Magellan share price rises despite fund outflows continuing

Investors have continued to pull money out of Magellan's funds.

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The Magellan Financial Group Ltd (ASX: MFG) share price is rising on Wednesday.

In morning trade, the fund manager's shares are up 1% to $9.25.

What's going on with the Magellan share price?

Investors have been bidding the company's shares higher following the release of its latest funds under management (FUM) update.

That update reveals that investors continued to pull money out of Magellan's funds in August. This led to the company's total FUM falling $200 million to $39 billion.

This reflects positive market movements and total net outflows of $300 million, comprising retail net outflows of $400 million and net institutional inflows of $100 million. The latter inflow may have caught the eye of investors. They may see this as a sign that the worst is now over for its institutional FUM.

Should you invest?

As things stand, the team at Goldman Sachs thinks investors should keep their powder dry.

A recent note reveals that its analysts have a neutral rating and a $10 price target on its shares.

Goldman is feeling a little more upbeat about Magellan but not enough to warrant a buy rating. In response to its FY 2023 results last month, the broker said:

We are more positive on MFG reflecting greater focus on right sizing cost base for current FUM levels resulting in earnings upgrades into FY24. Capital management / special dividend is also a positive reflecting willingness of management to continue to return excess capital to shareholders, alongside share buyback. Ongoing return of excess capital presents upside risk noting that the core FM business (ex tangible capital) trades relatively cheap at ~9.5x FY24E on our SOTP.

Albeit we do note this will be balanced against medium term aspirations for M&A and growth. We still remain cautious on revenue margins across institutional and retail where we think there could still be some pressure on fees ex impacts of mix and we note MFG's Core series product is priced at 50bps (suggesting demand for lower price point product). We also remain cautious on MFG's flow profile and performance.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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