Ann: Funds Under Management - December 2021, page-54

I apologise in advance if the following post is out of sequence with the general tenor of this thread.

Had a technical problem posting this on another MFG thread, but now feel it was better suited to this one. My comments were a response to good post from @Chella in relation to the impact of under-performance on MFG share price.

Dear Chella,

Reading your posts since I first became an investor in MFG, I have come to recognise and respect your strong objective financial analysis of MFG.

Acknowledging and mostly agreeing with your company based analysis and conclusions, I believe the SP decline has much less to do with index under-performance than is being attributed. Of at least equal relevance is that (similar to a LIC) when the market loses confidence in a manager, performance becomes less important and market momentum gains in importance. I have found it to be a cyclical thing rather than performance, though clearly they are both interdependent.

I simply love LICs once they trade at a price greater than 15% below NTA. Their fate is almost assured that internal reconstruction action or external corporate activity will reduce the NTA/SP gap. This correction to the price/NTA anomaly is usually only a matter of time. Manager performance has very little impact.

In the case of MFG, underperformance started the loss of confidence in the manager. It would also have contributed to the accelerated the decline in share price. Thereafter, the quick departure of the CEO followed by HD's matrimonial issues took the SP to new lows and an elevated level of market scrutiny, including performance. Retail investors lost their nerve, no surprise there. Most of their investment gains probably evaporated in 3 months. That is usually the trigger that leads to the exit door.

Of more importance was the loss of the SJP mandate increasing the myopic concern of holders. Daily volumes and daily trades indicate most of the selling is coming from smaller holders with relatively large fluctuations in the daily share price. In the absence of retail buyers to soak up the selling the SP moves sharply up and down in a matter of hours.

I have not noticed much activity amongst substantial shareholders although clearly they may have reweighted positions which have yet to be disclosed. As such, I believe I am trading more against retail investors than institutions and my investment game plan moves accordingly.

I am not a technical chartist, but I often observe the conclusions of chartists tend to reinforce the variation of market sentiment and the psychology of market participants, especially widely held fickle retail investors/stocks. Over the decades, nearly every oversold position I have ever invested in looks vaguely similar to this one. Rarely do they reverse quickly.

I do tend to trade these situations on the margin for a 15%-50% retracement of SP gains/losses as punters look to bottom fish and often drive prices up quickly out of FOMO, but the short term gains rarely hold. I expect to play this stock the same, hoping though not guaranteed, to take some money off the table and realise a quick trading profit. I rarely let tax interfere or alter my investment decisions, it is a cost of business to me and I don't pretend to be smart enough to separate my buying decisions into revenue or capital account. I am an investor, pure and simple, not a trader.

Having outlined all of the above, a re-rating of the stock will not happen unless performance is seen to improve. That is not a one sided issue. Either (a) the indices increase at a slower rate or roll over, or (b) the performance of the specific fund manager positions improves, or (c) a combination of the 2.

Each will take time and the broader market direction will also play a part.

FUM may drift another 10% -15% excluding of market performance. So for me SP downside looks to be around $15. That is my most important statistical measure i.e. how much do I believe I can lose. I generally don't quantify upside as I know I will take profits on the way up.

I look forward to your posts and the many other genuine MFG contributors (that excludes all trolls) over the next 12 months. This story has many chapters yet to be written.

GLTASH