The Magellan Financial group Ltd (ASX: MFG) share price has fallen 3% in the past month. I'd buy it before National Australia Bank Ltd. (ASX: NAB) at the right price.
What's wrong with NAB shares?
Following a 20% rally in the NAB share price over the past year, I think they are a little expensive. While they could be a good investment for dividends, I'd prefer a company with a little more growth potential.
Who is Magellan?
Magellan is a global equities fund manager.
What does that mean?
Magellan takes people's money, pools it together in a fund and invests in shares (which are also called equities). It charges a fee for managing the money and takes a cut of good performance, above a certain level.
Thanks to strong investment performance and a partnership in the US, Magellan's total funds under management (FUM) has swelled. Obviously, the more money it manages the more fees it can charge.
At the end of February, the company had $46.7 billion under management. That includes almost $40 billion in the company's flagship 'global equities' (read: global shares) strategy and another $7 billion in its infrastructure shares strategy. It is also pushing into low carbon strategies, which target investments in companies which are being mindful of environmental and sustainability issues.
Risks
There are many risks when investing in companies like Magellan. For one, they could have terrible performance and every investor leaves quicker than they came. Second, when (not if) the market crashes, the level of funds is likely to fall as a result of investors leaving, and fees falling.
Another risk is that the company becomes too large. As the amount of FUM increases, the more difficult it becomes to invest. This risk is lessened by the rollout of other strategies but their success is not guaranteed.
Foolish Takeaway
If I already held a lot of shares in banks like NAB, Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), I'd run the ruler over something like Magellan first. However, at today's prices, I'd probably hold off buying in. Obviously, the best time to buy in would be when the market is tanking or the company's investment performance has suffered.
