FUM increasing despite outflows still occurring

Outflows continuing for Magellan

Outflow: 2.0 Billion ....Not 2 shillings ha ha ..Not feeling the love here.

Return (inc div)   1yr: -31.02%   3yr: -45.53% pa   5yr: -18.94% pa

Board:

Andrew Formica

Chairman and Non-Executive Director

Andrew Formica was appointed as a Non-Executive Director on 26 July 2023. Andrew was appointed Chairman on 18 August 2023.

Read more

Ouch. I'm struggling to see when they can turn this around.

CEO David George has purchased a bunch of MFG and associated funds on-market.

The MFG purchase is ~ $250,000, so that is good to see.

Chris Mackay selling 6.6pc stake in Magellan, worth circa $112 million. No reason stated in the AFR article.

Source: AFR

Disc. held IRL. Still making massive amounts of paper losses and always questioning my life choices...

Cost to income ratio (excluding performance fees) of 36.4% during the period FY23 Funds Management business operating expenses of $121.3 million below guidance range of $125- $130 million

— Included $15.4 million expense for staff cash retention payments and costs associated with the organisational realignment announced in March and October 2022 respectively FY24 expense guidance of $95-$100 million, demonstrating continued disciplined approach to managing costs in line with the size of the business 

MAGELLAN FINANCIAL GROUP LIMITED (ASX:MFG) - Ann: FY23 Results Presentation, page-1 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

The 'Rock star is Back' Stock trend is up despite the losses across the board

Return (inc div)   1yr: -21.32%   3yr: -42.16% pa   5yr: -13.75% pa

...................................Dec 2022........Aug 2023..................June 2023................FJune 2024

• some cash flow for a dividend: Forecast Ex Div Date: 22/08/2023 (4 days away)

06-July-2023: Funds-Under-Management-and-Performance-Fee-Update--June-2023.PDF

Not what we wanted to see, in terms of further FUM outflows. However, the distribution amount and the performance fees earned are not too bad. Compare that to one year ago (the same notice for the FY ended June 30, 2022):

08-July-2022: Funds-Under-Management---June-2022.PDF

Comparisons:

June 30 FY23, vs June 30 FY22, movement (%):

Global Equities: $19.1 billion vs. $33.3 billion -42.6%

Infrastructure Equities: $16.1 billion vs. $20.1 billion -19.9%

Australian Equities: $ 4.5 billion vs. $ 7.9 billion -43.0%

Total FUM: $39.7 billion vs. $61.3 billion -35.2%

Note: Total FUM change (%) includes both flows (inflows and outflows) and investment performance.

July Distribution: $ 0.3 billion vs. $ 0.4 billion -25%

Performance Fees: $11 million vs. $11 million Same

Hopefully the columns above will survive in both the PC and App (mobile device) versions of Strawman.com.

My takeaway from this is that we should expect lower dividends than last year, even though the performance fees earned are the same, because the base management fees would be lower, because they are based on less FUM (funds under management). However, I'm happy to continue to hold MFG shares because I think they can still turn this around.

I don't think they're going back to $60/share any time soon, but I think they can get back closer to $20 than $10, given time.

The market does not like today's announcement, clearly, and that is to be expected, because after their outflows had slowed and their insto flows were flat in May, they saw $1.7 billion of insitutional outflows in June. Not what we want to see. It means the IT (investment thesis) could take longer than expected. Assuming it does play out.

They did have a little run-up recently, and the Sandon Capital (SNC) presentation would have been part of the reason behind that rally, but today's FUM, Fees & Distributions announcement provides a bit of a reality check, in terms of where they are now.

Note: The July Distributions ($0.3 billion this month) are to the unitholders of the funds that MFG manage, rather than MFG dividends. The MFG dividends will be declared later and will be based on fees earned (base fees plus performance fees) and their available cash (which is a significant amount of cash currently).

Disclosure: I hold MFG and SNC shares in real life, but not here on SM.

06-June-2023: Funds-Under-Management---May-2023.PDF

Better! No insto outflows and small amount of retail outflows - in the context of their overall FUM of $41.4 billion. Plus a little loss on share price movements during May. Not too bad. The brakes are on. They've almost come to a stop. Now for the turnaround.

Disclaimer: I hold MFG in one RL portfolio and I also hold MGF (MFG's flagship global equities fund) in the small portfolio I manage for our two children. I have MFG (the manager) under review currently. I want to see these FUM outflows stop and some inflows begin, but I understand that could take some time. It's a confidence thing, and there are plenty of reasons why people have lost confidence in Magellan.

I'm probably being too patient.

Expanding on the straw by @occy

Net institutional fund outflows of $3.9 billion over March, from two Airlie Funds Management clients ending their mandates.

• Industry superannuation fund HESTA and
• Second unknown second fund 

Disc: Still held IRL (now wondering why the HECK am I still holding??)

