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Why Magellan shares are outperforming the S&P/ASX200 this year

The Magellan Financial Group Ltd (ASX: MFG) share price has climbed 106% higher so far this year to be one of the top performers in the S&P/ASX200 Index (ASX: XJO) – but how much further could the wealth manager’s shares go in 2019?

What’s been happening to Magellan shares in 2019?

The Magellan share price has soared higher since the start of the year to be trading at $48.87 per share at the time of writing, more than 100% higher than its $23.37 valuation to start the year.

This meteoric rise is made even more incredible in the context of the 2018 Financial Services Royal Commission which was capped by Commissioner Kenneth Hayne’s final report released in February 2019.

The Magellan share price was one of the more robust share prices in the Financials sector as it weathered the storm, finishing 2018 down 12% while also enduring a tough start to the year on weaker-than-expected half-year results released in February 2019.

How much further can the Magellan share price go?

With the dust having settled on the Royal Commission and the Scott Morrison-led Liberal Party being returned to power in the recent Federal election, I think momentum could carry the Magellan share price past its current $48.87 valuation.

The stock is currently trading on a P/E multiple of 40x times earnings while also offering a 2.75% dividend yield, which compares favourably to many of its peers.

In terms of the large wealth managers, AMP Limited (ASX: AMP) and IOOF Holdings Limited (ASX: IFL) have failed to deliver the sort of capital gains that Magellan investors have enjoyed so far this year albeit the decline in share prices has seen their dividend yields climb to 6.68% and 10.2%, respectively.

With interest rates recently being cut to an historic low of 1.25%, I think we’ll see more demand for equities to beat the low-yield environment we’re seeing in fixed income securities.

Magellan continues to demonstrate sound financial management and despite the global headwinds in trade and geopolitics that we’re seeing at present, I think Magellan could be a good value option for those seeking exposure in the Financials sector.

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Motley Fool contributor Lachlan Hall 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.