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Magellan (ASX:MFG) share price soars on pleasing December update

The Magellan Financial Group Ltd (ASX: MFG) share price is up 6% after revealing a strong December 2023 update.

Pleasing FUM update

Magellan reported in its monthly update that in December 2023 the company experienced net outflows of $0.2 billion, which included net retail outflows of $0.3 billion and net institutional inflows of $0.1 billion.

The last couple of years have often seen over $1 billion of net outflows each month, so this is a strong improvement.

Total funds under management (FUM) actually increased by $600 million to $35.8 billion, driven by positive market returns.

However, Magellan’s funds will pay distributions (net of re-investment) of approximately $0.3 billion in January, which will be reflected in the January FUM figures in next month’s announcement.

Looking at the individual numbers, retail FUM was flat at $16.7 billion, while institutional FUM rose $0.6 billion to $19.1 billion. Split between the divisions, global shares FUM fell $0.1 billion to $14.9 billion, infrastructure shares rose $0.3 billion to $15.8 billion and Australian shares FUM increased to $5.1 billion.

Investors seem to like what they see, with the Magellan share price rising in response.

HY24 financial insights

Now that the first six months of FY24 is finished, Magellan was able to tell investors about some of the financial numbers related to its funds management.

Magellan said performance fees for the six months to 31 December 2023 are “immaterial”. The fund manager noted performance fees may fluctuate “significantly” from period to period. Magellan’s recent poor investment performance is hurting its ability to generate performance fees.

The fund manager also said the average FUM for the six months to 31 December 2023 was $36.9 billion, down just over 30% from the $53.8 billion for the six months to 31 December 2022 (the first half of FY23).

In other words, it seems Magellan is going to report a large decline in revenue in HY24 and also a big drop in profit. That’s why the Magellan share price has fallen so much – it’s down close to 80% in two years.

Final thoughts on the Magellan share price

If this is a sign that outflows are about to stop, this could be great news for Magellan. Investment performance of the funds are key, so if it can deliver medium-term outperformance, it could encourage investors to leave their money with Magellan or even add more.

I don’t think Magellan is going to get back to its former heights any time soon, but this is a step in the right direction. There are other ASX dividend shares I’d rather buy though, particularly where there is a better long-term growth outlook.

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