Financial Services: Fund managers - MTM update

About the author:

Scott Murdoch
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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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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