HOLD Magellan Financial Group

The Intelligent Investor Micky Mordech

With recent weakness in global stockmarkets reducing Platinum’s and Magellan’s funds under management, we’re lowering our price guides a little.

International sharemarkets have been savaged of late and fund managers have appeared particularly vulnerable. All else being equal, falling markets lower the value of fund managers because they reduce fee-earning assets under management, and reduce performance fees.

That’s why it can be very dangerous anchoring to price guides, and we need to be willing to change them in line with flows and market movements. With that in mind, we’re lowering our price guides for both Platinum and Magellan to reflect the recent sell-off.

Since we previously upgraded Platinum to “buy”, funds under management (FUM) have fallen by 7.3% to the end of November. That’s likely to have deteriorated further, as the bulk of Platinum’s FUM are invested in its international and Asian strategies, which are down 1.1% and flat respectively.

Magellan has performed relatively well over this period, with FUM falling 3% between September and November. This is likely to have gotten worse, however, as its flagship global fund has a higher weighting to poorly performing US equities.

It’s worth noting, though, that both managers have a significant weighting to cash, so current market conditions should benefit them over the long run. But that benefit will now be coming off a lower base, so we’re adjusting our price guides.

We’re therefore lowering our buy price for Platinum and Magellan to $4.50 and $20 respectively. We’re also lowering our sell price for Magellan to $30. In the meantime, we recommend in both cases that you continue to HOLD.