passive investment vehicles, driven by companies like Avant-garde And Blackrock.

Over a one-year period, only 23% of all active abrdn equity funds beat a reported benchmark. Over three years, this figure reaches a sad figure of 14%. Why would anyone pay a premium for active management when you can simply buy an index?

Sustainability of Passive Investing

Passive investing strategies may have overtaken active approaches over the past decade, but that doesn’t mean they will continue to do so.

Today, everyone has adopted passive investing, including large investors like institutional investors and pension funds.

The vast majority of passive investment flows are directed towards US stocks, notably the S&P 500. Foreign holdings (by non-US residents) of US stocks are now reaching record levels.

I don’t believe the trend of capital flowing into the S&P 500 is sustainable, especially when only a handful of stocks are causing all the action.

I imagine a similar situation would occur for stocks, as we have seen recently for bonds. In this country, thanks to rising yields, active managers have really started to shine. abrdn has real expertise in the bond market, which explains why 89% of its funds in this area beat the announced benchmark index over a one-year period.

A juicy dividend

Trying to catch a falling knife carries a lot of risks, but Arbdn’s falling share price has driven the price up. dividend yield at an eye-catching rate of 10.6%. But is it sustainable?

I don’t know the answer. Dividend coverage sits at a precarious 1.1 times. Nevertheless, the company has a strong balance sheet with cash and liquid resources of £1.8 billion. The company wants to see 1.5x dividend coverage before considering increasing shareholder returns.

Buying low and selling high is easy on paper, but difficult in practice. I don’t know if we’ve seen the lows, but I recently took a small position, with the intention of adding to it over time.