The Magellan Financial Group Ltd (ASX: MFG) share price is 3% higher to $45.06 at the time of writing today, after the international equities group revealed it clocked $264 million in net inflows over the month of May.
Its institutional business took in $118 million in net inflows and the retail business took in $146 million, in what is a solid result over a rocky trade-war infused month for equity markets.
What's the outlook for the Magellan share price?
In fact, it was trade and global growth-related jitters that meant Magellan's total funds under management (FUM) for the month of May fell to $82.8 billion from $83.2 billion in April, as market movements in the value of underlying assets in the funds turned marginally negative. Another factor depreciating the measured value of the FUM is could have been the slight rise in the AUD/USD exchange rate over the course of the month.
Market movements and exchange rates are of course out of Magellan's control and investors should really focus on its operational performance, which remains positive via net inflows that are underpinned by the investment track record of the group's funds.
Notably, institutional money now makes up close to three quarters of total FUM at $60.7 billion out of a total $82.7 billion, which is a positive even though it offers slightly lower fee-earning margin than retail FUM. This is because institutional FUM is less vulnerable to the rise of passive or index investing (partly as the fees are already lower) and partly, inter alia, as institutional money has a mandate to seek higher returns.
We can see that Magellan is not as vulnerable to this structural change in the industry as others such as Perpetual Ltd (ASX: PPT) or WAM Capital Limited (ASX: WAM), although it should be noted there has been news recently of some industry funds seeking to move funds to in-house management.
Foolish takeaway
Given its FUM growth and some healthy performance fees, Magellan is certain to deliver another big half year of profit and dividend growth for the six months ending 30 June 2019.
Of course, the market has woken up to this now with the stock having doubled over the past year. Whether or not it offers good value now largely depends on your outlook for equity markets over the medium term of 1–2 years.
That's a tough one to answer, but given low rates seem here to stay it could be another positive couple of years. I'd probably rate it a conservative hold for now, although I would not be surprised if the stock is higher still, come the end of 2019.
