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Why the Magellan (ASX: MFG) share price is dropping

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.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

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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, Jaz owns shares of Magellan.
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