Financial Services: Fund managers - MTM update
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 08 June 2022, 10:00 AM
- Sectors Covered:
- Diversified Financials, Professional Services
- We mark-to-market forecasts for GQG Partners (ASX:GQG), Magellan Financial Group (ASX:MFG), Pendal Group (ASX:PDL) and Pinnacle Investment Management Group (ASX:PNI).
- Market moves in the June-22 qtr to-date include: ASX200 -4.5%; MSCI World -9%; MSCI World AUD -4.6%; S&P500 -9%; FTSE +1.2%; AUDUSD -4.1%.
- Our preferred pick across fund managers remains GQG Partners (ASX:GQG) (Add). We view the balance of investment performance; flows strength; and valuation as attractive.
- We move Pinnacle Investment Management Group (ASX:PNI) to a Hold recommendation (from Add). PNI has both structural growth within the affiliate base and further planned acquisitive growth. However, trading on a premium to the sector, we would prefer to let market volatility and weak sentiment around the risk of slowing retail net inflows pass before returning to our longer-term positive view.
- Pendal Group (ASX:PDL) (Hold): the flows outlook remains challenged (upside risk is present from a revisited bid from PPT).
- Magellan Financial Group (ASX:MFG) (Hold): least preferred with risk of accelerated retail outflows and retail fee cuts (new CEO).
GQG Partners (GQG) – Add
GQG ended May-22 with US$94.6bn in FUM, up 4.6% mom (US$90.4bn); and up 3.7% in CY22 YTD. Investment performance has been strong across GQG’s four strategies: YTD relative outperformance includes Global Equity +16.7%; US Equity +19.6%; International +7.3%; and Emerging Markets +1.2%.
GQG’s Mar-22 qtr inflows were US$3.4bn. We estimate implied net inflows for April/May (combined) have been ~US$2bn. GQG continues to run-rate at ~US$10- 12bn pa in net inflows (vs US$6bn pa in our forecasts).
View: forecast changes are minor (<1%). We expect GQG’s strong investment performance through recent volatility will cement the FUM base and near-term outlook for flows. Trading on ~13x FY22, we maintain an Add.
Magellan Financial Group (MFG) – Hold
MFG reported May-22 FUM of A$65bn, down ~5% over the month (Apr-22 A$68.6bn). Global equities now accounts for A$35.2bn of the A$65bn FUM base.
Implied net FUM ouflows for the month included Global ~A$1.9bn and Airlie ~A$0.5bn. The listed open-ended Global fund vehicle (MGOC) experienced net outflows of ~A$380m (~3.5% of units on issue), annualising at ~43% outflow pa.
View: we downgrade FY23/24 EPS by 8-10% (higher outflows). We view the risk/reward as unfavourable until more certainty is achieved on the FUM base. There remains risk of accelerated retail outflows (fund rating changes) and fee reductions (new CEO).
Pendal Group (PDL) – Hold
We make no changes to PDL FUM assumptions, with relative strength in UK funds offsetting weakness in Global/International funds. Our forecasts assume a ~4% decline in FUM to June-22 (from Mar-22).
Whilst PDL’s outflow run-rate decreased, we see risk of accelerated outflows in key retail/higher margin US pooled funds (eg, International Select).
View: no change to forecasts. PDL’s share buy back is likely to support the share price and we note there is upside risk from a revisited PPT bid. However, we expect outflows to persist and flows need to stabilize to see a sustained re-rating.
Pinnacle Investment Mgmt – Hold (previously Add)
PNI’s Mar-22 group FUM stood at A$$91.4bn (down 2.4% on Dec-21). Since Mar-22, notable fund investment performance (absolute and approx.) includes: Hyperion vehicles ~14-20% decline; ResCap Global -9.5%; Plato -6.5% Firetrail HC -6%; Solaris -2.8%; Antipodes +4.2%. At the group level, we expect FUM to be down ~2% to June-22 (~A$89.5bn).
We expect the retail flows run-rate to have softened further through 4Q22 (1H22 ~A$480/mth; 3Q165m/mth), a combination of market conditions and investment performance across some funds (notably growth funds, ie Hyperion).
View: we downgrade FY22 by 2.8% and FY23/24 by ~5%. We move to a Hold on a short-term call, preferring to let the risk pass of negative market sentiment to slowing flows (given PNI’s premium valuation to peers).
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