The Magellan Financial Group Ltd (ASX: MFG) share price has gone up 13% over the last month.
Magellan’s share price resurgence
Magellan shares have rebounded over the last 30 days as investors become more confident about the business. As a fund manager, the performance of its funds is integral for the movement of its funds under management (FUM) as well as attracting (and retaining) investor funds.
The latest monthly update, for the month of March 2021, Magellan saw its FUM rise by $5.4 billion.
There was a helpful boost of performance from some of its holdings, a slightly weaker Australian dollar and net inflows.
Magellan said that it experienced net inflows of $206 million, which included net retail outflows of $15 million and net institutional inflows of $221 million.
The fund manager revealed that it’s going to release quarterly flows with its FUM announcements in April, July, October and January. FUM will continue to be released monthly.
For the March quarter, Magellan experienced net inflows of $1.12 billion, which comprised net retail inflows of $773 million and net institutional inflows of $346 million.
Why I’m confident about the Magellan share price for the long term
I have been investing in Magellan in recent months at a similar (and lower) price to today’s level.
Magellan has a very high profit margin for its funds management division. Fund managers are very scalable – you don’t need more manufacturing plants, more shipping, better warehouses or more stores to grow the business. Fund managers can deliver investment returns and/or attract new FUM inflows and manage that money with the same investment team.
If Magellan can just keep generating good investment performance, then the FUM will naturally grow – it doesn’t need new FUM to make good profit. Investors get the benefit of that profit quickly with Magellan’s high dividend payout ratio. This makes it a good option looking at other ASX dividend shares. It currently has a partially franked dividend yield of 4.5% using CommSec’s estimate for the FY21 dividend.
There are two other growth areas for the Magellan business that I like. There’s also the impending retirement product that will hopefully be launched at some point after getting regulatory approval. Magellan is also making private investments into very compelling businesses such as Barrenjoey and Guzman y Gomez.
Summary thoughts
Magellan is a good business in my opinion. Its FUM keeps rising, it has multiple ways to grow and the dividend is a handy bonus. I think it will be able to deliver long term outperformance of the ASX at the current Magellan share price. It’s valued at 17 times the estimated earnings for the 2022 financial year, according to CommSec numbers.
It’s one of the ASX growth shares that I’ve got my eyes on for this month.
