You are correct and we shouldn't look at one day or 2021 as the benchmark for Fund Performance, but we shouldn't also look from inception either. There is no way Magellan could recapture this growth with its current investment strategy. Magellan is now a mature Fund Manager and its high performance growth days are over, similar to IOOF, Platinum, MLC, Perpetual and Pendal. Magellan FUM performance slowed significantly in 2020 too and only started going backwards in the September quarter this year. Fund Managers take a while before they start to lose FUM and it is very hard to gain the momentum back (for example, Platinum continued to go backwards despite generating fund returns in the mid-20's). In researching other fund managers in US and Australia, a three year cycle seems to be a good representation of performance against investment style - would be good to get further feedback on this, any other thoughts.
The Fund Management business itself is at risk of declining fee earnings (see above table in my other post), due to competition to retain FUM and longer term underperformance compared to peers which will cause an earnings gap. I mentioned in previous post that growth momentum at Magellan could have continued if they considered purchasing a mid-sized US Growth Fund Manager. Would they still have a PE Ratio of 30 times, probably not but 22-25 would be more reasonable and a share price of $50 to $56. There is a low chance the investments in Barren Joey, Mexican Take Away or FinClear will contribute a higher growth story to Magellan. As @SP007 mentioned above, you may see $3 at best based on earnings contribution added over five years to the Magellan share price based on the non-core investments.
Looking at Barren Joey, the earnings contribution at best will be $20M in year one. This assumes a 5% earnings contribution at best if Barren Joey is able to achieve a 1% market share. Are there any figures on market share for Barren Joey yet? Over five years, earnings contribution will add $90M to earnings, but compared to what could have been if management had continued its focus on Magellan's circle of competence, we will unfortunately never know.
The point here again is that Magellan could have maintained higher PE Ratio/Valuation based on expanding Fund Management business in the US. There is so much scope for scale in the US for a good quality Fund Manager.
Best of Luck Lost
MFG Price at posting:
$36.28 Sentiment: None Disclosure: Not Held
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