The dreaded 'I' word has done the rounds in financial markets since the beginning of the year, steamrolling any equity daring enough to stand in its way. In the process, shares in Magellan Financial Group Ltd (ASX: MFG) and other fund managers on the ASX have felt the sting of inflation.
However, investors could be in for more pain as a 40-year high in US inflation increases the chances of the Federal Reserve hiking rates by a sizeable 75 basis points.
The expectation for higher interest rates means more market participants are opting to watch how this pans out from the sidelines while holding cash. In light of this, fund managers are more and more becoming FUD (fear, uncertainty, and doubt) managers.
Let's take a look at how this battle has impacted Magellan and other fund manager shares recently.
Fund flood gates wide open
For Magellan shares, the pain began with the loss of its contract with St James's Place back in December last year. Prior to this, the ASX-listed fund manager counted more than $116 billion in funds under management (FUM).
Fast forward to the end of May this year, and Magellan is looking at a total FUM of $65 billion. That is nearly a slicing in half of the company's former glory. Consequently, Magellan shares have similarly fallen away, tumbling 36% year-to-date.
The once-admired fund has struggled to retain investors' money amid the challenging macroeconomic conditions. Not to mention the difficulty in enticing new investors while many of its managed funds underperform benchmarks. For example, the Magellan Global Fund (hedged) has provided lesser returns than the MSCI World Net Total Return Index over a one-year, three-year, five-year, and seven-year period.
Fellow ASX-listed fund manager Platinum Asset Management Ltd (ASX: PTM) has also suffered at the hand of fund outflows. After entering the new year with a tidy sum of $22 billion in FUM, Platinum now only has $19.6 billion under its belt.
Ultimately, the reductions in funds under management directly impact the company's bottom line. In the fund management business, revenue is a percentage fee of the total FUM. As you can see, these companies have an uphill battle to stem the outflows.
Doing better than Magellan shares
One ASX-listed fund manager that appears to be fending off high-interest rate fears is GQG Partners Inc (ASX: GQG). The US-based global boutique asset management firm has experienced a net inflow of funds since the end of last year.
According to the latest FUM report, GQG Partners held $94.6 billion, up from December's $91.2 billion. Part of the reason might be GQG's outperformance compared to benchmarks over the last few years. Furthermore, growth in the company's FUM has served up increased revenue over the past 12 months.
As covered by my colleague Sebastian, it is believed that Magellan shares will continue to reel in pain until its own performance figures improve.
