Ann: Funds Under Management - October 2021, page-139

The fact that people are referring to downside protection as a marketing tool makes me VERY concerned about the current state of the market.

Magellan's average fee is 61 basis points (From their 2021 annual report). Most of their clients are larger institutions, it's only retail money that pays 135 basis points. Downside protection is invisible in a very strong bull market. Magellan run a portfolio that has a beta of 0.75-0.8, meaning they take 20-25% less risk than the broader index funds. Why are clients happy to pay higher fees? Magellan's clients want preservation of capital, many of which are large insurance and pension companies with variable obligations and can't afford to see a 40-60% drawdown event whilst simultaneously meeting obligations (this is called sequencing risk), they don't care if they lag the benchmark, they care more about solvency, volatility and the requirement to grow capital above the growth rate in liabilities (pension accounting.), the 10% p.a when running a lower beta than the market is very attractive to institutions.

I do agree that most active managers will underperform the market over time, however one must accept that peoples investing goals need to take into account more than the return but also peoples sensitivity to market volatility and appetite for risk. If you had $300 million to invest, would you care more about capital preservation or beating a benchmark ?

The table shows their performance end. March 2020, after the corona market decline. I'd argue downside protection is clearly more than a marketing tool,





Plague.