The Magellan Financial Group Ltd (ASX: MFG) share price has recently taken a bath after a stellar year of growth. MFG shares started the year at $23.37, but had an incredible run up all the way to $62.60 a share, before crashing back to reality with today’s share price at $50.40 (at the time of writing). Still, lucky MFG shareholders are sitting on a gain of 116% even at current levels.
This year’s growth can be put down to the incredible success of many of Magellan’s funds. For example, the Magellan Global Trust (ASX: MGG) (a Listed Investment Trust only launched in 2017) has returned 15.63% to its investors on a per annum basis since inception.
Fund outperformance tends to lead to a compounding double-edged benefit for fund managers like Magellan. Not only do they get increased ‘performance fees’ (extra fees charged on any funds’ gains above their benchmark), but word of mouth quickly spreads. This gives Magellan an increasing flow of new funds under management (FUM), leading to more performance fees in turn.
But I think Magellan shares could rebound and hurtle towards the untouched $70 mark over the next year or two – here’s why.
Magellan’s growth pipeline
Magellan is already fresh off a high following the successful listing of the new Magellan High Conviction Trust (ASX: MHH) a fortnight ago, which raised close to $1 billion in new FUM for the company.
But according to a report in the Australian Financial Review, Magellan is putting the finishing touches on a ‘retirement-focused’ investment vehicle. Although the report suggests the company won’t be going down the ‘annuity’ path, it does indicate the new product will have a heavy focus on absolute returns somewhere in the 4–5% per year ballpark.
In this era of record low interest rates, I expect an offering along these lines will be catnip for retirees and other income investors and will lead to a new surge in FUM for Magellan.
I think if all keeps going well in global markets over the next year or two, Magellan’s new suite of products they have in the pipeline may just excite investors enough to get it running up to the $70 a share mark for the first time. But only time will really tell.
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Motley Fool contributor Sebastian Bowen owns shares of Magellan High Conviction Trust. 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.