If you had mixed views on Magellan Financial Group Ltd (ASX: MFG) shares at the start of this week, you couldn't have been blamed.
According to its monthly update, the fund manager saw $800 million in outflows of shareholder capital in July. Shares had also been sold off sharply the week before.
But the fundie has turned heads this week with its FY24 earnings, driving renewed interest in its shares.
They are swapping hands at $10.73 as of market close on Friday, up 18% in the last week.
This has sparked a question in my investment cortex: Is Magellan back on track for sustained growth? Here are the two reasons why I'm now focused on Magellan shares.
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1. Earnings and strategies performing
Magellan's FY24 earnings were dotted with positives. The fund manager posted a 31% increase in net profit to $238.8 million.
Despite a 25% year-on-year decline in funds under management (FUM), the company managed to stabilise the outflows.
FUM reached $36.6 billion as of 30 June 2024 and climbed to $38.4 billion by the end of July.
But it was also the company's performance fees, a key indicator of Magellan's investment success, that stood out.
They soared to $19.2 million—the highest since FY21.
As a reminder, performance fees are charged when an active manager produces a return on the fund's capital above a certain watermark. If they do, they share a percentage of the profits.
This is an important data point in my view because the higher Magellan's performance fees, the better its investment strategies performed, which might be good for Magellan shares.
And ultimately, what attracts funds to a fund manager? Performance of its investment strategies, of course.
This boost, alongside a 16% reduction in funds management operating expenses, tells me the firm is focused on delivering what it traditionally has done best – strong investment returns.
2. Management shifts and new partnerships
One of the points that got me looking at Magellan shares was its new partnership with Vinva Investment Management, a quantitative investment fund.
It took a 29.5% stake in the quant fund, which manages around $22 billion, all raised here in Australia.
Magellan expects the acquisition to enhance the company's product offerings and appeal to a broader client base.
CEO Andrew Formica's commentary on the results was a strong signal of Magellan's forward momentum, noting "the chances of doubling this business over the next 24 months are definitely real", speaking to The Australian Financial Review.
Furthermore, new CEO Sophia Rahmani has taken the role in her stride. Rahmani was ushered in after Magellan's downward spiral, which saw it turnover three CEOs before her tenure.
The fact investment strategies are doing well, and maybe, just maybe, the brakes have been slammed on fund outflows, are good signs for Rahmani in my view.
What's next for Magellan shares?
Magellan shares are closely on my radar after the company's FY24 earnings. In my view, they have set the stage for what could be a pivotal year ahead.
This, alongside the Vinva partnership and cost management, might suggest that the company is on the early path to recovery. Time will tell.
In any sense, Magellan's robust FY24 earnings have reignited interest in its shares, making it a stock worth watching closely, in my opinion.
