Shares in international equities manager Magellan Financial Group Ltd (ASX: MFG) climbed 3.1% to $25.21 today after the company revealed it had grown funds under management to $46.5 billion by December 31 2016.
That is up more than $4 billion or around 10% from the level of $42.2 billion it recorded just two months prior on October 31, although it's important to note much of this appreciation is due to the stronger U.S. dollar and global equity markets.
In fact net FUM inflows for December were relatively weak at $115 million, with net institutional outflows of $11 million.
However, Magellan's FUM rises in Australian dollar terms as the local currency weakens because most of the securities it manages are priced in U.S. dollars. A stronger U.S. dollar and rising equity markets make for a growth sweet spot and it seems the share price is now catching up to the reality of the last two months 'Trump Bump'.
The one downside in 2016 for the firm has been the underperformance of its flagship Magellan Global Fund over the past 12 month and 3-year periods versus its benchmark. However, institutional investors and their consultants will instinctively look to a five-year past performance track record and Magellan's blue-chip investment philosophy has proven seductive in the past, with November seeing nearly $1 billion in institutional inflows alone.
Overall though, the real kicker for the group's growing FUM in 2016 has been the higher margin retail FUM inflows that have grown as the business expands its distribution network.
Many financial advisers and investors have been looking to channel money into overseas markets during 2016 due to the (correct) perception that they would offer better returns than Australia, with groups like Magellan beneficiaries of this trend.
For investors the group also benefits from being founder-led with heavy insider ownership of the shares meaning the staff's interests are closely aligned to shareholders.
I expect much of the group's growing fee streams will drop straight to the bottom line in a demonstration of the scalability and operating leverage founder-led fund managers with a good control on costs can achieve.
I expect shares could continue to receive buyer support heading into what should be a strong February 16 half-year result.
Another option in the asset management space for investors looking to take advantage of the strength of global capital markets on a possibly more attractive valuation is Macquarie Group Ltd (ASX: MQG). While a couple of the better quality other asset managers on the ASX include BT Investment Management Ltd (ASX: BTT) and Henderson Group plc (ASX: HGG).
