Hot Stock: Magellan Financial
What's new? Fund manager Magellan Financial has left peers in its dust this year, with many hoping just to see the treads of their limited-edition sneakers as they streak ahead.
The team at Magellan continues to post an impressive track record over the key one-, three- and five-year periods, and are well ahead of the game in terms of benchmark returns. This outperformance has been a key driver of precious inflows and fees during the past year.
The key Magellan Global Fund, for example, has returned 23.49 per cent over the past year, 11.09 per cent a year over the past three years and 6.13 per cent over the past five years. This equated to juicy outperformance of 11.51 per cent, 8.04 per cent and 11.15 per cent a year over the same periods to the benchmark index.
While many peers have struggled to grow funds under management (FUM) this year, Magellan has attracted inflows across the board.
At the end of October, the company had about $4.8 billion under management, a 20 per cent increase in total FUM since just June 30.
The retail side has been particularly stellar, with $169.5 million coming through Magellan's doors in October alone. Funds here have leapt by more than 30 per cent in the past four months.
Outlook Despite the rapid growth in funds under management during the past year, there still seems to be more for the taking.
The fact Magellan remains ''relatively'' unknown increases upside potential. Although assets under management have grown rapidly, these remain a veritable drop in the bucket versus the better-known titans of the fund-management sandbox.
And higher fund flows will increase profitability for the fund manager, as it has a relatively low cost base and a good deal of ''operating leverage''.
Costs as a percentage of income are now about 50 per cent and this should come down in the months and years ahead.
Price Magellan's stock price has pushed to new highs in the past year as consistently impressive investment returns have elevated it to one of the go-to boutique-funds management businesses. Its shares are up 215 per cent this calendar year.
Worth buying? A fund manager is only as good as their investment performance, and the old caveat of past performance being no guide to future returns must be heeded. But portfolio managers at Magellan have delivered consistently good returns for investors over the years.
While the stock commands something of a premium valuation, its portfolio outperformance and ability to attract inflows suggests this is appropriate.
Greg Smith is head of research at Fat Prophets sharemarket research.