Magellan Financial’s funds under management drops $5bn to $69.1bn over two weeks

Shares drop to 7.5 year low after reporting its funds under management has dropped $5bn in just two weeks, hit by market volatility and investors pulling their money.

Magellan Financial interim CEO Kirsten Morton and chairman Hamish McLennan at their offices in Sydney's CBD. Picture: Britta Campion/The Australian

Magellan Financial shares have fallen to levels not seen for more than seven years after the investment management giant said it had been hit by significant fund outflows.

The company – now chaired by Hamish McLennan and led by co-founder Chris Mackay after the exit of star stockpicker Hamish Douglass – said it had experienced $5bn in outflows since its last update in February. The majority were in the company’s global equities strategies, which fell from $47.1bn late last month to $39.2bn.

Those global equities strategies – Magellan’s flagship products – have lost more than half the funds they had at the start of this financial year. In July, the company reported $85.4bn under management in those funds.

The company’s other strategies have fared better – funds in the infrastructure stream have risen from $18.9bn in July to $20.4bn, while Australian equities products remain unchanged.

“The change in FUM comprised market movements (including foreign exchange and reflecting recent market volatility), net outflows and notifications of intention to redeem since the most recent FUM update on 25 February 2022,” Magellan said in a brief ASX statement.

Shares fell 1.4 per cent to $14. They are now down 23 per cent in the last month and 69 per cent over the past year. The last time Magellan shares traded at these levels was in November 2014.

Markets had expected a level of outflows in February amid leadership turmoil and warnings from influential investment advisory groups, which have become increasingly wary of the company’s performance.

Last week, UBS equity analyst Shreyas Patel estimated that retail funds had experienced outflows of at least $1bn that month.

“The key Global Fund … saw $725m net outflows alone, a sharp acceleration on December/January and likely to step up in March following rating agency downgrades,” Mr Patel wrote to clients.

“February was a disappointing month with underperformance across the company’s three key strategies,” he added.

Magellan’s listed Global Fund posted a 7.2 per cent loss in February, although it is up 9.1 per cent over the year. That, however, is half the performance posted by its benchmark index. Over the last decade, the Global Fund has performed as well as the market.

In its most recent update, influential advisory group Morningstar said that while the new investment team – which includes Mr Mackay, who had focused on MFF Capital since 2012, and former research head Nikki Thomas – had committed to the same strategy being pursued by Mr Douglass, “there are question marks over how it will be executed”. “Magellan’s approach targets a thoughtful balance between high-quality growth stocks and lower-volatility defensive names,” wrote Morningstar’s Chris Tate about the Global Fund. “This has delivered exceptional results for investors up until some recent missteps.

“Recent underperformance reflects poor judgment surrounding the regulatory risk in China, rather than a fundamental breakdown in process. A more collaborative team approach is likely to promote more rigorous portfolio discussions.”

Lonsec, another influential research outfit, in early February placed eight of Magellan’s global products on “fund watch”, indicating Lonsec believes no new investment should be made into that financial product.

Lonsec could downgrade the funds to “redeem”, which would indicate that investors should take their money out of the product, subject to seeking financial advice. The ratings are used by financial advisers as they decide where best to place their clients’ money.

Mr Douglass has taken leave of absence to focus on his health after a difficult period – both at Magellan and in his personal life – but the company has not provided an indication of how long the leave may be. Kirsten Morton is acting chief executive.