Despite the recent relative performance and press coverage, the Magellan Global Fund has retained its “5 IP” rating from Research IP, with a score of 4.40/5. The Fund continues to meet its stated object, that is to deliver 9% p.a net of fees over the economic cycle.
The Magellan Global Fund invests in outstanding global companies, which is defined as those that are able to sustainably exploit competitive advantages in order to continually earn returns on capital that are materially in excess of their cost of capital.
Magellan focuses on risk-adjusted returns, rather than benchmark-relative returns. As a result, the Magellan Global Fund’s investment process is designed to generate an unconstrained, concentrated portfolio of high-quality companies Magellan believes that an appropriately structured portfolio of 20 to 40 investments can provide sufficient diversification to ensure that investors are not overly correlated to any single company, industry-specific or macroeconomic risk.
What is the Fund’s competitive advantage?
A recent update from Hamish Douglas, he suggests that if inflation doesn’t roll over by the middle of the year, then central banks are currently in the wrong position. Small increases in interest rates through 2021 already caused stock prices of several unprofitable businesses to plummet. “At the end of the day a company is only worth the discounted value of all future cash flows.” A link to the update can be found in this post What does 1999 have to do with supermarket shelves today? – Research IP (research-ip.com)
Qualitative Research Report and Data Tear Sheet
Research IP says
“Magellan comprises a team of over 130 staff, a large proportion of this supports the 34 strong investment team. This ensures appropriate attention is being given to the operational aspects of investing and assists to keep investment personnel focused.”
“A key differentiator of the strategy is its deep research on companies, sometimes missing short term opportunities while getting greater comfort with the long term prospects of the business. The focus on reducing drawdown risk from unforeseen shocks is also controlled at the portfolio level by keeping the combined risk ratio (a combination of beta and drawdown risk) under 0.8. As such investors should expect the portfolio to lag in strong momentum markets, but outperform in falling markets.”
“Through COVID-19 in 2020 Magellan made changes through their portfolios taking risk off where the industry no longer made sense or had undergone significant change, or adding risk where they thought the long term sustainable moats and benefits around cashflow growth remained. They also increased cash from 6% to 17% in the period from December 2019 to March 2020. However, they recognised that their view changed as more information came to light and remained defensively positioned for much of 2020. Cash was redeployed into the portfolio through 2021, down to around 5-6%.”
Research IP, 10 January 2022
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Disclaimer, Disclosures and Warnings
Research IP strongly recommends this document and report be read in conjunction with the relevant Product Disclosure Statement. Research IP gives no warranty of accuracy or completeness of information in this document. Any information, opinions, views or recommendations are general information only and do not take into consideration any person’s particular financial situation or goals and therefore does not constitute financial advice. This document should not be relied upon as a substitute for financial advice from your financial adviser.