Day: August 11, 2022

Is the Magellan share price caught in a death spiral?

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today

What a sorry story the Magellan Financial Group Ltd (ASX: MFG) share price has been for investors over the past few years. It was only back in early 2020 that this ASX 200 fund manager was hitting all-time highs of over $74 a share.

Today, Magellan closed at $15.32 a share, up 3.51% for the day.

Sure, Magellan has bounced lucratively (around 30%) off of its 52-week low of $11.10 over the past month or so.

But the company is still down by almost 20% in 2022 alone, and by 66% over the past 12 months. It’s also down around 80% from the all-time high of February 2020.

Fi fi fo FUM

Unfortunately, the problem Magellan is having is arguably structural. As a fund manager, Magellan’s bread and butter is funds under management (FUM). A fund manager like Magellan manages its client’s money on their behalf. But for this privilege, it clips the ticket.

Typically, funds like Magellan charge fixed fees on the total capital invested, plus a performance fee if the fund’s performance exceeds its benchmark.

Thus, the only real way for a fund manager like Magellan to grow its earnings over time is by either delivering consistent outperformance or growing its FUM.

If it can do both, it can unlock a flywheel effect, where investors are drawn to the manager for its ability to deliver outsized returns, thus increasing FUM.

But unfortunately for this company, the inverse scenario, which one could pessimistically call a ‘death spiral’, seems to be occurring.

Back in February 2020, Magellan reported that its FUM stood at $104.31 billion.

Last week, the company reported its FUM, as of 31 July, was just $60.2 billion, having slid around $1 billion from the prior month.

The reasons for this loss of confidence from investors are many. We have the dramatic departure of Magellan co-founder Hamish Douglass to consider. As well as the loss of several high-profile investment mandates, such as the one from St James’ Place.

What’s gone so wrong with the Magellan share price?

But the root of Magellan’s problems arguably comes from the performance of its funds themselves.

Take the company’s flagship Global Fund. As of 31 July, the Magellan Global Fund has lost 9.8% over the preceding 12 months, against its benchmark’s (the MSCI World Net Total Return Index) loss of 4.31%.

Over the past three years, this fund has averaged a performance of 2.83% per annum, trailing the benchmark’s average of 9.13%. Over ten years, the fund has averaged 14.01% against the MSCI’s 14.83%.

That’s probably enough to prompt investors to ask what they are paying a management fee of 1.35% per annum for.

Magellan’s High Conviction Fund, which investors pay a fee of 1.5% per annum to invest in, hasn’t done much better. It’s averaged a negative return of 0.46% per annum over the past three years. 

So we have underperforming funds, and ongoing bleeding of FUM – perhaps an inversion of the flywheel effect we discussed earlier.

It’s too soon to say if Magellan is in such a ‘death spiral’. But unless the company can boost its funds’ returns, it could struggle to attract additional FUM going forward.

At the current Magellan share price, this ASX 200 fund manager has a market capitalisation of $2.83 billion, with a price-to-earnings (P/E) ratio of 8.5.

The post Is the Magellan share price caught in a death spiral? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

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*Returns as of August 4 2022

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Down 20% in 6 months, what’s next for the BHP share price?

Young woman using computer laptop with hand on chin thinking about question, pensive expression.Young woman using computer laptop with hand on chin thinking about question, pensive expression.

The BHP Group Ltd (ASX: BHP) share price has suffered a sizeable drop over the last six months, falling by around 20%.

Considering the massive size of the BHP market capitalisation, the 20% drop represents a large fall in dollar terms.

But, can things turn around quickly or will BHP shares be in the doldrums for some time?

Don’t forget, BHP no longer owns a petroleum division, so it’s not benefitting from the high prices and useful cash flow.

When it comes to commodity ASX shares, they are heavily reliant on the resource price. A rise in the resource price can largely add to profit, which can then help the share price.

But, the opposite has been happening with the iron ore price, which has dropped substantially in the last few months.

