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Magellan Global Equities Fund

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This week Money asks Lonsec where to invest and their pick is the Magellan Global Equities Fund.

Objective: (product disclosure statement) To achieve attractive risk-adjusted returns over the medium term to long term while reducing the risk of permanent capital loss. Internal objective: 9%pa (net fees) over five to seven years Stated risk objective: Beta of 0.80 or less Distributions Annually Management fee: 1.35pa (management costs), performance fee 10% of excess return above a hurdle Responsible entity: Magellan Asset Management ltd (MAML) Fund manager: Magellan Asset Management

The Magellan Global Equities Fund is an active, benchmark-unaware, long-only investment vehicle that invests across global markets and has been admitted to trading status on the ASX Aqua market under the ASX Aqua rules framework (ASX: MGE).

magellan fund

The fund has the same features and investment process as the unlisted Magellan Global Fund, which has been operating since July 1, 2007.

The fund shares many characteristics with exchange traded funds (ETFs), which are also listed on the ASX, though differs in two important respects.

First, the fund discloses holdings on a quarterly basis, whereas ETFs disclose on a daily basis.

Second, it acts as a market maker for the buying and selling of units, whereas ETFs usually appoint third-party market makers.

This means any profit and loss generated from the market-making activities is for the account of unitholders in the fund.

The fund is relatively concentrated and invests predominantly in large-capitalisation stocks. It can also invest up to 20% in cash as a capital preservation/risk control mechanism.

It is managed with a blend of bottom-up (company specific) and top-down (market direction) views. In its stock analysis, the manager is looking for quality companies but does not want to overpay. Lonsec notes the fund has exhibited a growth-style bias over time.

Also noteworthy is the fund's overall beta cap of 0.80, which may limit the extent of capital fluctuations to less than the broader market.

Given the unconstrained investment approach, the fund is expected to vary markedly relative to well-known global equities benchmarks.

Since listing in March 2015, it has grown to over $300 million and attracted over 6000 investors.

Strengths

  • Well-resourced and growing investment capability; 
  • Highly comprehensive fundamental stock research; 
  • Good alignment of interests with investors (30% of MFG owned by principals and staff) and strong co-investment in this fund by MAML; and 
  • Strong performance track record relative to stated return objective and generally across peer group.

Weaknesses

  • Above-average base management fees relative to peers while charging a performance fee; 
  • Low firm tenure across investment team given continued influx of new hires; and 
  • Primarily Australian-based investment team, limiting access to on-the-ground intelligence.

Magellan

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