Source: AFR

Magellan Half Yearly Update:

06-Feb-2023: Funds-Under-Management---January-2023.PDF

The FUM outflows appear to be slowing - due to a good January from an investment return perspective, MFG have reported increased FUM this time (up +$0.9 billion to $46.2 billion) despite net outflows of $0.5 billion, which included net retail outflows of $0.3 billion and net institutional outflows of $0.2 billion.

Better!

Not sure if this one has been posted yet, but the founder selling a block at a discount to NAV. Where to even start with this one.

https://www.afr.com/street-talk/hamish-douglass-sells-118-3m-magellan-financial-stake-20221107-p5bw82?utm_medium=social&utm_campaign=nc&utm_source=Facebook&fbclid=IwAR2cXkRb0e1SHdyycboXg2TCOyk8IBobN0NgmTf0Rka7hzzIjU0ylISrpaM#Echobox=1667808496

On this day 500 years ago (6 September 1522) Magellan’s ship Victoria returned to Spain after an epic three year voyage. Magellan’s ship was the first to circumnavigate the world, first to make the European Pacific crossing, and first to navigate from the Atlantic to the Pacific via the Strait of Magellan.

The fleet initially consisted of about 270 men and five ships. The expedition faced numerous hardships including Portuguese sabotage attempts, mutinies, starvation, scurvy, storms, and hostile encounters with indigenous people.

Only 30 men and one ship (the Victoria) completed the return trip to Spain. Magellan himself died in battle in the Philippines, and was succeeded as captain-general by a series of officers, with Elcano eventually leading the Victoria's return trip (Wikipedia).

Exactly five hundred years later and the fund manager Magellan returns it’s FUM report after a chillingly similar 3 year voyage. Magellan became a market darling in February 2020, it’s share price peaked at $73.67, and it’s FUM reached $110 billion late last year.

Then Magellan was plagued by numerous hardships; underperforming the benchmark, losing it’s largest client (St James Place), losing its captain, and continually haemorrhaging FUM. During August Magellan’s FUM fell a further 4.3% to $57 billion, about half of it’s record FUM late last year.

I’ve been aboard Magellan for too long. This week I jumped ship and boarded it’s rival Perpetual, who’s share price is also suffering, down 45% since it’s peak. The difference is analysts are forecasting Perpetual’s earnings to grow by nearly 12% per year over the next 3 years, and analysts are forecasting Magellans earnings to fall by 25% per year.

The other attraction is, Magellan has just paid it’s dividend (today) and Perpetual will go ex-dividend on Thursday (8 September) and pay a 97cps fully franked dividend on 30 September. The current dividend yield for Perpetual is 7.3% fully franked.

So, by jumping ship you can double your dividends for your investment, and get on board a what I believe is a more seaworthy vessel. If there are crew mates out there with similar thoughts, you will need to jump ship tomorrow if you want to double your dividends for the half year!

Perpetual has 46% upside says Bell Potter

James Mickleboro from the Motley Fool shared a note out of Bell Potter on 30 August (below):

“The team at Bell Potter are positive on the fund manager and believe its shares could bounce back very strongly.

According to a note, the broker has retained its buy rating and lifted its price target on the company’s shares to $39.80.

Based on the current Perpetual share price of $27.25, this implies potential upside of 46% for investors over the next 12 months.

The broker is also forecasting a dividend yield of approximately 7.5% in FY 2023, stretching the total potential return beyond 50%.”

Cheers

Rick

AFR have taken a flamethrower to Hamish Douglass this morning! I have to say that for me, most of it rings pretty true. MFG management needs to get creative in order to restore shareholder value. The Magellan name is now trash and some decisive action is needed. Article Below:

Magellan Financial Group released its FY22 accounts on Wednesday.

These revealed that upon the resignation of co-founder Hamish Douglass as chief investment officer in June (though he’d been on a medical leave of absence since February and quit as a director in March), Magellan’s board paid him $2,499,000, a clean $1000 below the statutory threshold for a shareholder vote.

Magellan Financial Group chairman Hamish McLennan is so confident that Douglass’ retainer is good value for the company, why not tell shareholders what it costs? Oscar Colman

Golden handshakes exceeding one year’s base salary require AGM approval and Douglass’ fixed annual remuneration was $2.5 million.

“Although Mr Douglass ceased to be [key management personnel] on 19 March 2022,” went a self-congratulatory note to the directors’ report, “his remuneration for the entire period of employment up until his resignation on 15 June 2022 is included in this [report] for purposes of transparency.”

But what about the terms of his consulting agreement? On June 9, Magellan announced that Douglass would “cease to be a permanent member of Magellan’s staff” the following week and that on October 1, he would commence as a consultant to Magellan, providing “valuable investment insights, including geopolitical and macroeconomic views”.

For all its (empty) talk of transparency, Magellan has never disclosed the economic value of this consulting agreement, which is clearly a collateral benefit of Douglass’ termination. It was a design feature of his exit package! Absent his resignation, it would never have been entered into.

