Why the Magellan Financial Group Ltd share price is down 3% today

The Magellan Financial Group Ltd (ASX: MFG) share price has fallen nearly 3% today after giving its monthly funds under management (FUM) update.

Magellan is one of Australia’s leading fund managers, it has a focus on international shares based in the USA.

Earlier today, Magellan gave its April 2018 FUM update and the numbers appeared encouraging. Retail FUM grew by roughly $250 million to $18.3 billion compared to a month ago. Meanwhile institutional FUM grew by roughly $650 million to $47.9 billion.

In total, FUM grew to $66.199 billion at the end of April 2018, from $65.279 billion a month earlier.

However, Magellan also included one sentence outlining the flow of capital with the fund manager.

It said “In April, Megallan experienced net outflows of $268 million, which included net retail outflows of $64 million and net institutional outflows of $204 million.

These figures don’t amount to much when we’re talking about billions of FUM, but had the market gone backwards in April the FUM figures would have looked much worse.

Magellan has done a great job of growing its FUM over the past decade, but even if it delivers strong performance it can’t help if some investors get nervous and want to pull out their funds.

It generates a large part of its earnings from its ordinary management fee and if there’s less funds to manage then there’s less fees.

Foolish takeaway

Bull markets will attract funds whilst bear markets will tend to scare off investors. Magellan’s strong performance should mean its FUM does better than most other managers, but I’d much rather buy its shares at the start of a bull run rather than the end.

Instead, I’d much rather buy shares of these growth businesses that should be able to keep growing no matter what the economy is doing.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Scott Phillips.

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