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Investors hunting for high-income opportunities often overlook the FTSE 250, wary of the index’s mid-cap volatility. Yet for those investors willing to dig a little deeper, there are many constituents that have proven business models. And don’t forget some will eventually be promoted to the premium FTSE 100. Could this stock be one of them?
Stock under pressure
Despite rising 62% since April, Aberdeen (LSE: ABDN) remains 67% below its 2015 highs. The culprits are structural challenges in its Adviser division and the long-term shift in asset management from traditional active funds to passive strategies.
Today, more than half of all global capital is invested in index funds or ETFs, many tracking the S&P 500 – especially the so-called Magnificent 7 stocks. This trend has made life tougher for traditional active managers that rely on differentiated strategies to attract clients.
The asset manager’s historical strength has been in emerging markets, particularly Asian equities. Unfortunately, this sector has lagged in recent years, weighed down by economic slowdowns in China and the fallout from its housing market crisis.
Fund outflows
The Adviser division has been the main source of pressure on the stock, but recent results show a clear improvement.
In H1, net outflows totalled £900m – still significant, but 55% lower than the same period last year. The trend continued into Q3, where quarterly outflows halved to £500m, reflecting steady progress over the last several quarters.
Two key initiatives are driving the turnaround. First, the fund portfolio was repriced to improve competitiveness, particularly against low-cost alternatives. Second, investments in client experience, including an improvement in service levels, are helping retain and attract independent financial advisers (IFAs).
The division now serves nearly half of all UK IFAs. With strategic pricing and stronger client relationships, the business is clearly on a path to stabilise flows and rebuild this core segment into a sustainable, long-term growth driver.
Interactive investor
Bucking the broader market trend, interactive investor (ii) has become the group’s hidden star, driving growth while other divisions face pressure.
Retail investor interest is surging, with total customer numbers rising 14% year on year to 492,000, including around 20,000 from its recent Jarvis acquisition. SIPP accounts have hit a record 98,000, up 29%, showing growing demand for self-directed retirement solutions.
Activity is booming. In Q3, daily average trades jumped 43% to 26,600, while assets under management and administration rose 20% to £93bn from a year earlier. With growth like this, it’s little wonder that ii has quickly become a serious challenger to Hargreaves Lansdown in the direct-to-consumer market.
Passive income star
Recovery in the Adviser division, coupled with surging momentum at ii, helps explain why the dividend remains well supported. With a headline-grabbing yield of 7.5%, the shares continue to offer a sizeable income distribution while the business works to stabilise and expand its core divisions.
Dividend growth is unlikely before 2027. Yet I calculate that an investment could more than triple over the next 15 years, assuming 2% annual share price growth and a 2% increase in dividends after 2027. Reinvesting payouts creates a compounding effect that magnifies long-term returns.
This combination of yield and improving fundamentals helps explain why the shares continue to attract my attention. Even so, they sit within a broader landscape of options across the market, many of which also offer potential for income-focused investors to consider.