The 2009 words of then treasurer Wayne Swan ring in our ears. “We will also broaden the definition of ‘termination benefit’ to catch all types of payment and rewards given at termination”.

Swan’s and Chris Bowen’s amendments to section 200B of the Corporations Act put “any payment or other valuable consideration” into the 12 months’ base salary limit for departing public company officers.

This law is routinely flouted by companies because the Australian Securities and Investments Commission – just for a change – has never enforced it. Executives have only been forced to return termination overpayments in rare instances where the companies themselves, after a change of control, have sought through the courts to claw them back.

This is an incredibly bad look for Magellan’s feckless board of directors, whose longstanding indulgence of Douglass seeded the staggering shareholder value destruction wrought in FY22. Contrary to chairman Hamish McLennan’s February depiction of a “wonderful opportunity to reset Magellan”, the continued precedence of Douglass’ interests over other stakeholders’ proves that, actually, nothing’s changed.

The board has enacted the tortured pretence of extracting Douglass while still keeping him around. If McLennan is so confident that his retainer is good value and a positive arrangement for the company, why not tell shareholders what it costs? In Magellan’s own words, “for purposes of transparency”.

Douglass’ aptitude was never geopolitical; it was in charging mug punters 135 basis points per annum to hold KFC shares.

An entirely reasonable argument could be made that his macroeconomic insights are, at best, worthless. More likely they carry a negative value. It could well be argued that paying Douglass for those insights, and letting him bask in the misplaced intellectual satisfaction of marketing them, is an act of madness after his gross hubris crashed Magellan and he left on the first lifeboat.

The Magellan executives who stayed behind to right the sinking ship will be shell-shocked by the sight of Douglass swanning back in to collect his pay as a consultant (during his paid notice period) when, through the company’s ghastly loan-funded share scheme, they owe their employer $33.5 million for Magellan shares now worth less than $20 million.

You might ordinarily have some compassion for Douglass, ill-equipped emotionally for anything but unqualified public laudation. What doesn’t evoke compassion is his greed.

Given what he’s inflicted upon the (other) shareholders of this company, what was he thinking exercising his right to a $2.5 million severance cheque?

We know the price of horse feed is rising steeply at the Douglass equestrian centre, but couldn’t he eke out an existence on the $40 million of dividends thrown off this year by his Magellan stock (nearly half of which he was given for free!) or the $10 million of shares he sold in June?

Douglass has been comprehensively found out. The world knows he is not an investment genius. His facade of frugality and self-denial has been shattered. None of this ludicrous shtick plays any more, so he’s just taking as much loot off the table as he possibly can.

It’s abject stuff from the high priest of an investment house built on an endless stream of hollow superlatives, where everything was always the best, of the highest quality, or world class. The only superlative resonating with Magellan investors now must be the first-rate fools they feel like.

19-July-2022: Magellan-Financial-Group-Limited---Board-Change.PDF

plus: Magellan-InReview-2022.PDF

Magellan Financial Group Limited is pleased to announce the appointment of Mr David George to the Board of the Company as well as the Board of Magellan Asset Management Limited (the main operating subsidiary) effective today with the commencement of his employment.

Mr. George’s commencement date with Magellan and his appointment to the Board were announced previously to ASX on 11 May 2022 and 9 June 2022.

Chairman Hamish McLennan said “We welcome David to the Board of Magellan in his role as CEO and Managing Director of the Company. His investment management experience brings deep expertise and a fresh perspective to the Board”.

Mr David George commented “I am excited to join Magellan as CEO. This is an important period for Magellan to demonstrate value to clients and shareholders, and I am confident we will deliver the strategy and strong investment performance to support this. I look forward to working with the Magellan Board as we restore growth to the business”.

Mr George’s biography is outlined in the attached appendix. A summary of the Board and its associated committee members is also attached.

---

About Magellan

Magellan Financial Group is a specialist funds management business established in 2006 and based in Sydney, Australia. Magellan’s core operating subsidiary, Magellan Asset Management Limited, manages approximately $61 billion of funds under management at 30 June 2022 across its global equities, global listed infrastructure strategies and Australian equities strategies for retail, high net worth and institutional investors and employs approximately 140 staff globally. Magellan is listed on the Australian Securities Exchange (ASX Code: MFG). Further information can be obtained from www.magellangroup.com.au.

Appendix

Mr David George

CEO and Managing Director

David joined Magellan in July 2022. As CEO and Managing Director he has overall responsibility for Magellan’s operations, including its investment functions.

Prior to Magellan, David’s career spans over 20 years in institutional investment management across analytical roles, investment management and organisational leadership in Australia and Canada.

Most recently, David spent 14 years at the Future Fund (Australia’s Sovereign Wealth Fund). This included roles evaluating and investing alongside external investment managers, leadership of a sector team, and finally as Deputy Chief Investment Officer, Public Markets with responsibility for equities, credit, derivative overlays, public market alternatives, cash and treasury. David also served as a member of the firm-wide Senior Management Team and on all relevant internal investment portfolio management and risk committees.

