What’s new? Why would you invest in a professional investor?
The murky world of funds management is a mysterious place, so most people sidestep this sector of the financial services industry as it is not well understood.
The sector has emerged from under the shade of the old mutual society banners to become a serious industry in its own right.
When a fund manager establishes a good track record, its inflows increase and therefore so do earnings for shareholders.
Magellan Financial Group is among a small group of listed fund managers in Australia and has marked itself as a standout performer in a relatively short space of time.
The company has a simple product suite of funds that have each generated some very good performance numbers and hence has attracted a lot of new money into the funds. Magellan’s funds under management (FUM) have grown from $2.9 billion as at December 2011 to a little more than $4 billion as at the end of June.
That’s impressive growth when considering the plight of global equity markets during that time and, indeed, compares strongly with its competitors such as Platinum Funds Management, which endured a decline in FUM from $15.1 billion to $14.8 billion during the same period.
The comparison with Platinum is particularly interesting as both companies have specialist funds that invest in global markets.
Magellan’s investment performance has also been good. Its infrastructure and global funds have consistently generated returns in excess of their benchmark target over any period.
Both funds have been in existence for more than five years.
The Magellan Global Fund outperformed its benchmark by more than 21 per cent in the past year and has been described by consultant group Mercer as one of the best of its kind in the world.
Outlook Of course, as any investor knows, past performance is not necessarily a guide to future performance.
Magellan’s ability to sustain its performance looks impressive but then so did Platinum’s performance until recently and even Perpetual has been through a similar period of very good returns followed by some less-stellar times.
That’s the nature of investment management businesses. To a large extent, they depend on the skill of the people involved, the structure and mandate of the fund,the risk factors and parameters tolerated and the style and philosophy ofthe investment management team.
Magellan’s key people are former investment bankers Hamish Douglass and Chris Mackay.
Price Beginning the year at $1.38 a share, Magellan’s share price chart has resembled its growth in FUM. At about $2.47 now, the shares have outperformed the S&P/ASX200 index by 77.5 per cent so far this year.
Worth buying? At $4 billion in FUM, Magellan is not a large fund manager relative to some of its competitors. Its share price growth is reflecting the growth in its FUM more than the performance of the funds, although that is undoubtedly supporting the momentum. It is that momentum in FUM growth that makes Magellan an interesting investment.
Greg Fraser is an analyst at Fat Prophets sharemarket research.