Magellan Financial Group Ltd drops on market update: Is it a buy?

Magellan Financial Group Ltd (ASX:MFG) posts another month of net institutional outflows.

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Global equities manager Magellan Financial Group Ltd (ASX: MFG) today announced total net inflows of $59 million for June, but saw net institutional outflows of $58 million. This follows net institutional outflows of $73 million in April, which the business was quick to defend as only 0.8% of institutional funds under management (FUM) at the time.

It's true that institutional outflows are part of the normal course of business for any fund manager of a decent scale. This is because institutional clients will often rebalance weightings as a function of their own net funds' position or for multiple other reasons. However, the hint of a pattern developing would be an issue and this is the second month out of three of net institutional outflows for Magellan.

Unsurprisingly the stock has dropped 2% to $17.50 in morning trade as the market's short-term focus comes to the fore again.

The real name of the game for Magellan is winning big institutional mandates as these can dwarf outflows like the $58 million posted in June. However, these kinds of institutional business wins are lumpy in nature and have been slightly thin on the ground for Magellan recently.

Total FUM was down month on month as a weak June for global equity markets took its toll. The group also said it is entitled to performance fees of approximately $10 million for the six months ended June 30, 2015.

The one bright spot is another month of strong retail FUM flows, with net inflows at $105 million. Consistently strong retail FUM flows are a long-term positive that would be accentuated if able to be cranked significantly higher.

However, excluding the critical driver of investment performance, there's no escaping the fact that the next biggest metric for Magellan is institutional FUM flows. Investors will hope for a stronger second half of 2015 on that front.

Others to consider in the global equity space include Platinum Asset Management Limited (ASX: PTM) and BT Investment Management Ltd (ASX: BTT). Although, I still prefer Magellan as a long-term investment given its strong track record and the admittedly lumpy nature of institutional business development.

Motley Fool contributor Tom Richardson owns shares of Magellan Financial Group. You can find Tom on Twitter @tommyr345 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.

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