Prior to the Future Fund, David held senior roles at Mercer Investment Consulting, the Royal Bank of Canada and Integra Capital Management.

David is a CFA and CAIA Charterholder and holds a Bachelor of Arts (Economics) degree from Western University in Canada. David also sits on the Board of the CAIA Association and is a trustee of the Standards Board of Alternative Investments.

The Board of Directors of Magellan now comprise of:

• Mr Hamish McLennan, Chairman
• Mr Robert Fraser, Deputy Chairman
• Mr David George, CEO and Managing Director
• Mr John Eales, Non-Executive Director
• Ms Colette Garnsey, Non-Executive Director
• Ms Karen Phin, Non-Executive Director

Non-executive Directors are also members of the Audit and Risk Committee, chaired by Mr Robert Fraser and the Remuneration and Nominations Committee, chaired by Mr John Eales.

---

Magellan InReview 2022

Pursuant to Listing Rule 3.17.1 the following has been shared with shareholders and can be found on Magellan’s website at https://2022.magellaninreview.com.au/:

• ‘The world confronts an unusual number of difficulties’— the annual investor letter from Global Portfolio Managers Nikki Thomas and Arvid Streimann;
• a video interview with Nikki Thomas and Arvid Streimann discussing the latest global portfolio positioning and the current macro environment;
• a video interview between Arvid Streimann and the Former Secretary of Defense and CIA director Leon Panetta, including the key talking points;
• a collection of video interviews and written investment perspectives from across Magellan’s investment team, including but not limited to Infrastructure and ESG; and
• Annual Fund Reviews and Quarterly Fund Factsheets for Magellan’s range of global equities and global listed infrastructure portfolios.

---

MFG up +3% today, ahead of the market. Coming off a VERY low base...

Further Reading: https://www.businessnewsaustralia.com/articles/future-fund-deputy-cio-david-george-named-new-magellan-managing-director.html

Disclosure: I hold MFG shares.

Am i concerned HD selling 760k shares on market today? Not really. Loose change given the significant holdings he has in MFG ( CLOSE TO 22M SHARES)

TBH-Feel for the talented superstar fund manager (in my books Aussie best arguably) as this rout in the last 12 months made his billionaire status go away in a hurry.....marriage that did not go well.....savage fund outflows...too many too soon.

A good investor should trust the fund manager and his team plus the strategy they have communicated well over a period of time. If that genuine trust and investment philosophy remains intact-no point in abandoning the ship when it is hitting rough seas.

An inner voice in me says this phoenix will rise from the ashes.

PS: Ramblings of a MFG hardcore believer who bought and topped up his holdings.

19-June-2022: I sold out of MFG in December at $23.50, then bought some back at $20.99 in February when Magellan co-founder Chris Mackay was brought back, then more at $14.53 in March, then more at $13.02 on June 6th (2 weeks ago). They closed on Friday at $12.48.

Here on SM I sold later, for less, at $16.43 then bought back in at $13.12 (+ some tiny top ups below $13).

While they look very cheap to me at current levels, I believe I already have significant exposure to the management company (MFG), so I intend to watch and wait now, rather than to keep adding to those positions. The thing is - they're not Robinson Crusoe there because there are a lot of quality companies that look cheap at this point. 

And there have been some significant changes since Hamish Douglass stepped back and Chris Mackay stepped back in. I don't have a strong opinion on what Chris should or should not do with MFG now, but I understand that he has been keen to return to basics somewhat, or to focus more on what they focused on back when he started the company with Hamish, and less on the newer stuff, such as Australian direct investments (GyG - Guzman y Gomez), other private equity ventures (Barrenjoey), and investing in China, particularly Chinese Tech.  Alibaba was 3.2% of the MGF (Magellan Global Fund) portfolio at 31 December, but word is Chris and the other PMs have sold out of BABA now. Hamish had previously sold out of Ten Cent at a big loss.

Also, at the end of December (as listed above), Netflix was their second largest position and Meta (Facebook) was 9^th largest position. Neither are top 10 positions now. Nor is Starbucks or Pepsico.  The following is from their May 2022 report:

Dumping or reducing exposure to Netflix was a sensible move because NFLX is being seriously challenged by other streaming services from every direction - and they no longer have a strong moat. Netflix isn't just being sold down as part of the big tech sell-off, they really should not be part of the FAANG group anymore because they have become structurally challenged. FAANG should really now be MAAAM - Meta (FB), Alphabet (Google), Amazon, Apple & Microsoft.

Source: Commsec.

That's a BIG decline - from almost $700/share to $175/share in 7 months. Like I said, that's more than just a "tech sell-off".

Another thing to note is that up until February, MGF was splitting out China as part of their geographical exposure disclosure:

However from their March 2022 report, China exposure has been included in "Emerging Markets":

So, they don't see exposure to China tech stocks (or China in general) as a positive so much now. Or at the very least they have decided to no longer highlight their China exposure. 

