Can Magellan ever stem the FUM outflows?

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share priceA man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price

Well, it’s been another month, and another ASX notice confirming fund outflows for Magellan Financial Group Ltd (ASX: MFG). 

Yesterday, we got the news that Magellan’s funds under management (FUM) continued to fall over April. The embattled fund manager reported a total FUM of $42.7 billion as of 28 April. That was down by $500 million from the $43.2 billion that the company recorded on 31 March.

This latest fall is just another notch down the ratchet for Magellan. It was only three years ago that this company was flying high, with more than $100 billion in FUM under its belt. But a devastating series of events has led to a massive loss in confidence from both investors and shareholders since 2020.

What went wrong with Magellan shares?

There was the issue of performance to start with. Magellan, as a fund manager, needs to show that it is a safe and lucrative place for clients to house their investments. But Magellan’s flagship funds have failed to consistently deliver market-beating returns for a long period of time now (more on that later).

This started before 2020, to be sure. But a series of unfortunate investments over the COVID period saw investors rapidly lose confidence in what used to be Magellan’s star stock picker Hamish Douglass.

Speaking of Douglass, and we have the second problem Magellan has had to deal with in recent years. Douglass co-founded Magellan, and for many years was the company’s investing talisman.

But Douglass dramatically walked away from the company in 2022 amid revelations regarding his personal life. He promised not to sell any of his large stake in the company, before promptly offloading large volumes of shares.   

At the same time, Magellan suffered the loss of several sizeable investing mandates from institutional clients.

All of these events culminated in Magellan sliding from more than $65 a share back in early 2020 to a low of $7.52 last month. At yesterday’s closing share price of $8.30, the company has bounced back a little. But Magellan is still a long, long way from its glory days:

So this begs the question: can Magellan ever stem the seemingly ceaseless month-on-month FUM losses?

Can this ASX 200 fund manager get its FUM back?

That’s a hard question to answer since there were so many issues that led to the company’s present predicament to start with.

But arguably, the best thing Magellan can do to stop the bleeding would be to boost the performance its investors currently enjoy.

Magellan’s flagship Global Fund has seen something of a turnaround over the past 12 months. As of 30 April, its unlisted iteration had returned 11.75% over the preceding year, outperforming its benchmark by 0.8%. But its longer-term performance still remains patchy.

Over three years, it has averaged 4.87% per annum, an underperformance of 7.88%. Over five years, it is sitting at 9.76% per annum, again undershooting the benchmark by 1.29%. And over the past decade, the returns are sitting at 12.8% per annum, missing the benchmark by 0.93%.

Investors typically like to see significant market-beating returns when they are asked to pay 1.35% per annum in management fees.

So if Magellan can keep its more recent performance up, it might just have a shot at clawing back some FUM over time. And perhaps some of the Magellan share price. But we’ll have to wait and see how it fares.


The post Can Magellan ever stem the FUM outflows? appeared first on The Motley Fool Australia.

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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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