Funds underperformance this year has led to
-Annus horribilis for
-Big mandate loss likely triggers further redemptions
-Most, but not all, agree the stock is no-go for the time being
Any ad you might see for a funds manager always comes with the caveat "past performance is no guarantee of future performance". Not for no good reason.
Up until covid hit,
Over the same period, the ASX200 rose 24%. However, Magellan's flagship is its
From that
Earlier this month, Magellan's CEO suddenly walked, leaving no succession plan. This was not a positive sign for investors.
The big share price fall on Friday came after Magellan lost its biggest mandate. Institutions mandate funds managers to manage an amount of their own funds.
Conga Line?
When a stock falls by such a magnitude in one day this often elicits calls of "oversold" by brokers, on the simple stairs & elevators principle of market panic. But not for Magellan, among FNArena database brokers.
Macquarie held the only Buy or equivalent rating (Outperform) on Magellan ahead of Friday, and despite the -33% plunge has downgraded to a Hold equivalent (Neutral). Morgans has retained its Hold rating and
(Note
Brokers agree the loss of the
There is an expression in markets: there is never only one cockroach. If you see one, you know there'll be more about.
Moreover, Magellan will have little choice but to reduce its market-topping performance fees in order to stem 2021's persistent funds outflows. An improved funds performance wouldn't hurt either.
Consensus has risk persisting to the downside at this point, albeit downside potential is limited given the big share price plunge, not just last week but all year. At the moment, the call is "steer clear".
The consensus target price for Magellan has fallen to
Voice in the Wilderness
Morningstar, not an FNArena database constituent, agrees the
However, Morningstar declares Magellan shares to be "materially undervalued".
The research house notes there is a current structural trend of investors shifting away from active funds managers towards passive investment (either through a passive index fund or ETFs) as well as competition among the fund managers and institutions, who might otherwise hand the likes of Magellan a mandate, to move their asset management in-house.
Morningstar does not believe Magellan is immune to these trends but believes it's better-placed than most active managers to address the headwinds, noting the fund manager is moving beyond just managing money towards implementing new initiatives such as product expansion to attract new money.
Morningstar does not provide standard Buy/Hold/Sell style ratings nor twelve-month target prices. It has nonetheless cut its fair value estimate by -25% to
That said, Morningstar rates Magellan's "Fair Value Uncertainty" as High, and its "Moat Rating" as Narrow.
The wider the moat, the greater the barrier to entry for prospective players, which clearly is not the case for funds management.
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