While I understand the benefits of diversification, I also feel that Chris may be of the opinion that Hamish lost his way somewhat and that getting back to what they did best at the start, and what they were doing when they had their greatest success - even what Hamish was doing after Chris left when Hamish had his greatest period of outperformance - is the best way forward. 

That is entirely understandable, and probably what people should have expected from Chris Mackay when he was brought back in.  I don't think he was ever going to be a silent caretaker type. He is going to manage, and make sensible calls. He has been successfully managing MFF for years, and he knows what he's doing.

Hamish is returning as a consultant, but not as a portfolio manager, so it will be interesting to see how the Magellan funds (like MGF) continue to evolve, and when the FUM outflows (for MFG) stabilise and actually reverse (become inflows once again). Unlikely to happen in the current "correction" environment, but at some point it will happen.

Magellan is invested in some very high quality global companies, and I have retained my exposure to MGF (the fund) through the past year of troubles with the manager (MFG), and have sold out and then bought back in (at lower levels) to the manager (MFG). Now I'm happy to wait and watch. It may well get worse before it gets better, but it will get better. Chris has made some sensible moves and Hamish's insights and brilliance (despite some miss-steps in recent years) has not been entirely lost to Magellan.

Hamish and Chris a couple of years after they started Magellan Financial Group. [Source: The Australian Newspaper]

ASX Announcement

This morning Magellan (MFG) announced the launch of an on-market share buy-back of up to 10 million ordinary fully paid shares, representing up to 5.4% of shares on issue (“Buy-Back”). The Board previously announced its intention to consider an on- market buy-back at Magellan’s Interim Results Briefing on 18 February 2022.

Mr. Hamish McLennan, Magellan’s Chairman, said: “We believe the on-market buy-back announced today represents an effective way to enhance value for shareholders. The buy-back is consistent with our aim to deliver capital efficiency, solid dividends and attractive returns for shareholders with a focus on our core funds management business”.

The Buy-Back will be funded from Magellan’s existing cash and financial assets. Magellan will conduct the Buy-Back within the “10/12 limit” permitted under the Corporations Act 2001 (Cth), which provides that the Company may buy back up to 10% of issued capital in any 12-month period without shareholder approval.

Magellan has appointed Barrenjoey Markets Pty Limited and Ord Minnett Limited to act as its brokers in respect of the Buy-Back.

The timing and actual number of shares purchased will depend on the prevailing share price, market conditions and other relevant factors. All ordinary shares purchased pursuant to the Buy- Back will be cancelled. The Company reserves the right to vary, suspend or terminate the Buy- Back at any time. Full details of the Buy-Back are set out in the Appendix 3C lodged with the ASX today.

Today I bought a small parcel of shares IRL of Magellan. Do I think there is more bad news to come, probably. Will there continue to be outflows, likely. Will future dividends be slashed, possibly. Should I be trying to catch a falling knife, absolutely not. However this mob have copped an absolute pasting in their share price recently and while their rockstar (Hamish Douglass) is gone, there are still some very smart operators in this business and I think in the long term the current share price could be extremely cheap.

Now that I have a vested interest I will be following along closely and once I see evidence of the tide turning and some share price momentum in the right direction I will start to top-up. Unless I'm wrong and it means I'll take a smallish loss but I think it is worth the risk. I won't add a valuation as yet as I'm not even sure how to given the current mess they are going through.

Nasty update to their last one.

FUM have declined to 77.2 billion, compared to 87.1 billion 2 weeks ago. Part of this is performance, part of this is outflows (3.2 bil).

This decline is much quicker than I expected, and FUM have not stabilised in the slightest. I think that breaks my valuations in the medium term - it's coming out worse than my bear case.

I feel silly and unstable doing it, but I just sold my IRL position for a small loss only a few weeks after buying in further.

I still like the business long term and may look to re-enter at a lower price, but can't see how the SP isn't heading substantially lower in the short-medium term.

From the ASX Announcement 18/2/22

"Magellan Financial Group Limited (“Magellan” or the “Group”) Interim results for the period ended 31 December 2021 • Profit before tax and performance fees of the Funds Management business up 15% to $293.6 million • Adjusted net profit after tax up 16% to $248.1 million • Interim dividend up 13% to 110.1 cents per share"

Capital Management.

Intention to progress with a 1-for-8 bonus issue of options to Magellan shareholders:

o Exercise price $35 per option;

o 5 year term – exercisable at any time until expiry;

o Prospectus expected to be lodged in March 2022;

o An application will be made with ASX to have the options quoted on ASX;

• Intention to progress with an issue of approximately 10 million unlisted options to Magellan staff ($35 exercise price, 5 year term) as part of a staff retention programme;

• Considering the implementation of an on-market share buy-back, subject to various factors including market conditions;

• Confirming the dividend policy of 90-95% payout of the profit after tax of the Group’s Funds Management Business;

• Suspending the dividend reinvestment plan; and • No plans to make further investments via Magellan Capital Partners.

