Is it time to buy Magellan Financial Group Ltd (ASX: MFG) shares?
The Magellan share price has lost 36% since mid-February – going from an all-time high of $73.67 to today's offering of $47.09. That compares pretty poorly with the overall S&P/ASX 200 Index (ASX: XJO), which has 'only' lost 26.8% in the same period.
Since Magellan has fallen more than the overall market, were investors mistaken in buying into this fund managing giant before this ASX bear market began? And more importantly, are Magellan shares worth picking up at this bargain-basement price?
Why the Magellan share price has plummeted
To understand why Magellan shares have fallen by more than the broader market, we must first unpick how Magellan makes money. As a fund manager, Magellan receives both a management fee for its funds under management (FUM) and for outperforming the broader market with its funds if it manages to do so.
When the share market enters bear market territory, investors know that Magellan's pool of FUM will inevitably decrease, regardless of what the company does.
This was reaffirmed by Magellan this morning when it informed the market that despite net inflows of $469 million, total FUM decreased during March by 6.6% to $93.99 billion. Magellan shares have jumped 12.23% (at the time of writing) in response.
Are Magellan shares a buy today?
I think there remains a compelling case for an investment into Magellan today. On current prices, the shares are trading at a price-to-earnings ratio of 21.07 and a trailing dividend yield of 4.35%.
The inflows during March are a very telling sign of how investors are treating the expertise of Hamish Douglass (Magellan's chief investment officer) as well as the company overall. Despite a significant stock market crash, investors are still willing to entrust their capital to Magellan and this bodes well for the company's long-term prospects.
Of course, for this thesis to eventuate, Magellan will need to maintain its historical ability to outperform the broader markets in order to justify performance fees. But this shouldn't be too much of a concern in my opinion, if Magellan's track record is anything to go by.
Foolish takeaway
All in all, Magellan is a top-notch company and one that might be worth an investment in if you're looking for a more growth-orientated stock to hold in the bank-dominated ASX financials sector.
However, you should also be prepared for the significant volatility that being a fund manager can bring with this ASX share.
