Chief Executive Michael Dobson said retail clients who took fright at June's market sell-off - triggered by worries that the U.S. Federal Reserve would withdraw its stimulus measures - had since largely returned to its range of funds in July.

"Most of the flows out were in retail. We've seen a lot of that bounce back in July," he told reporters after Schroders unveiled its first-half results on Thursday.

But investors focused on the 1.1 billion pounds of outflows in the second quarter, which combined with a negative investment performance left assets under management at 235.7 billion pounds, against an analyst consensus forecast of 237.9 billion pounds.

Shares in Schroders, which hit an all-time high two weeks ago, were down 7.1 percent at 2,325 pence by 8.50 a.m. British Time.

"Sharp equity market moves or evidence of large outflows, particularly in high margin intermediary, are the greatest risks to our (2,460 pence) target price," Societe Generale analysts said in a note.

PROFITS RISE

Across the half-year, net inflows still topped 4.5 billion pounds after a strong first four months of the year for Schroders.

Profit before tax and exceptional items rose to 228 million poundsfrom 177.4 million a year earlier on the back of more client money and rising fee incomes.

Schroders said it would increase its dividend by 23 percent, following a raft of fund management firms that have used rising profits to increase payouts to shareholders.

This reflected the FTSE 100-listed firm's confidence in its financial performance and expansion plans, Dobson said.

He said that, while investors remained perceptive to central bank policy shifts, markets remained broadly positive for equity investing.

Bank of England governor Mark Carney's forward guidance on the path of interest rates published on Wednesday was on balance positive, Dobson said, and improved the backdrop for equity investing.

"It does give investors and companies the opportunity to look forward and make some asset allocation calls with a significantly longer-time horizon," he said.

(Reporting by Tommy Wilkes and David Brett; editing by David Holmes and Tom Pfeiffer)

By Tommy Wilkes