As we often say, elastic bands stretch too far in either direction and this is true in many aspects of investing (and life!). One of the elastic bands we think is due a ‘snap-back’ is towards active equity managers that can deliver ‘alpha’. We’ve heard recently from the Future Fund who 6-years ago, went ‘passive’. They are now back to ‘active’ sending a clear message, that different styles work in different environments, and these times are now more suited to managers who pick the eye’s out of the market, assuming they can do this successfully of course. Magellan is one of these managers that had strong performance, for a time, then weak performance thereafter. That, amongst other things, led to huge outflows with FUM more than halving in less than 2-years. This is an extreme case, and there were multiple factors at play, however, the core of it was performance. Performance impacts flows and flows impact earnings.
- Around current prices, we believe MFG is priced for further outflows, with UBS putting a number of ~$6bn on this recently (v ~$41bn total FUM), not steady FUM, and certainly not for any inflows.
Perpetual has also struggled over the past decade but has not shown the boom & bust characteristics that Magellan has experienced, a result of their more diverse business, with a very stable trust services division, wealth management and of course, funds management. While we think there is more upside to go in Perpetual (PPT), adding ‘alpha’ is about relative performance and our analysis has MFG worth north of $12 (+40%) while Perpetual (PPT) in our view is worth ~$30 (+20%).
For our longer-term subscribers, you’ll appreciate the history of these positions. MFG was our weakest position in 2022 for the Income Portfolio. We eventually sold it at $12.15 in July, switching the funds to Pendal (PDL). Fortunately, we got the opportunity to sell PDL for a 25% profit in to the takeover by PPT. Yesterday we then sold the PPT position for a small profit, importantly, also avoiding the further ~30% downside in MFG while all this played out.
- We’re now back seeing value in MFG, and importantly, we see multiple potential catalysts for that value to be recognised, via improved performance that leads to better FUM flows, performance fees, and/or capital management.
MM is now bullish & long MFG
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