The Youtube version of Magellan's Global Strategy Update - January 2022 (interviewing Hamish) for those that like to be able to watch the video at a faster speed, etc

https://www.youtube.com/watch?v=LRzPflmYg-k

Hamish Douglass, Magellan’s CIO, discusses why the less-threatening Omicron variant still comes with inflation implications, why he’s recently invested in two companies exposed to structural growth in global travel and why today’s stock market reminds him of 1999’s.

It’s really hard for investors to get excited about Magellan at the moment, but if your looking for a positive perspective it’s worth reading Morningstar analyst Shaun Ler’s views in the following extract published this morning in the AFR - Magelllan Hit by an Index Juggernaut

“The best possible spin you can put on Magellan’s loss of the St James’s Place contract is that it frees up capacity for Magellan’s global equity strategy, and it lessens the concentration of client risk exposure. The largest single client exposure is now about 3 per cent of assets under management

This positive perspective was highlighted by Morningstar analyst Shaun Ler on Friday in a note listing the “best stock ideas of 2022”.

Ler says the sheer scale of funds under management at Magellan ($101.37 billion at December 2021) “means it is capable of growing FUM and earnings from the compounding of investment returns despite periodic outflows”.

“By our estimations, the current share price implies Magellan will, over the next five years, generate annual returns less than passive equity exchange-traded funds and suffer outflows equivalent to more than half of its FUM as of November 2021,” he says.

Magellan and other active equity managers are facing a passive equity funds management juggernaut that includes organisations such as Vanguard managing money for virtually nothing on index funds.

But it is hard to see Magellan’s strong relationships with global institutional investors, built up over the past decade, deteriorating as rapidly as the market seems to think.

On Friday, Magellan told the market its profit was on track to be the same as last year notwithstanding the loss of the St James’s Place contract.

It said average base management fees were about 65 basis points (a year) based on closing funds under management of $95.5 billion at December 31.

“The run rate of base management fees based on closing funds under management at 31 December 2021 is broadly in line year-on-year.”

That suggests Magellan will earn about $500 million before interest and tax this financial year, which means it is trading on a forward price earnings multiple of 8.4 times.

That is a 20 to 30 per cent discount to the rating applied to its peers. Time will tell if the market has overreacted or is correctly forecasting significant outflows and loss of fee income.”

30th, Motley F... article.. $17

Short term eps impacted. On the 'tarmac' for growth ???? though.

Is the Magellan share price a potential opportunity?

A few brokers actually still think there is further downside for Magellan shares.

For example, UBS rates Magellan as a sell with a price target of just $17 – that’s around 20% lower. The broker is concerned about outflows in the coming years and potential fee reductions.

Morgan Stanley has similar thoughts to UBS, with a sell/underweight rating and a price target of $17.50.

Looking at those pessimistic ratings, let’s see what the valuation is for the projected earnings in FY23. UBS reckons the Magellan share price is valued at 12x FY23’s estimated earnings. Morgan Stanley thinks that Magellan is valued at 11x FY23’s estimated earnings.

Whilst analysts are focused on the potential profit decline from the global equity strategy, there are other areas that Magellan is bullish on over the longer-term such as infrastructure, Australian shares and ESG investing. It also thinks that its investments of FinClear, Guzman y Gomez and Barrenjoey have attractive futures.

Disc: not held.

Weird piece by Crickey. Not quite sure what to make of it, but it's scathing of Hamish.

https://www.crikey.com.au/2021/12/24/frydenberg-firing-line-proxy-advisers/?fbclid=IwAR1gs5mNhgRToH57EX3vz9KDwsiNC7ocu9WdNAuYIBeUUmus9D2J62-UBRY

For those who would rather the Youtube version of the interview (where you can adjust the playback speed, etc)

https://www.youtube.com/watch?v=I3Nxgc0fYc4

Exactly what you don't need on a Friday evening after market close. One of your companies going into a halt pending the loss of a material contract.

This recent habit of announcing bad news after the market closes is grating.

While most investors have been focused on recent underperformance of Magellan’s global growth fund, the CEOs sudden departure, and the separation of Hamish Douglas and his wife, some investors (including the InvestSmart team) see this as a unique buying opportunity.

Yesterday the share price fell to just over $28, the lowest price since January 2019, and down from an all time high of $73 in February last year.

I have felt very comfortable buying Magellan shares this week, so much so that it now makes up 10% of our portfolio IRL. Why?

I believe Hamish Douglas , the Executive Chairman and Chief Investment Officer for Magellan, is one of the best investors in Australia today. I think recent underperformance of the global fund is mostly due to Hamish’s cautious investing style and the cost of protecting shareholder capital against the downside in a very bullish global market. As the market becomes less bullish and downside risks return I think the fund will return to outperformance.

