Chasing Last Years Winners - A Losing Strategy

This thread has been taken over by non holder ‘told you so’ posters and their lengthy diatribes (always happens when there is a major sell off in a stock) so I thought I’d share some thoughts perhaps a little more useful to holders of MFG.

I’ve been reflecting on what the market thinking was when MFG was $60 and rising.

The market was clearly pricing in a continuation of strong FUM growth for the next several years and possibly some optimism on MFGs forays into Barranjoey, GYG, Finclear etc

It was also arguably carrying a premium due to Hamish’s ‘Midas touch’

The optimism around FUM growth turned to doubts around FUM growth which turned to fears around FUM declines and then as we know with the St James exit FUM declines were actually confirmed. With all of this of course the Hamish Midas touch premium disappeared.

But why has FUM declined ? Simple. Because Hamish made some bad calls and there have been much better returns out there. There is only so long investors will accept underperformance before they jump ship.

But I still believe the oversized returns were a one off .....they’ve been and gone....so St James jumping right now might prove to be a compounding mistake on their part.....same goes for all the $ being pulled out of Magellan that have gone off chasing last years winners.

The antithesis of the Hamish/Magellan philosophy and the decisions made around the COVID rebound is Cathie Woods ARK Innovation ETF (ARKK) listing in the US.It’s major investments are Tesla, Roku, Teledoc Block, Coinbase and the like which were flying through late 2020 and into early this year. She was suddenly lauded as an investment genius and built a cult following because she aggressively invested into a range of tech stocks that surged.

Investors piled into the ARK ETF and drove it from $38 in March 2020 to $159.70 earlier this year. This is the type of fund that drove an exodus from the ‘low flying’ Magellan funds and their very modest returns.

However the ARKK price was driven by hype and after peaking at $159.70 it has been slowly fizzling .....it has fallen to around $94 now.

In the past 8 weeks ARKK has declined from US$125 to US$94 - a decline of 25%

In the past 8 weeks the Magellan Global Fund (MGF - Magellan’s No. 1 fund) has been relatively steady in the mid $1.70’s

What will the ARKK returns look like compared to the MGF returns next time around? There is quite a lag between the realities of what is happening now above and the official announcement of outcomes/returns and how investors react.

The more the ARK’s of this world are exposed as one year wonders the less the likelihood of further outflows from Magellan funds.

The sell off to $21 seems overly pessimistic - it assumes significant further losses of FUM . You only have to assume a steadying of markets and in turn FUM to arrive at a price well north of that ....so at worst MFG is a ‘hold’......IMO.