The Magellan Financial Group Ltd (ASX: MFG) share price is under the spotlight as more funds left the building in October.
Magellan is a fund manager that is experiencing a difficult period of investment performance and a drop of investor confidence.
October FUM performance
The amount of funds under management (FUM) that a fund manager has is very important because that’s what generates its base management fee revenue, which then flows onto the net profit after tax (NPAT).
Magellan’s global shares investment strategy has been disappointing over the past couple of years, and investors have been withdrawing their funds – particularly institutional investors.
October saw the continuation of that trend.
The fund manager experienced net outflows of $2.4 billion. This comprised net retail (people like you and me) outflows of $0.4 billion and net institutional outflows of $2 billion. Big outflows are not good for the Magellan share price.
However, total FUM increased by $0.1 billion to $51 billion, despite the outflows. This means that positive investment performance helped offset the fall.
Breakdown
Looking at the breakdown of the movements of FUM is interesting.
Retail FUM increased over the month from $19.8 billion to $20.5 billion, while institutional FUM dropped from $31.1 billion to $30.5 billion.
The global equities FUM increased from $26.1 billion to $26.3 billion. But, the infrastructure equities FUM declined by $0.6 billion to $16.2 billion. Australian equities FUM improved $0.5 billion to $8.5 billion.
My thoughts on this update and the Magellan share price
The fact that the business saw an outflow of well over $2 billion is very disappointing. It has already seen many months of $1 billion plus outflows.
I’m not surprised to see the Magellan share price is down another 3%.
When will it stop? I’m not sure. I believe the global shares strategy needs to achieve noticeable outperformance to retain client money.
I’m not sure about a positive future for Magellan considering the relatively high fees that it charges. Hopefully it can offer differentiated products to diversify earnings. I still believe that the sale of its GYG stake was a mistake, which may be proven in five or ten years.
At some point, the Magellan share price will be oversold, it’s just hard to say what level that is.