According to reporting by the Australian Financial Review, analysts at Morgan Stanley are not confident about iron ore this year

Will there be an iron ore recovery for BHP?

In possible bad news for the BHP share price, Morgan Stanley commodities strategist Marius van Straaten said:

We see little reason to be bullish on iron ore into year-end. Any real rebound in the iron ore price hinges on a China-led steel demand recovery.

One of the biggest questions for iron is what happens with steel in China. As reported by the AFR, Chinese property construction accounts for around 40% of steel demand. June property starts were down 45%.

It has also been reported that mortgage arrears are increasing on properties currently being constructed in China. Borrowers don’t want to pay when no progress is being made on the construction of their property.

Van Straaten said:

While this latest situation might be contained and property activity might not slow further from current levels, there are as yet no signs of a meaningful recovery.

Low steel profit margins may also have been hurting steel production within the Asian superpower. But, the AFR reported that Macquarie has pointed out that steel margins have been improving recently thanks to rising steel prices and a weaker iron ore price.

Is the BHP share price an opportunity?

Part of the investing thoughts about BHP at the moment include the attempt to buy OZ Minerals Limited (ASX: OZL) with a cash bid of $25 per share.

As reported by my colleague Tony Yoo, the broker Morgans said:

If nothing else, this development should reduce any concern that BHP might have been considering a larger, more transformative acquisition.

There has been a consistent fear from some that history would repeat itself and BHP eventually [becomes] attracted to a +$100 billion acquisition/merger at a high point in the cycle. Instead, BHP has remained on-strategy and focused.

Morgans’ price target of $48.40 on the BHP share price suggests a bounce back over the next 12 months of more than 20%.

Macquarie is another broker expecting good things for BHP shares with a price target of $48. That also implies a rise of more than 20%.

However, UBS is much less optimistic. It’s ‘neutral’ on the business, with a price target of just $35.50. That implies a further drop of around 10%.

The BHP share price closed 2.22% higher on Thursday at $39.15.

The post Down 20% in 6 months, what’s next for the BHP share price? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

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*Returns as of August 4 2022

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Here are the top 10 ASX 200 shares today

Blue light arrows pointing up, indicating a strong rising share priceBlue light arrows pointing up, indicating a strong rising share price

The S&P/ASX 200 Index (ASX: XJO) regained its composure today, surging higher led by discretionary and real estate shares. The index closed 1.12% higher at 7,071 points on Thursday.

Only one sector finished in the red today. The S&P/ASX 200 Utilities Index (ASX: XUJ) plunged 1.5%, weighed down by the share price of APA Group Ltd (ASX: APA), despite the company’s silence.

Meanwhile, the S&P/ASX 200 Consumer Discretionary Index (ASX: CDJ) led the gains, leaping 2.2%.

It might have been boosted by news out of the US. Inflation in the nation slowed in July, likely leading some to hope the Federal Reserve might slow its approach to rate hikes.

Perhaps unsurprisingly, the news seemingly brought joy to Wall Street. The Dow Jones Industrial Average Index (DJX: .DJI) and the S&P 500 Index (SP: .INX) lifted 1.6% and 2.1% respectively overnight while the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) rose 2.9%.

That likely helped the S&P/ASX 200 Information Technology Index (ASX: XIJ) rise 1.3% today while the S&P/ASX 200 Real Estate Index (ASX: XRE) gained 2% amid earnings from GQG Partners Inc (ASX: GQG).

But which share outperformed all others on Thursday to take out the top spot among its ASX 200 peers? Keep reading to find out.

Top 10 ASX 200 shares countdown

Today’s top performing ASX 200 share was none other than – drum roll please – lithium favourite Lake Resources N.L. (ASX: LKE). The stock gained 21% today despite no news being released by the company. Find out what’s been going on with Lake Resources lately here.

