The Magellan Financial Group Ltd (ASX: MFG) share price is enjoying a rare day in the green today and is now up 1.67% at $14.59.
However, it's been a tumultuous year for Magellan shareholders who have seen the stock lose 66% of its value in the past 12 months. It is also down 31% this year to date.
As shown below, the gap between the benchmark S&P/ASX 200 Index (ASX: XJO) and the Magellan share price is widening substantially as time goes on.
One broker thinks it's unlikely the fund manager's shares will return to their former high, at least in the near term. It cites February's underperformance across each of Magellan's three investment strategies. Here's what UBS analysts had to say recently.
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More downside to come for Magellan?
Analysts at Swiss investment bank UBS are bearish on the Magellan share price and reckon there is more pain ahead for shareholders.
The broker notes that February was a poor month for the fund manager, with each of its core strategies underperforming their respective benchmarks.
Originally it was just the global strategy's performance that had been called into question. However, UBS points out the underperformance has crept its way into the infrastructure product as well – such that three-year rolling returns are now negative.
The risk for Magellan, according to UBS, is that this underperformance stems the volume of outflows in its infrastructure fund as it did to the global strategy.
This "outflow risk" is unlikely to have been factored into consensus forecasts and earnings estimates, UBS says.
UBS has rated Magellan a sell since September last year and currently holds that rating with a $13.50 price target.
Meanwhile, JP Morgan also just downgraded Magellan to underweight, citing valuation and the business risks it is facing.
"However, we remain cautious on the outlook for MFG, noting substantial pressures that the business is facing," it said in recent note.
JP Morgan analysts also highlight the outflow risk, and that inflows are "likely to remain weak from recent events, including Mr Douglass' leave of absence triggering mandate losses". Chairman and chief investment officer Hamish Douglass recently took a medical leave of absence to focus on his health.
"We expect the stock to remain under pressure until fund performance improves and the near-term fund flow profile stabilises," it added.
According to Bloomberg Intelligence, 64% of brokers have Magellan as a sell right now, with just one broker advocating to buy. Curiously, these numbers are basically unchanged from a year ago.
Magellan share price summary
It's a sea of red for the Magellan share price over all recent time periods. In addition to its big falls over the past 12 months and this year to date, it is also down 11% over the past month and nearly 21% over the past week.
