Financial Services: Fund managers - mark to market
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Date posted:
- 09 July 2020, 9:50 AM
- Sectors Covered:
- Contractors/Developers, Diversified Financials
- We mark-to-market forecasts for MFG, PDL and PNI.
- Market moves in 4QFY20 include: MSCI World up 17.7%; US S&P500 up 20%; UK FTSE100 up 8.8%; EU Stoxx50 up 9%; and the ASX200 index up 16.2%.
- We have a Hold recommendation on Magellan (ASX:MFG) (based on valuation) and Pendal (ASX:PDL) (based on investment performance / flows outlook). We retain an Add recommendation on Pinnacle Investment (ASX:PNI) as we view the business as having solid structural growth over the next five years, driven by the maturing profile of existing affiliates and funds.
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4QFY20 market recovery
Major market performance in 4QFY20 (June-20) includes:MSCI World up 17.7%; US S&P500 up 20%; UK FTSE100 up 8.8%; and the ASX200 index up 16.2%.
Against currencies, the AUD strengthened ~12.5% vs USD; ~12.5% vs GBP and ~10.5% vs Euro.
Magellan (MFG): Hold
MFG ended FY20 with A$97.18bn FUM: down 1.3% for the month; flat for the six months; and up 12% for the year.
FY20 average FUM was A$95.5bn, up 26% on average FY19. MFG starts FY21 with ~1.8% higher FUM versus FY20 average.
Net flows over 2H20 comprised: Retail: 3Q outflow A$87m, 4Q inflow A$576m; and Institutional: 3Q inflow A$1.4bn and 4Q inflow A$378m.
MFG expects to book a FY20 performance fee of A$81m, being 1H20 A$41.6m and 2H20 ~A$39.5m.
We view MFG as fair value (~26x FY21F PE and ~3.5% yield), but view the company and earnings profile as high quality.
Market direction is the largest swing factor to near-term forecasts, but we expect MFG to provide more detail on its Retirement Income product and potential unlisted/investment banking opportunity with the FY20 result (12 August).
Pendal (PDL): Hold
We estimate PDL's June-20 FUM at A$92.5bn, up ~7.6% for the quarter.
- Australian equities up ~14% for the quarter
- JOHCM fund movements, broadly being: Global ~23%, UK ~11%, EU ~20%
- A negative currency offset with the AUD strengthening ~12.5%. JOHCM flows will be a focus given the volatile conditions and investment underperformance of several larger UK/EU funds over the past 12 months (we expect to see net outflows of ~A$1bn).
Whilst PDL's valuation is undemanding, we are looking for an improvement in investment performance in key UK/EU funds which will improve the outlook for flows.
We maintain our Hold recommendation.
Pinnacle Investment (PNI): Add
PNI reported group FUM at A$57bn as at May-20, up ~8.3% for the quarter (from A$52.6bn as at Mar-20) and down 7.5% for the half (A$61.6bn as at Dec-19).
We expect June-20 FUM to close slightly higher (equity markets up~2.5% for the month).
Recent commentary from PNI has included:
- Net flows have been modest in both retail and institutional channels over 2H20;
- PNI's typical significant 2H earnings skew is not expected due to Covid FUM impacts, a lower Palisade performance fee and performance based distribution revenue “restrained”.
PNI has also announced its gross performance fee (group level) at A$25.8m, with a A$6.7m contribution to PNI. Performance fee contribution came from Hyperion, MCP, Palisades, Firetrail and Coolabah.
The standout investment performance was delivered by Hyperion (across all funds), with Hyperion Global delivering ~16.5% outperformance for the six months (which we estimate contributed ~A$10m of the performance fee).
We maintain an Add recommendation.
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