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Magellan (ASX:MFG) share price set to sink as major client pulls funds

The Magellan Financial Group Ltd (ASX: MFG) share price will be closely watched on Monday when it returns from a trading halt.
Picture of Lachlan Buur-Jensen

Lachlan Buur-Jensen

Lachlan is a Bachelor of Commerce graduate with majors in Accounting and Finance from Monash University. He invests in companies with intense customer love, strongly aligned management teams and structural tailwinds. Lachlan is a big proponent of the eighth wonder of the world – compound returns, and its power in helping individuals reach financial freedom. Outside of investing, Lachlan enjoys supporting his AFL team – Essendon. Albeit, this can be frustrating at the best of times.
More analysis

The Magellan Financial Group Ltd (ASX: MFG) share price will be the most-watched company on the ASX on Monday when the business commences trading again after being placed in a trading halt this afternoon.

While the trading halt was short on details, Magellan announced it had a material contract terminated.

MFG share price

Source: Rask Media MFG 1-year share price
Source: Rask Media MFG 1-year share price

The first domino falls

The trading halt announcement at 2.17 PM was promptly followed up with Magellan’s original request for a pause on share trading at 2.28 PM.

What caught investors and the market’s attention was the likelihood of a big client outflow:

“The trading halt is being requested pending an announcement to be made by MFG. The announcement relates to the termination of a material contract”.

The client remains unconfirmed at this stage. However, it is rumoured to be UK-listed wealth management firm, St James’s Place.

Given Magellan lacklustre performance over the past 18 months, it’s no surprise to see a major client redeem funds.

However, only in October co-founder, Chairman and Chief Investment Officer Hamish Douglass attempted to calm market concerns:

“On fees. On the institutional business, which is $80 billion in funds under management. We haven’t seen any questions or pressures on fees whatsoever. We are highly, highly competitive there”.

My take

Today’s announcement has certainly humbled this writer.

Just two months ago I wrote about why I thought the Magellan share price could be a buying opportunity.

Here’s why I’m bullish on the Magellan (ASX:MFG) share price

Has Magellan (ASX:MFG) lost its Midas touch, or is this a buying opportunity?

The Magellan share price has fallen by 19% since then, demonstrating that knowing the downside of an investment is just as, if not more important, than knowing the upside.

The market has likely overreacted to one client pulling funds. But it’s the potential mass exodus of client outflows that will worry investors the most.

How many more clients will withdraw funds? Will fees need to be slashed? What about performance? 

It’s fair to say this writer is walking away with his tail between his legs.

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Lachlan does not have a financial or commercial interest in any of the companies or funds mentioned.

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