Should you buy Magellan Financial Group Ltd and Platinum Asset Management Limited shares?

Credit: Spyros Papaspyropoulos

Despite a bumpy start for international equity markets in 2016, Australian investors may still be presented with better buying opportunities offshore especially considering some of the headwinds facing many of our blue chip shares.

Analysts and investors alike are already predicting meagre gains for our broader market in 2016 with many suggesting that US and European markets could continue to outperform the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) over the next 12 months.

Investors who wish to gain overseas international equity exposure have a number of options including buying shares directly online and through ETFs and managed funds.

Another strategy that has proven to be more successful over recent years however, has been to invest directly in the fund manager itself. Two of Australia’s most respected and best performing international fund managers are Magellan Financial Group Ltd (ASX: MFG) and Platinum Asset Management Limited (ASX: PTM).

Interestingly, both managers have distinctive investment styles and have different geographic weightings to their respective portfolios. Over time, this can create significantly different investment returns and as a result, different returns for shareholders and investors alike.

Here is a closer look at each fund manager:

Magellan Financial Group Ltd (ASX: MFG)

Magellan was co-founded and is still led by renowned investor Hamish Douglas who has developed a strong following in the managed funds industry as a result of his ability to deliver outperformance over a long period of time.

Many of the company’s funds are leveraged to the US economy with its flagship Magellan Global Fund holding more than 55% of its $8 billion portfolio in that region. This has so far served investors well, with the fund delivering an annualised return of 20.5% over the last five years.

The ability to deliver consistent outperformance has generated impressive funds under management (FUM) growth over the past five years with the company now managing nearly $40 billion. This has also led to significantly higher management and performance fees that have driven earnings growth high enough to deliver shareholder returns of nearly 1,500% over the past five years.

Following a recent strong rally in the share price, the stock is now trading on a price-to-earnings (P/E) ratio of around 27 and this could see the share price come under pressure should US equities stumble. On the flipside, investors who are confident of a continued rebound in the US economy could see further upside in Magellan’s share price.

Platinum Asset Management Limited (ASX: PTM)

Platinum was founded by billionaire investor Kerr Neilson, and like Magellan, has created a strong investor following thanks to its ability to outperform benchmarks over a long period of time and especially during the GFC.

Unlike Magellan, however, Platinum’s flagship International Fund is far more geographically diversified with a higher weighting to European and Asian equities. Platinum also has a number of funds that are exposed solely to Asian and European markets.

With a higher weighting to Asian and European markets, Platinum may appeal to investors who believe emerging markets may be able to deliver strong growth and that European economies are on the road to recovery.

Platinum is currently trading on a P/E ratio of around 21 and offers a forecast dividend yield of 4.9%. This appears to offer a reasonable investment opportunity for long-term investors if Asian markets can ride through the current volatility.

Foolish takeaway

Becoming a shareholder in either Magellan or Platinum could be a better alternative to investing in their respective funds but investors need to be confident about the outlook for the markets each manager is invested in.

Investors also need to take into account the importance of key fund and portfolio managers in each business as this can often be a company’s most valuable asset.


Don't miss your chance to "invest like a Pro"...

Motley Fool Pro -- our most comprehensive and innovative ASX investment service -- will reopen for a brief time, to accept new members. That means you've got the chance to follow along as one top investor puts $1,000,000 of The Motley Fool's own money to work...all in ASX stocks. And you're invited to watch everything that goes into our decision -- 100% FREE! We've dubbed this innovative project, Motley Fool Pro. Click here to step inside for an exclusive look around - it's FREE!

Motley Fool contributor Christopher Georges has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.