I feel comfortable owning Magellan because I believe the shares will pay for themselves in approximately 7 years with reinvested dividends, at which point the shares could be worth double their current value and continue to pay a 7% partially franked dividend based on the current share price. This is all based on the following assumptions:

• underperformance of the global fund is temporary
• FUM returns to positive inflows
• Future earnings growth of 12% per year over several years
• Cash margins continue above 55%
• Future ROE over 35%
• 7% partially franked dividends (74%) based on the current share price, grossed up to 10% when franking credits are included
• remains debt free
• Hamish remains at the helm as Chief Investment Officer

I am also very excited about the future of Magellan as I believe that Hamish Douglas will slowly transform Magellan from a fund manager to a diversified financial behemoth. This has already started with investments in Barrenjoey, Guzman Y Gomez and Finclear.

For me Magellan is a high conviction Buy at $30.

Disc: Shares held IRL

08-Dec-2021: While I was at work this aftermoon, another announcement was made by MFG, this time confirming that Hamish Douglass and his wife Alexandra seperated some months ago, something that was widely known in financial circles, hence some referring to Hamish's "personal issues", but that neither had any intention of selling any of their MFG shares.

The announcement was worded like this:

Statement from Alexandra and Hamish Douglass

Alexandra and Hamish Douglass wish to confirm that they separated some months ago. As our family and close friends appreciate, we both remain extremely close and united. We continue to spend considerable time together, and as a family.

There has been unfounded speculation in the media regarding our shareholding in Magellan Financial Group. We can confirm that we have no intention to sell any of our shares in Magellan Financial Group.

Hamish said “I remain totally committed to the business and its future. I would like to thank our clients and my outstanding colleagues for their ongoing support. Alex and I would like to thank our family and friends for their incredible support and we would ask people to respect our family’s privacy moving forward.”

Alexandra and Hamish Douglass

8 December 2021

--- ends ---

Didn't do the MFG share price any harm, as it continued to recover during the afternoon from that $28.03 low this morning, closing at $30.35, up +4.3% on Tuesday's close of $29.10.

Further Reading: Inside billionaires' shock split after chairman seen 'on James Packer's yacht' left wife of 30 years | Daily Mail Online

[I don't think being seen on James Packer's yacht a few months ago is entirely relevant, but hey, it's the Daily Mail, so that's what you get. They're certainly not interested in respecting any family's privacy.]

Here's something with a little bit more journalistic integrity:

Hamish Douglass: "McDonald's has made such a contribution in giving people their first jobs, and training people in the skills of process and discipline."  Photo: Louise Kennerley

Why billionaire Hamish Douglass loves Maccas (afr.com) [Jul 20, 2019]

Disclosure: I hold MFG shares and MGF units, and was buying more MFG shares this morning at $29.38.

08-Dec-2021: MFG fell -4% on Monday, then another -6.4% yesterday on the news that their CEO Brett Cairns had quit, with immediate effect, "for personal reasons". That meant a $29.10 close yesterday, a level we hadn't seen with Magellan since January 2019. This morning, they traded as low as $28.03, and then started rallying. I picked up some more at $29.38 on the way up, and they've been as high as $30.08 and are now hovering in the high $29s.

There is an interesting article in The Age this morning about this not being a good look at all for MFG, however I imagine bargain hunters have moved in now regardless.

Hamish Douglass has been making all of the investment decisions at MFG, while Brett was doing work previously done by Hamish that Hamish did not particularly enjoy, which involved setting up new products and liasing with various other stakeholders and regulators. The driving force behind Magellan here in Australia is, and has always been Hamish Douglass however, and the early outperformance is all down to him, as is the more recent underperformance. Hamish makes all of the big calls. Most people may not even know what Brett Cairns looks like.

That's him on the left, with Hamish on the right.

I'd like to think that $28.03 level very briefly tagged this morning is the low point for MFG, but we shall see. It would help if they start releasing better performance stats. Their FUM is still holding up, but they need to making more money with that $116.4 billion.

Disclosure: I hold MFG in 2 RL portfolios as well as here on SM, and I've been topping up during the past week. I also hold units in their global fund (ASX: MGF).

This one is nearly down 50%, not a pretty place for some bag holders. What is going on?

There is a separate straw about the outflows of funds under management, however, this is a new announcement and most of the fall in share price has happened before now. 

Magellan has 4 earnings paths:

• Funds under management which we know from above has seen considerable outflows
• Management fee 
• Performance fees
• Magellan Capital Partners investment returns

Funds under management is in decline in the short term, but over in the last financial year increased around 10%. This is one for the highlighter, something to watch if it continues. 

Management fees are also off, down in the last 5 years, probably on the back of investor questions, or competition in the market from other managers. Possibly from lower fee ETF’s of which there seems to be another one every second day. For all the ETF creation there must be investor appetite which adds to the fee competition.

