What's going wrong for the Magellan (ASX:MFG) share price lately?

Concerns mount over the financial group's underperformance while it retains relatively high fees.

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published September 20, 2021 11:32 am AEST

The Magellan Financial Group Ltd (ASX: MFG) share price has been left bruised and battered over the past year. It began deteriorating in November and December of 2020. Unfortunately, after a momentary bounceback, shareholders have witnessed another steep fall since July this year.

On Wednesday, shares in the Aussie financial group posted a new 52-week low of $37.43. However, the Magellan share price recovered before the weekend to finish at $39.51.

Bad asx shares broker downgrade represented by woman hiding face under her jumper. — Image source: Getty Images

What's weighing on Magellan shares?

The recent cascade in the Magellan share price comes as concerns mount over the financial group's underperformance while retaining relatively high fees.

For example, the Magellan Global Fund (ASX: MGF) has returned 12.77% since its inception (in November 2020). However, the fund's MSCI World benchmark index delivered a 23.58% windfall over the same period. As a result, the global investment strategy led by billionaire fund manager Hamish Douglass has underperformed by 10.81%.

This underperformance is largely due to the heavier weighting towards China-based companies in the Magellan fund. According to the fund, Alibaba Group Holding Ltd (NYSE: BABA) and Tencent Holdings Ltd (HKG: 0700) made up 4.8% and 4.5% of the Global fund's holdings at the end of June.

Both companies have slumped more than 25% in the past 6 months as China's government cracks down on various industries with regulatory changes.

To make matters worse for the Magellan share price, the investment manager's growth in total funds under management slowed month over month in August. Compared to previous months, with posted increases of around 3.5%, August experienced a marginal gain of 0.8% to $117.96 billion.

What do analysts think?

Three analysts have shared less than optimistic perspectives on the Magellan share price recently. Firstly, analysts at UBS cut its price target to $35 per share with a "sell" rating, down from a neutral. This would suggest at least a further 10% downside to the current Magellan share price.

Secondly, the team at Jarden has downgraded its outlook on Magellan shares to "underweight". Finally, leading broker Morgan Stanley has held an "underweight" rating on Magellan since August.

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