MENU

1 money stock I’d buy before National Australia Bank Ltd.

The Magellan Financial group Ltd (ASX: MFG) share price has fallen 3% in the past month. I’d buy it before National Australia Bank Ltd. (ASX: NAB) at the right price.

What’s wrong with NAB shares?

Following a 20% rally in the NAB share price over the past year, I think they are a little expensive. While they could be a good investment for dividends, I’d prefer a company with a little more growth potential.

Who is Magellan?

Magellan is a global equities fund manager.

What does that mean?

Magellan takes people’s money, pools it together in a fund and invests in shares (which are also called equities). It charges a fee for managing the money and takes a cut of good performance, above a certain level.

Thanks to strong investment performance and a partnership in the US, Magellan’s total funds under management (FUM) has swelled. Obviously, the more money it manages the more fees it can charge. 

At the end of February, the company had $46.7 billion under management. That includes almost $40 billion in the company’s flagship ‘global equities’ (read: global shares) strategy and another $7 billion in its infrastructure shares strategy. It is also pushing into low carbon strategies, which target investments in companies which are being mindful of environmental and sustainability issues.

Risks

There are many risks when investing in companies like Magellan. For one, they could have terrible performance and every investor leaves quicker than they came. Second, when (not if) the market crashes, the level of funds is likely to fall as a result of investors leaving, and fees falling.

Another risk is that the company becomes too large. As the amount of FUM increases, the more difficult it becomes to invest. This risk is lessened by the rollout of other strategies but their success is not guaranteed.

Foolish Takeaway

If I already held a lot of shares in banks like NAB, Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), I’d run the ruler over something like Magellan first. However, at today’s prices, I’d probably hold off buying in. Obviously, the best time to buy in would be when the market is tanking or the company’s investment performance has suffered.

We've just released our #1 dividend pick for 2017. And the winner is...

With its shares up 155% in just the last five years, this 'under the radar' consumer favourite is both a hot growth stock AND our expert's #1 dividend pick for 2017. Now we're pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is click the link below!

Simply click here to receive your copy of our brand-new FREE report, "The Motley Fool's Top Dividend Stock for 2017."

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.