Like other funds, Magellan also operates return hurdles, in this case the need to outperform 10-year bonds to claim the performance fees. With bond rates basically zip, they are in the money unless they trip over their shoelaces, and I know they all wear slide on shoes. 

Not unusually, they also get to claim excess returns, if well, they do well. You do well, they do well, or so the story runs.

Why have fees fallen away? Some of the investments didn’t play out – state the obvious. Perfectly understandably they went conservative last year, which is part of the downside protection policy, and missed some of the growth recovery. 

Magellan Capital Partners investments are big stakes in fast food, texmex chain GyG, Finclear and investment bank Barrenjoey. The latter is the one to be most focussed on - they are up against proven, established players. Acknowleding Barrenjoey have hit some goals, but Magellan themselves has said this current loss maker is going to take a couple of years to play out.

Where are we now? This is a question of your own faith in outflows continuing, lowing management fees further. There is also the risk of increased competition to further lower the management fee percentage. There is also the risk of returns from Magellan Capital Partners. 

Or the other side of the coin. This is a highly experienced team, and their value portfolio could reasonably be expected to see positive returns depending on your value view.

17-Oct-2020:  Magellan Live Webinar - What Really Matters?

Hamish Douglass gives his thoughts on the US election, explains a critical assumption driving share markets higher and tells why Chinese tech giants will survive any decoupling with the US. (Viewing time: 60 mins)

Marcus Padley provided a link to it in his "MarcusToday" Saturday email this morning and said:  "This webinar was probably one of the most watched this week - it’s a great bit of marketing in disguise of course from Magellan but hopefully we don’t compete with Hamish.  Hamish Douglass is the chairman, CIO and Lead Portfolio Manager at Magellan.  The webinar includes “his thoughts on the US election, explains a critical assumption driving share markets higher and tells why Chinese tech giants will survive any decoupling with the US”.  Good weekend watching although it does take an hour."

I don't currently hold MFG, however I do hold MGG & MHH (in the portfolio I manage for my 2 kids) which are two LITs that are both managed by MFG.  Hamish Douglass is a superstar investment manager and always worth listening to.

04-June-2020:  Funds Under Management - May 2020

04-June-2020:  Launch of Airlie Australian Share Fund (Active ETF)

MAGELLAN FINANCIAL GROUP LIMITED

Launch of Airlie Australian Share Fund using next generation of Active ETFs

• Magellan launches the next generation of Active ETFs, bringing together the features of an unlisted fund and Active ETF into a single unit in a single fund
• Provides investors with greater choice and flexibility in how they invest and will deliver efficiencies to fund managers

Magellan Financial Group Limited (“Magellan”, ASX: MFG) is pleased to announce that the Airlie Australian Share Fund (Ticker: AASF) will commence trading on the ASX today. 
 
Brett Cairns, Magellan’s CEO, said today: “The launch of Airlie Australian Share Fund on the ASX represents an important evolution of Active ETFs in Australia.  This simplification eliminates the need to have two separate funds, one for investors who prefer using unlisted funds and another for those who prefer funds quoted on a stock exchange. Instead, investors, advisers and brokers will now be able to invest in a single, open-ended fund using the access point they prefer.” 
 
“Magellan has always focussed on simplifying the investment process for our investors and reducing unnecessary frictions and costs. We intend to use these next generation open-ended funds to deliver effective investor solutions in the future.” 
 
Matt Williams, portfolio manager for the Airlie Australian Share Fund, said: “The Airlie Australian Share Fund is a product of the partnership between Magellan and Airlie Funds Management. Airlie’s approach to investing has been developed over 25 years and employs a conservative and robust process that weighs the financial strength, business quality, quality of management and valuation of each company. We are excited to make Airlie’s investing expertise accessible to investors through the ASX.” 
 
The Airlie Australian Share Fund (Ticker: AASF) is the fourth Active ETF launched by Magellan and has outperformed the Australian market by 6.6% net of fees over the 12 months to 31 May 2020. 
 
With around A$2.5 billion in funds under management and over 35,000 unitholders, Magellan’s Active ETFs have been widely adopted by investors who benefit from:

• The ability to buy and sell units on the stock market and settle via CHESS;
• Access to real time and transparent market pricing;
• Active portfolio management;
• Efficient pricing due to the open-ended nature of the Fund; and
• A high level of liquidity with the Fund providing liquidity to investors.  

Note:

(1) The Airlie Australian Share Fund has returned 2.7% p.a. since inception on 1 June 2018, outperforming the Australian market by 0.9% p.a. over that period.  Past performance is not necessarily indicative of future performance. 

--- click on link above for more ---

Further Reading:  AFR (04-June-2020): Magellan hails new era for active ETFs with Airlie launch

https://www.raskmedia.com.au/2020/06/04/magellan-asxmfg-announces-new-etf-and-may-fum/

01-Apr-2020:  Magellan Global Markets and Portfolio Update - 1 April 2020

08-April-2020:  Hamish Douglass: The three key issues in the COVID-19 outlook