Let the Funds Flow

Magellan Financial Group finished 2016 with funds under management of $46.5 billion – a record level for the company – and up 17% on a year ago. Driving the rise was $5.1 billion of net inflows and $2.4 billion of investment performance over the year.

 

Retail funds flows started the first half of FY17 strong, but momentum subsided in the December quarter. We suspect this was largely due to market turbulence and increased competition, e.g. new products from the rivals such as Antipodes and Hyperion.

 

Institutional fund flows remained strong over the first half of FY17, giving credence to management’s assertion that remaining capacity for existing strategies will be filled.

 

Magellan Financial’s funds under management finished the first half of FY17 some 7% above our forecast, leading us to raise our forecast for FY17 funds management profit before tax by 5%.

 

The stock rallied 17% following our recommendation upgrade to Buy in October, but we continue to see strong absolute valuation support for Magellan Financial and have raised our target price to $27.58 from $26.47. We reiterate our Buy recommendation.

 

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