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Magellan (ASX:MFG) share price is sinking like quicksand – here’s why

The share price of embattled fund manager Magellan Financial Group Ltd (ASX: MFG) is sinking again after announcing outflows for the second time this week.

Magellan clients have redeemed $5.5 billion from its funds since January 1.

Additionally, it has lost a further $2.9 billion in distributions and suffered a negative market performance.

As a result, funds under management (FUM) has fallen to $87.1 billion after peaking at $117.9 billion just six months ago.

On the back of today’s update, the Magellan share price is down by nearly 6% to $17.97.

MFG share price

Source: Rask Media 1-year MFG share price
Source: Rask Media 5-year Magellan share price

A disaster in investor relations

Keeping up with the latest Magellan news is becoming an exhausting exercise.

To illustrate, the country’s financial masthead has written 20 articles on the company this week – and it’s not even COB Friday.

So how did the Magellan share price lose 65% of its value over the past six months?

A brief timeline of events:

  • June 30 – Flagship Magellan fund underperforms benchmark by 16.7% for FY21. Three, five and seven-year performance now below the benchmark
  • December 12 – CEO Brett Cairns resigns citing ‘personal reasons’
  • December 17 – Magellan’s largest client St James Place withdraws $23 billion in FUM
  • February 7 – Co-founder and CIO Hamish Douglass departs citing ‘medical leave of absence’. No timeline on return.

While the above events have frustrated shareholders, the company’s (lack of) investor relations has been disastrous for the Magellan share price.

Just in October, the business stated it had no pressure on fees. Less than two months later, its biggest client departs.

“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”.

Earlier in March, Magellan announced it would stop providing monthly flows data. Opting instead for quarterly releases.

While not a huge change, it also coincides just before outflows began to accelerate.

What next for the Magellan share price?

All of the above events have culminated in this week’s announcement that rating houses Lonsec and Zenith had downgraded Magellan funds.

Rating houses are the gatekeepers to financial advisors. A downgrade can lead to an advisor no longer adding to funds, or in a worst-case scenario pulling funds altogether.

Without a permanent CEO or CIO, Magellan is effectively rudderless.

And with outflows accelerating, the short-term outlook looks bleak.

To counter some of the bleeding, Magellan has brought back co-founder Chris Mackay and portfolio manager Nikki Thomas.

What impact that will have on the Magellan share price is yet to be confirmed.

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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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