Today’s biggest gains were made by these ASX shares:

ASX-listed company Share price Price change
Lake Resources N.L. (ASX: LKE) $1.595 20.83%
Life360 Inc (ASX: 360) $5.38 13.26%
City Chic Collective Ltd (ASX: CCX) $2.35 12.98%
Novonix Ltd (ASX: NVX) $3.27 10.85%
Block Inc (ASX: SQ2) $126.40 8.42%
Pinnacle Investment Management Group Ltd (ASX: PNI) $11.47 7.2%
Pointsbet Holdings Ltd (ASX: PBH) $3.80 6.44%
Seek Limited (ASX: SEK) $24.64 5.43%
Netwealth Group Ltd (ASX: NWL) $13.61 5.1%
Brainchip Holdings Ltd (ASX: BRN) $1.16 4.98%

Our top 10 ASX 200 shares countdown is a recurring end-of-day summary to let you know which companies were making big moves on the day. Check in at Fool.com.au after the weekday market closes to see which stocks make the countdown.

The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

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*Returns as of August 4 2022

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc., Life360, Inc., Netwealth, PINNACLE FPO, and Pointsbet Holdings Ltd. The Motley Fool Australia has positions in and has recommended APA Group, Block, Inc., Netwealth, and PINNACLE FPO. The Motley Fool Australia has recommended Pointsbet Holdings Ltd and SEEK Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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What does CommBank’s latest update mean for NAB shares?

A woman looks questioning as she puts a coin into a piggy bank.

A woman looks questioning as she puts a coin into a piggy bank.

Commonwealth Bank of Australia (ASX: CBA) is the only major big four bank share to release its annual result this month. But what did the result mean for National Australia Bank Ltd (ASX: NAB) shares?

Investors may think that the big four ASX banks of CBA, NAB, Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are all roughly the same. They are pretty similar, lending is the key profit driver. But, they are somewhat different.

If a potential borrower needs a mortgage they need to pick one bank. A gain of market share for one bank could mean the loss of market share for another.

And why would CBA’s result matter for NAB shares? Well, investors may want to take note of the strong growth that CBA is seeing in one particular area, which NAB is known for.

CBA’s growth to impact NAB shares?

NAB has a reputation as being a business bank.

CBA is more focused on household lending. But, the FY22 result showed that CBA is growing quickly in the business sector.

The biggest bank reported that its business lending grew by 13.6%, or $15.4 billion. This was 1.3 times the growth rate of the total system.

The amount of business deposits grew at an even faster rate, rising by 15.1% or $23.9 billion in dollar terms. That was 1.4 times the growth rate of the overall banking system. CBA also said that during FY22, its business lending margins increased.

CBA said that it is focused on continuing to differentiate its transaction and merchant banking propositions, and digitising the business banking experience. The bank said it wants to be Australia’s “leading business bank”. CBA said:

Our business banking strategy is centred around the quality of our customer relationships and being their main financial institution. We are proud of the strong customer relationships we have developed through the strength of our transaction banking, business lending and merchant offerings.

Our focus is to deepen these relationships by partnering with our customers and proactively meeting more of their needs. This, combined with our superior customer experience and leading physical and digital distribution, will allow us to exceed customer expectations and deliver sustainable growth and outperformance.

CBA also said that it wants to be at the forefront of how Australian businesses pay and get paid.

How bad is this for NAB shares?

Well, time will tell. CBA isn’t specifically targeting NAB with this initiative. There are more lenders out there than just CBA and NAB.

There could be enough of a business lending market for both CBA and NAB to do well.

NAB said in its FY22 half-year result that its business lending increased from $220.8 billion at September 2021 to $237.1 billion in March 2022. NAB’s third quarter report also showed more business lending growth.

In NAB’s quarterly update, its cash earnings grew by 6% year over year. It was an increase of 10% of cash earnings before tax and credit impairment charges.

Management confident on the future

With the release of the FY22 third quarter, NAB CEO Ross McEwan said:

We have a clear strategy and executing this with discipline is our key priority. We will continue to focus on getting the basics right, managing our bank safely and improving customer and colleague outcomes to deliver sustainable growth and improved shareholder returns.

The post What does CommBank’s latest update mean for NAB shares? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of August 4 2022

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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