Magellan Financial Maintains Positive Outlook
Since his announcement in 2019, Chairman of Magellan Financial Group Hamish Douglass has remained tight-lipped about Magellan's retirement income product. The current challenge the firm thinks it can overcome revolves around the ways to obtain equity risk in retirement without having to expose an investor to sequencing risk. Specifically, sequencing risk has long been an unsolved problem but could easily occur when markets plummet.
Magellan has constantly positioned itself at the forefront of competition, and it is therefore not surprising that an innovative firm will excel in its field. Magellan’s first-half profit witnessed a 22.9 per cent increase as average funds under management climbed by an approximate 30 per cent during the period to almost $100 billion.
The global equities manager also presented a bottom line of $216.7 million – relative to $176.3 million in the previous period. Specifically, service and management fees climbed 26 per cent to $288 million. More importantly, in what will come across as good news for investors is that the firm has declared an interim dividend of 92.9 cents a share, up from 73.8 cents for the same period last year.
More recently, the chairman of the $100 billion investment house has also cautioned of a near-complete shutdown of the world economy. As he foresees the shutdown to take place over the next two to six months, he has therefore called on governments to step up stimulus packages while taking immediate measures to avoid a recession. The outbreak of the coronavirus had had severe implications for the economy as the local currency has plummeted to a 17-year low to US55 cents. As the ASX continues to skydive, the index will continue to generate losses, apart from the $665 billion it has incurred over the past four weeks.
Magellan’s share price has also been hit on Wednesday, 18 March, falling approximately 11.6 per cent throughout the day. To make matters worse, funds under management also recorded a month-on-month loss of $3.6 billion. Meanwhile, industry sources have identified the financial group of being particularly vulnerable to the extreme market volatility due to the exposure to global equities. From the company’s perspective, its head of infrastructure, Gerald Stack has assured clients that the firm will cut back on investments in airports and toll roads.
While toll roads and airports serve to provide fundamental services, it is undeniable that the demand for these services will return in the near future. However, the duration of the lockdown, as well as any subsequent economic downturns, will be crucial in determining how the recovery period for these firms. Despite the headwinds, Mr Douglass is confident that the company is in an excellent position to fight the battle. This is because the withdrawals of funds from investments will allow the firm to increase its cash reserves from 6 to 15 per cent. Specifically, to make the assets more defensive, all cash held are in US dollars.
By Caroline Wong
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