The Magellan Financial Group Ltd (ASX: MFG) share price is down after it announced its quarterly funds under management (FUM) update.
Magellan quarterly FUM update
This morning Magellan reported that its total FUM for the quarter ending of September 2021 was $113.3 billion. When compared to August 2021 this is a drop in FUM by around $4.65 billion.
Magellan said that it experienced net outflows of $1.56 billion which represents around 1.3% of average FUM over the quarter. This was made up by net retail outflows of $617 million and net institutional outflows of $910 million.
Put into simple terms, this means that retail investors (regular people) and institutional investors (superfunds, endowment funds, etc) withdrew money from investing in Magellan funds and took their cash elsewhere.
Around 23% of the net retail outflows were related to redemptions from Magellan High Conviction Trust (MHHT), following the decision to open the fund as an Active ETF. MHHT had total FUM of around $889 million at 30 September 2021.
Further explanation and reassurance
The fund manager explained that $1 billion of the outflows were a result of three clients rebalancing their portfolios across global equities ($410 million), infrastructure equities ($410 million) and Australian equities ($180 million).
Magellan noted that all three of these clients were retained, each with mandates in excess of $2 billion with Magellan at 30 September 2021.
Offering further reassurance for investors, Magellan said that no institutional mandates were lost during the quarter and the global sustainable strategy secured its first two mandates during the quarter.
What does this mean for Magellan and the share price?
The institutional clients and retail investors taking money out is disappointing. There is a possibility that investors are expecting better performance than Magellan is delivering.
One quarter of FUM outflow doesn’t necessarily mean that things will continue to be bad, a phrase that comes to mind is “don’t throw the baby out with the bath water”. There have been outflows in the past and Magellan has recovered.
At the time of writing the Magellan share price is down 3.4%, which is a recovery from the 6.3% drop in early reaction.
I am a believer in investing for the long term and this could prove to be a time of opportunity if the market has been overly pessimistic.
In my opinion, the external investments that Magellan has made such as Barrenjoey and Guzman y Gomez can provide increasing value to Magellan shareholders as they grow overtime (as my college Lachlan outlined here). This strategy Magellan is taking is one of the reasons why I am a Magellan investor.
