More pain to come for Magellan (ASX:MFG) shares: analysts

Could the struggling fund manager be in for more testing times?

| More on:
Female investor in front of computer with hands at forehead.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Magellan Financial Group is continuing its race into the green on Wednesday, up 3.2%
  • UBS analysts are wary there is an increased risk of further outflows on leadership changes
  • Uncertainty around more outflows continues to weigh on the Magellan share price

The Magellan Financial Group Ltd (ASX: MFG) share price is holding steady despite analysts sharing concerns for the fund manager in the near term.

At the time of writing, shares in Magellan are swapping hands at a price of $18.18, up 3.2%. This follows yesterday's pleasant change of scenery for the company's shareholders as the share price ascended 7.2%.

However, some analysts are being cautious to jump back on the Magellan bandwagon. After a monumental fall from grace, equity onlookers are wary of a few more lashings yet to be delivered to the Australian fund manager.

Teething issues as clients adjust to a new face

It wasn't too long ago that Hamish Douglass — Magellan Financial Group co-founder and portfolio manager — was touted by many as a superstar. The incredible success of Douglass' investments sent funds flocking to Magellan over the years.

Although, even superstars are capable of making a misstep. For Douglass, the decision to go cash-heavy during the COVID-19 recovery led to underperformance across the funds managed by ASX-listed Magellan.

As often the case, when it rains, it pours. A period of underperformance for the company's funds set the pace for a tumbling of dominos — cascading until Douglass made the decision to go on medical leave.

The task of picking back up the pieces has now been put in the hands of fellow co-founder, Chris Mackay. This includes a battered investment book, now hosting funds under management (FUM) of A$93.5 billion. Indeed, the A$116.4 billion in November 2021 seems like a distant memory.

Unfortunately, analysts are forecasting the situation to get worse before it gets better. Namely, the team at UBS, who believe the change in leadership presents a heightened risk of further outflows. Additionally, this could spell more bad weather for the ASX-listed Magellan share price.

Director at UBS, Shreyas Patel said:

While the stock is starting to reflect risks around key-person, outflows… and underperformance, there are still more questions than answers with respect to the outlook.

Recapping Magellan's recent run on the ASX

Shareholders of Magellan Financial Group have endured an abysmal start to 2022. While the S&P/ASX 200 Index (ASX: XJO) hasn't provided attractive returns — being down 5% — it is still better than the performance delivered by the Magellan share price.

On a year-to-date basis, ASX-listed Magellan shares are down 17.6%. This is creating a difficult situation for investors to gauge whether the company is undervalued at these levels.

Notably, the price-to-earnings (P/E) ratio is at its lowest in more than eight years. Currently, this metric is sitting at approximately 11.4 times. The only time the Magellan share price reflected a P/E this low in recent history was in 2018, at 15 times.

Should you invest $1,000 in Magellan Financial Group right now?

Before you buy Magellan Financial Group shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Magellan Financial Group wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 6 March 2025

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Financial Shares

A young woman drinking coffee in a cafe smiles as she checks her phone.
Financial Shares

Guess which ASX 200 stock is charging higher on 'strategic partnership' with Korean giant

Let's see what this deal means for shareholders of this company.

Read more »

Excited couple celebrating success while looking at smartphone.
Financial Shares

Why today is a very good day to own Suncorp shares

The insurance giant's shareholders are likely to be smiling wide on Friday.

Read more »

A man looking at his laptop and thinking.
Financial Shares

Down 29% in a month, here are 3 reasons you might consider selling AMP shares today

A leading investment expert says AMP shares are still a sell after this last month’s plunge.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
Dividend Investing

3 reasons to buy this $6 billion ASX 200 dividend stock today

A top expert foresees strong growth prospects for this ASX 200 dividend stock.

Read more »

A male ASX investor on the street wearing a grey suit clenches his fist and yells yes after seeing on his ipad that the Paladin share price is going up again today
Financial Shares

Guess which ASX 200 financial stock is rocketing 13% on big takeover news

This big news is getting investors very excited on Friday.

Read more »

Group of successful real estate agents standing in building and looking at tablet.
Financial Shares

3 ASX shares that just reported 30%+ profit jumps

It was a strong half for these three players.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Financial Shares

Magellan shares see green despite $500 million outflows in February

This adds to long-term outflows from Magellan's funds.

Read more »

A girl stands at a wooden fence holding a big, inflated balloon looking at dark clouds looming ominously behind her.
Financial Shares

Buying IAG shares? Here's how the insurer is preparing for Cyclone Alfred

IAG is gearing up to assist customers impacted by incoming Tropical Cyclone Alfred.

Read more »