Magellan returns 48.7%; warns of global financial risks

Australian-based international fund management firm Magellan Financial Group (ASX: MFG) has released its half-yearly investor report.

Over the six months to 31 December 2013, the firm’s flagship fund the Magellan Global Fund returned 15.2% net of fees; over 12 months the fund returned a staggering 48.7%.

The fund benefitted from significant share price appreciation amongst some of its core holdings. Mastercard Inc  (NYSE: MA), American Express Company  (NYSE: AXP) and Google Inc  (NASDAQ: GOOG) soared 70.4%, 59.6% and 58.5% respectively in 2013.

The author of the report, Hamish Douglass, lead portfolio manager at Magellan, regularly provides insights into his views on the outlook for the global economy.

The latest report doesn’t disappoint. While firstly acknowledging that:

“Stock markets have been supported by strong flows into equity funds on the back of a recovering US economy, a stabilising environment in Europe, positive data out of China and the short-term impact of Abenomics in Japan”

Douglass then continues on to outline his view that the current major investment risk is what could occur when the US Federal Reserve ends its bond buying program. One scenario which Douglass believes could unfold (although he suggests it is a low probability), would see US Treasuries soar towards 10% over the next couple of years – readers were reminded that in 1994 during the last bond market crisis, bonds peaked at over 8%.

Despite the Global Financial Crisis becoming a distant memory for some investors, it appears Douglass is far from certain that the global financial system is out of the woods yet.

Magellan’s focus on capital preservation and risk aversion holds investors in their funds in good stead. A similar approach to risk minimisation is employed at fellow international investor Platinum Asset Management Limited  (ASX: PTM). Platinum also had a very impressive year, with its flagship International Fund (managed by Kerr Neilson) gaining 47.2% in 2013.

While many Australian-based investors and savers choose to limit their ‘investment universe’ to the ASX, the returns from a number of foreign stock markets over the past 12 months remind investors of the benefits of diversification. The listed K2 Asset Management Holdings Ltd  (ASX: KAM) and Hunter Hall International Limited  (ASX: HHL) also offer investors’ exposure to international stocks.

Foolish takeaway

Limiting your portfolio to Australian stocks doesn’t mean you can’t benefit from international investing. The above four fund managers are all listed on the ASX and provide investors with exposure to their investment performance. In Magellan’s case, the share price has gained 2475% in the past five years!

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Motley Fool contributor Tim McArthur owns shares in Hunter Hall International.

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