Magellan Global Fund – A peer and benchmark relative analysis

A lot has been said and written about Magellan lately but we have not seen a ‘post mortem’ conducted on a peer and benchmark relativity basis. We see the potential value of such analysis as primarily fourfold: 

1. Highlighting where investment management may need to change; 
2. If nothing is changing at Magellan (as seems to have been the message from last Friday’s briefing), then what are the potential risks; 
3. For investors considering redeeming, pointing to comparable investment strategies in the peer group tables, and; 
4. Potentially giving investors a more informed basis in which to make a decision (the data does not lie).

It is money weighted performance that matters to the bulk of investors 

One very important point to make at the outset: Time weighted performance is not money weighted performance. By Dec 2012, MGF’s retail investor FUM was slightly over $2bn. By 30 June 2020, it had grown to $26.8bn. Over this period, MGF underperformed both the Peer Index and the MSCI World (see chart in report). That is, most investors (the Money Weighted performance) have experienced relative underperformance by being invested in MGF. It is all well and good to say that “Magellan has created billions of dollars of value” but the real question is whether the bulk of the dollars invested (bulk of the investors) enjoyed relative outperformance. The fact of the matter is they have not and this during a period in global equities favourable to the Magellan Growth, Quality, Mega-Cap investment style. 

A peer group and benchmark performance assessment

The tables and charts in the report detail key risk/return metrics of RRM’s universe of Australian-domiciled broad, developed market global equities unlisted managed funds as well as the benchmark index, the MSCI World ex Australia index. Why are we using an unlisted managed fund universe and not an ETF universe? Because the ETMF and unlisted managed fund versions of MGF are identical and the unlisted managed fund sector provides a greater number of relevant mandates and that have sufficient track records – the Active ETF sector currently does not or for many relevant ETMFs, the track-record is too short.

It might be stating the obvious, but peer relativity analysis (versus just comparing to a benchmark index) is useful in that it can reveal, in a relative sense, manager skill and draw attention to investment mandate alternatives, notwithstanding that different mandates may have key objective differences.

We table four key measures: returns, risk, capital preservation (drawdown) and efficiency (capture ratios). All of these measures would be clearly understood bar the efficiency ratios, a seriously utilised performance measure in RRM’s view. Just ask Magellan – they publish a Downmarket Capture Ratio (but that is an incomplete measure without a corresponding Upmarket Capture Ratio). So, we explain these ratios at the end of this piece.

Download the PDF to access the full ETF Flows report

Click on the pdf below to access the full report and the key conclusions, being:

• It has been a long time between Outperformance drinks:
• Capital Preservation – Solid, but not as Solid as may first appear;
• Manager Efficiency – Where the rubber hits the road;
• It could be a long way back;
• Magellan’s positioning in 2020 was unique.