Shares in Australian fund manager Magellan Financial Group Ltd (ASX: MFG) are rising today to now trade less than 5% in the green at $17.17 apiece.
Investors seem in unusually good spirits today with this buying activity – because Magellan shares have collapsed more than 20% since January 1, and are now down more than 66% for the year.
Perhaps investors are buying the 7-year lows, or perhaps they like Magellan's current valuations with the recent downturn. Or it could be that the market has now fully priced in the fund manager's recent woes, spurred on by a fling of internal dramas in past months – who knows.
One thing we do know is that the team at Swiss Investment bank UBS aren't so rosy on the outlook for Magellan shares going through the remainder of 2022. Let's take a closer look at what it said in a note to clients today.
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Is there more downside for Magellan to be priced in?
Investors should recall that co-founder and Magellan name face Hamish Douglass recently took medical leave, not long after former CEO Brett Cairns departed the company on questionable terms.
Plenty of other drips and drabs have unfolded on top of this in recent months, leaving investors downbeat on the prospects of catching the falling knife in Magellan's case.
Shares are now in a multi-year trough after melting from previous highs of $55.90 back in June last year, as investors ran for the hills when the calamity first began.
Not only that but it's understood that several of the company's directors are tied up in a scheme of equity loans, that must be paid back in order to release shares from escrow. Some directors even provided the loans when shares were trading at substantially higher values than now.
As a result of the downturn – which is more than just a pullback or correction – the team at UBS have cautioned investors on the outlook for Magellan.
Analysts at the firm note that Magellan's share price now reflects a melting pot of key-person risks, outflows, unjustifiable active management fees and not to mention the substantial tracking error from benchmarks.
The firm believes this most recent consolidation should have demonstrated the funds' "low downside capture", however investors are running for the hills instead. "We note this in contrast to Global equity peers demonstrating downside protection in recent months", the firm said.
Consequently, there are plenty of questions left unanswered in the fund manager's case, not to mention that Douglass' leave of absence could further "raise the risk of outflows [in the] near term", UBS says.
This could further impact its share price by adding another drain and/or pull on cumulative performance, this time from outflows versus just a reduction of assets under management.
Still lagging in 2022 as well, UBS says
The broker reckons that Magellan's premier funds would have lagged benchmarks across the board last month as well, estimating the Infrastructure fund underperformed by 260 basis points alone.
It also estimated that the Global equity strategy lagged by 0.6% and the Airlie fund lagged by a quarter of a percent in the month of January – even after a minor recovery mid-December.
"Incremental monthly performance does not appear to have turned the corner" UBS notes, alluding to recent weakness in tech giants Netflix and Facebook's share price in the assessment.
UBS retains its sell rating on the stock – a rating that the Swiss Investment bank has held since August last year when it downgraded the company from neutral.
In fact, UBS has never really been constructive on Magellan, with its most bullish price target of circa. $63 still rated a neutral back in 2020.
Its last buy rating was way back in 2019 when it valued Magellan at $28.90 per share. The broker has a last published price target on Magellan of $17 per share.
The Magellan share price has faltered another 13% this past week and is now down almost 10% in the previous 5 days of trading.
