Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Five reasons I like Magellan Group
The name is synonymous with investing in Australia, yet Magellan Group remains non-existent in many direct share portfolios. Having been founded in 2006, the group under the leadership of Hamish Douglass has grown to manage over $100 billion in assets and deliver profits exceeding $200 million a year.
I’ve always struggled to understand the investment opportunity in owning a fund manager, with the share price surely tied to the performance of the underlying funds. Yet Magellan is the perfect refresher as to why the conventional wisdom must constantly be questioned.
Having followed Magellan’s strategies for some time and regularly recommended their Infrastructure Fund run by Gerald Stack, it was clear the group was a growth investor closely mimicking the S&P 500 but for Australian investors. Whilst this may have been true in the early days, things have changed since.
Hamish Douglass has quickly cultivated an image as the Australian Warren Buffett, regularly presenting to crowds of thousands espousing his views on everything from virology to stock picking and asset bubbles.
At the same time he has created what is clearly one of Australia’s few global leaders, alongside CSL and BHP, in delivering high quality global investing to the masses.
Yet I could never justify recommending clients buy the stock or buying it myself. That is until now. A recent article highlighted that Douglass was clearly a better business owner than investor, at least for the time being.
And the comparison couldn’t be truer. As Magellan’s core actively managed strategies have underperformed in recent years, inflows into his suite of products have continued. How is that possible you ask?
Through innovation. Magellan has been at the forefront of an important transition occurring in investment markets that is ultimately aimed at delivering high quality products direct to investors and advisers, but also adding value in the process.
What began with the launch of a number of actively managed ASX-listed exchange traded funds expanded into the group offering rare dual structure products that allow both unlisted managed fund and listed investors to pool their funds together.
They say that in modern business you need to cannibalise yourself in order to deliver real change. Magellan has clearly been on the front foot in this regard with the launch of several lower cost ETF options being used to replace their long-standing core strategies. The group is by no means a charity, with management clearly seeking to capture more consistent, sticky assets under management and annuity-like base fees, as opposed to the highly volatile annual performance fees they have relied upon for many years.
A number of recent investments caused concern for many people and analysts following the company as they suggested management’s focus had moved from their core business. Yet this sort of entrepreneurism is actually encouraged in places like the US, Japan and China. Not so much in Australia.
Among these investments was a FinClear, a group working closely with the Australian Stock Exchange to assist in delivering a modernised low cost platform for investors.
Next is Guzman y Gomez, a private equity allocation to one of the fastest growing fast-food chains in the country and potentially the world. But finally, is Barrenjoey, the newest investment bank on the block.
Magellan is effectively seeking to become, or at least have a share in, the next Macquarie, or UBS. The group has poached staff from all across the industry, employing hundreds as a start-up as it seeks to capture significant market share with the backing of Magellan and Barclay’s Bank. Given Douglass’ history in backing himself, I personally have confidence in the potential for success.
Stepping back for a second, Magellan currently trades on a P/E ratio of just 19 x and offers a yield of 4.7 per cent plus franking. Both of these are improvements on the likes of the Commonwealth Bank and Westpac, which are clearly in highly disrupted sectors. This is clearly a fairly interesting diversification opportunity.
