The Magellan Financial Group Ltd (ASX: MFG) share price has had a terrible time over the past month, falling by around 75%.
But, can the next 12 months create a turnaround for the business?
It's probably a good idea not to anchor our thoughts about where share prices have been in the past. Just because the Magellan share price was above $40 a year ago doesn't mean it's going to get back there any time soon. If it did, that would be a rise of more than 200%.
The underperformance of Magellan's main investment funds and the loss of funds under management (FUM) may explain the downward plunge of the Magellan share price.
But, can things turn around?
Performance
Magellan operates many different funds, But let's look at one of the biggest funds – the Magellan Global Fund (Open Class) (ASX: MGOC) which is $10 billion in size.
At 31 March 2020, close to the bottom of the COVID-19 crash, the Magellan Global Fund told investors it had produced a net return per annum of 16.1% over the prior three years, outperforming its global share benchmark by an average of 9.7% per annum.
However, by 31 May 2022, the Magellan Global Fund showed a net return of 4.9% per annum over the prior three years, underperforming the global share benchmark by an average of 6.5% per annum.
While investing is about the long-term, a heavy underperformance in a relatively short period of time has led to the loss of tens of billions of dollars of funds under management (FUM).
If Magellan can produce some outperformance then it may be able to slow or even reverse the FUM net outflows.
At 30 June 2022, it had $61.3 billion of FUM, down from $65 billion at 31 May 2022. For the three months to June 2022, the business suffered $5.2 billion of FUM outflows ($1.7 billion of retail FUM and $3.5 billion of institutional FUM).
Broker thoughts on the Magellan share price
The broker Morgan Stanley currently has an underweight rating on the business, with a price target of $11. It did note that investment performance had improved in June.
Morgans is neutral on the business with a price target of $13.43, which implies an upside of around 10%.
The broker Macquarie is neutral on the Magellan share price, though the price target is $11.50. It thinks there will be more outflows over the next three months.
Finally, Credit Suisse is neutral on the business, with a price target of $12. It thinks Magellan needs to deliver better fund returns before positive market sentiment can return.
