The Magellan Financial Group Ltd (ASX: MFG) share price has fallen 6% upon release of its half year profit report.
Here are the key takeaways from the Magellan Financial Group report:
- Revenue fell 16% to $153.5 million
- Profit fell 20% to $87 million
- An interim dividend of 38.4 cents per share is payable in March, down from 51.3 cents last year
- Funds under management stood at $46.5 billion
- Excluding the performance fee decreases, profit was up 9%
Magellan is one of Australia's leading funds management businesses. Its core investment strategy is in global stocks. It also has an infrastructure strategy.
Magellan CEO and Chief Investment Officer, Hamish Douglass, said the result was good despite movements in performance fees.
"Magellan had another successful first half, with growth in management and services fee revenue of 10% to $146.1 million, reflecting our continued focus on our clients," he said. "Performance fees fluctuate materially from period to period and the decrease in performance fees of $39.2 million resulted in a corresponding decrease in earnings and interim dividend, however the Group's underlying profitability excluding performance fees grew by approximately 9%."
Like all fund managers, there are only three things that count over time: performance, funds under management, and fees.
Magellan has a rich history of performance and continues to attract both retail money (from people like you and me) and institutions (e.g. super and pension funds). During the half, Magellan added an average of $207 million in retail money per month — which is very impressive. The company also added $1.8 billion in institutional funds.
However, over the past year, the Magellan global fund underperformed its benchmark by 4.3.%, returning 3.7% versus the MSCI index of 8%. The infrastructure strategy returned 6.7% versus the benchmark's 14.1%.
Looking back over five years, the global fund has returned an average of 19.2% versus the MSCI return of 18.4%, while Magellan's infrastructure strategy has returned 14.4% versus the benchmark return of 11.4%.
Arguably, the biggest problem for most growing fund managers is that the more money they have the harder it becomes to invest — effectively. In just one year, Magellan's funds under management has grown from $39.6 billion to $46.5 billion.
Buy, hold or sell Magellan
The Magellan share price is up 1,400% in five years.
However, if I wanted big returns from a fund manager in the future I'd focus on smaller players. Indeed, while I can see Magellan's management fees growing over time, I doubt its performance fees will be as consistent as they have been in the past.
