Investors are bidding up the Magellan Financial Group Ltd (ASX: MFG) share price on Wednesday following its February funds under management (FUM) update.
In afternoon trading, shares in the funds management company are 8% higher to $9.25. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is marching in the opposite direction today, sliding 0.25% to 7,704.9 points.
The negative market move has failed to cloud the optimism surrounding Magellan shares, even though the beleaguered financial house suffered another $200 million in outflows last month.
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Grateful for growth
Shareholders appear to be shrugging off yet another month marred by a withdrawal of capital.
In February, Magellan witnessed $200 million of net outflows from its customers. The outflow comprised $100 million of retail funds and $100 million of institutional funds. On the bright side, this reflected a reduction from the $400 million outgoing investor capital in January.
Another positive from today's announcement is the enlarged total funds under management that the company earns fees on. Growing from $36.3 billion at the end of January, the company recorded $37.2 billion in funds it oversees at the end of February — increasing approximately 2.5% month-on-month.
Given the fund experienced a net outflow, the only way for FUM to increase is through the appreciation in value of its managed assets. Below are the changes in funds under management by asset class:
- Global equities: $16.4 billion, up from $15.5 billion
- Infrastructure equities: $15.5 billion, down from $15.6 billion
- Australian equities: $5.3 billion, up from $5.2 billion
Increasing 5.8% in value, the global equities portion of Magellan's managed assets delivered the strongest growth. Assuming the increase is wholly attributable to returns, this beats out the Vanguard MSCI Index International Shares ETF (ASX: VGS)'s return of 4.05% during February.
This might instil confidence among shareholders for improved performance fees in future reports.
Good signs for the Magellan share price?
Ideally, Magellan would grow its funds both ways: appreciating assets and incoming investor funds. However, the fund manager's profits are greatly helped by additional fees on market outperformance. In other words, it certainly doesn't hurt to fatten those funds through capital appreciation.
Analysts at Citi are keen to see the official February performance figures (yet to be released) before casting definitive judgement. The team thinks a rut of underperformance will have likely improved but is waiting to see.
Lastly, the Citi team maintains a cautious outlook on FUM growth amid a new chief at the helm. The broker currently holds a sell rating on Magellan shares with a price target of $8.10. Based on today's price, this would suggest more than 12% downside.
