Despite generally being less volatile than some US stocks, there are still plenty of FTSE shares that carry significant risk. And some of these businesses are even in the FTSE 100.
If the reward is sufficiently large, taking a high risk can be a prudent move. But for more conservative investors, avoiding the highest-risk stocks can be a good way not to have sleepless nights. With that in mind, let’s explore some of the worst offenders, according to institutional analysts.
Risky FTSE shares
The level of risk associated with an investment is constantly changing. But as of July, the least favourite businesses among institutional investors are:
- Aberdeen Group (LSE:ABDN)
- Antofagasta
- WPP
- Bunzl
- Ocado
Unsurprisingly, looking at the 12-month performance of each of these stocks doesn’t paint a pretty picture. That’s because they’re all down by double digits, with the sole exception of Aberdeen Group (formerly abrdn). The asset management firm is actually up by around 20% since July last year, suggesting the company’s overcoming whatever challenge institutional investors have identified.
Investigating Aberdeen Group
There’s not a lot of love surrounding this company right now. The rising popularity of index funds is putting a lot of pressure on the group’s fees. And the impact of this is only being amplified by increasing levels of competition.
To make things worse, clients have been steadily withdrawing their funds over several years – a trend whose roots lie back in the botched 2017 merger between Standard Life and Aberdeen Asset Management.
With the company being squeezed from multiple directions, there’s a lot of uncertainty regarding its long-term potential. And that’s ultimately translated into 50% of the institutional analysts covering the stock issuing a Sell recommendation.
That certainly paints a dire picture. However, despite the high-risk profile, there are some positives worth exploring. Client outflows are a persisting problem. Yet, the rate of withdrawals has started to slow, with cash flows inching closer towards stability.
At the same time, 2024 marked the end of a three-year streak of underlying earnings decline. This paved the way to better dividend coverage, allowing management to maintain its already impressive 7.5% yield. And if these recovery trends continue into 2025, the negative sentiment surrounding Aberdeen could start to change.
The bottom line
All things considered, Aberdeen Group is indeed a high-risk investment right now. We appear to be at the start of a potential turnaround, but there are still substantial structural issues that have yet to be properly fixed. And it’s unclear whether management will be able to attract new and previously lost clients back into the fold. That’s why I’m sitting on the sidelines for now, even with a tempting dividend yield on offer.
What about the other FTSE shares on this list? They too have their own operational and macroeconomic challenges to overcome. But just like with Aberdeen, investors must dig deeper into why the risk is considered to be high and determine whether it’s still worth taking in the long run.
