Magellan Asset Management on its winning formula

Funds Management

by Jessica Amir

Magellan Asset Management's Key Account Manager Allan Evans covers how the firm has evolved over 13 years and provides insights into the company's coveted global and infrastructure strategies.

Jessica Amir:
Hello I’m Jessica Amir for the Finance News Network at the InterPrac Financial Planning PD Day, with Magellan Financial Group (ASX:MFG) Key Account Manager, Allan Evans. Allan welcome to the Network.

Allan Evans: Thanks for the opportunity Jessica.

Jessica Amir: Magellan Financial Group, you’ve been through a lot in the last 13 years, you’re now a top 100 ASX-listed company. But just walk us through what’s been happening.

Allan Evans: Certainly the size of the business has changed quite dramatically, in that period of time. I’ve been with the company for 10 years and when I started with the business, there were 24 people in the company in its entirety, 10 people in our investment team. And our funds under management was less than $700 million. If you fast-forward to where we are now, there are 128 people in the company. There are also 30 members of the investment team and our funds under management are just over $76 billion.

So quite a lot has changed in terms of the growth of the business. But what hasn’t changed is our process and discipline behind what we do. And that is very consistent from when Hamish Douglass and Chris Mackay founded our business. We haven’t deviated from the course there at all.

Jessica Amir: Now to your offering, just walk us through your investment process?

Allan Evans: The first part of the process is undertaking broad and detailed macroeconomic research. So looking at things like interest rates, inflation, unemployment, GDP etc. And that really, we try to identify at that level event risk, possible event risk. The second part of the process is very detailed bottom-up stock research. And we’re looking at sectors that will outperform the border macro, and we’re also looking at identifying the highest quality stocks, within those sectors.

The third part of the process about portfolio construction and how you construct your portfolio, to deliver on the dual objectives that we have, and that is delivering consistent risk-adjusted returns through the cycle, whilst trying to minimise the risk of a client suffering a permanent capital loss.

Jessica Amir: Advisors and investors can access your market leading strategies in two ways, you’ve got global funds and infrastructure funds. Just walk us through your offerings.

Allan Evans: You can access those strategies in a couple of different ways. One is in an unlisted space. So we have the Global Fund and Global Listed Infrastructure in unlisted, so a unitised product via a PDS, an application form. We also have the Magellan High Conviction Fund as well in an unlisted format, and that is an eight to 12 stock concentrated portfolio. And there’s also our newly launched in June last year, Airlie Australian Equity Fund that’s also available under that structure.

The other way you can access a strategy is via the ASX. We have three active exchange-traded funds, two global, the Magellan Global Fund (ASX:MGE), and the Magellan hedged version of that (Magellan Global Equities Fund (ASX:MHG)). And also the Magellan Listed Infrastructure (ASX:MICH), which is also hedged. We also have a listed investment trust, the Magellan Global Trust (ASX:MGG), which again you can access via the ASX.

Jessica Amir: Moving to the highly coveted Magellan Global Fund, which has got the highest rating from Morningstar (NASDAQ:MORN). Just walk us through that and its objectives.

Allan Evans: The two main objectives we have in that fund, are first of all, to minimise the risks of a client suffering a permanent capital loss. So we have a very, very strong view at Magellan that clients win when they don’t lose. So protecting capital, particularly in volatile markets is a key focus and objective of us. The second objective that we have is an absolute return objective, it’s not a guarantee, it is an objective of delivering consistent risk-adjusted returns, through the investment cycle. And to that end, we aim to deliver nine per cent net of fees through the investment cycle. And to date thankfully, over every time period since inception of the fund 1st of July 2007, we’ve been able to deliver on both of those objectives.

Jessica Amir: Can you tell me a little bit more about the portfolio?

Allan Evans: The portfolio is split into two main buckets in terms of the equity exposure in the portfolio. And that consists of a defensive bucket and also an offensive bucket. So the defensive bucket is really, gives you the led in the keel in the portfolio, particularly if you have volatile markets, a very defensively paced business. So if you think of businesses like Starbucks (NASDAQ:SBUX), think of businesses like McDonalds (NYSE:MCD). Think of businesses like Yum! Brands (NYSE:YUM), which is KFC, Taco Bill, Pizza Hut worldwide. So again, very consumer-focused businesses that are very defensive in nature.

The second sleeve of the portfolio has businesses like Facebook (NASDAQ:FB), Alphabet Google (NASDAQ:GOOG), Apple Inc (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Visa Card (NYSE:V), Mastercard (NYSE:MA) etc. And they’re your more growth engines of the portfolio. We also use cash in the portfolio to provide some additional defence in the portfolio, if you get volatility in markets. So currently the cash levels of the portfolio are around 16 per cent.

Jessica Amir: Is there anything that you wanted to add, just lastly before we let you go?

Allan Evans: I guess in terms of the portfolio and where it’s set, we’re not bearish but we are very cautious, in terms of how we put together our portfolio. So it’s very defensively structured with elevated cash levels. If we do get market volatility, you do have some protection on the downside. And also you have dry powder in the form of cash that you can deploy, to take advantage of that volatility if need be.

Jessica Amir: Thank you so much for your time Allan Evans from Magellan Financial Group.

Allan Evans: You’re welcome.


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