The Magellan Financial Group Ltd
(ASX: MFG) share price is up more than 5% after a positive update.
Magellan used to be one of the biggest fund managers on the ASX, but things haven’t gone well over the last two or so years.
FUM growth
Any good news can be really positive for a business that’s down heavily.
Every month, Magellan tells the market how its funds under management (FUM) has performed. That’s how much money people have invested with the fund manager to manage their investment decisions.
At the end of December 2022, Magellan had $45.3 billion on FUM. This grew by $900 million to $46.2 billion at the end of January 2023.
Retail (that’s people like you and me) FUM rose $100 million to $19 billion. Institutional FUM jumped $800 million to $27.2 billion.
In terms of how that’s split between the different investment strategies, the global shares strategy saw a $200 million uplift to $20.8 billion, the infrastructure shares saw a $200 million rise to $16.4 billion and Australian shares saw a $500 million jump to $9 billion. This all seems positive for the Magellan share price.
All of this came despite the Australian dollar to US dollar exchange rate going from 67.8 cents to 70.5 cents. If the exchange rate had stayed the same, the FUM gain would have been even more because a lot of Magellan’s global investments are in US dollars.
Not all positive
While total FUM rose, in January Magellan experienced net outflows of $0.5 billion, which included net retail outflows and net institutional outflows of $0.2 billion.
Magellan’s FUM will naturally move up and down with the market movements in the short-term, and its investment picks will also influence performance.
However, if the funds keep flowing out of the door with investors withdrawing money then that’s going to be a headwind on earnings and the Magellan share price.
What to make of this for the Magellan share price?
If FUM rises, then that’s a good sign, whether it’s coming from market performance or fund inflows.
However, the global share market doesn’t go up strongly every single month, so if Magellan keeps seeing outflows then there will likely continue to be months that FUM falls. If Magellan stops seeing outflows, it could see good positives.
It’s a difficult era for active fund managers that charge higher fees. If they don’t deliver good performance or outperformance, then why pay more? I don’t think Magellan shares are an opportunity, even if it’s cheap with a large dividend yield.
