The Magellan Financial Group Ltd (ASX: MFG) share price fell by more than 17% in June. Ouch.
That came after a series of declines over many of the previous months.
Don't forget that Magellan is, or was, one of the biggest fund managers in Australia. So, movements in its total funds under management (FUM) can impact revenue, profit potential and investor sentiment.
With Magellan managing many billions of dollars of funds, if share markets fall, then the amount of funds it manages goes down. There's also a potential risk that investors using Magellan's investment services could get nervous about falling markets and take their money out of the fund manager.
Let's look at the company's latest update.
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Latest FUM update
The company announced its May 2022 monthly FUM update at the start of June.
At 31 May 2022, Magellan's total FUM fell to $65 billion, down from $68.6 billion at the end of April 2022. There was a reduction of both its retail and institutionally managed FUM, down to $23.6 billion and $41.4 billion, respectively.
Its global shares investment strategy saw FUM fall by almost $3 billion to $35.2 billion, infrastructure shares saw flat FUM of $20.7 billion, while Australian shares saw a reduction of $800 million to $9.1 billion.
Quite a lot of the FUM decline for the global shares strategy came from declines for the investment funds. For example, the Magellan Global Fund Open Class (ASX: MGOC), a $10 billion fund, saw a net return of negative 2.2% for May 2022.
The benchmark that the Magellan Global Fund tracks, the MSCI World Net Total Return Index (which tracks the global share market), suffered a 0.9% drop. So, while global shares declined, the Magellan Global Fund fell by more.
Interest rates and inflation
Magellan also has to contend with a rapidly changing investment environment.
Inflation is elevated in many countries, including the United States and Australia. Central banks are increasing interest rates to try to bring inflation under control. This could be one of the factors hurting the Magellan share price.
While interest rates returning to a more normal level was likely to happen eventually – emergency support settings don't usually last forever – the rate of interest hikes may have surprised many investors.
Time will tell what happens next with the global share market, but it may make it harder for Magellan to attract more FUM or achieve good returns if these difficult investment conditions continue.
Hamish Douglass to resume work
Magellan also announced on 9 June 2022 that Magellan co-founder Hamish Douglass will resume work in a new consultancy role on 1 October 2022. He is tasked with providing investment insights, including geopolitical and macroeconomic views.
But, he will no longer be a permanent member of Magellan's staff.
Magellan share price snapshot
Since the beginning of 2022, Magellan shares have dropped around 35%.
