A host of broker downgrades to MFG, notable amongst them UBS (a slightly humorous take would be “revenge” for the UBS-centric exodus of talent to Barrenjoey).
Our observation here is two-fold. One, the flagship global product charges 1.35%, and has a material performance fee, and two, the degree of underperformance is now large. High fees, and poor performance, is deadly to FUM flows.
There is a host of academic research that shows the higher the fee, the lower the ex-ante return, on average. The below is from Grattan, studying a few hundred local managers, their fees, and degree of relative performance.
No surprises there, this is precisely why we utilise a core-satellite approach, of predominantly low-cost-ease-of-implementation passive vehicles, to give us our market exposure.
The other notable aspect of fees is that the are pretty persistent, over time. That is, despite FUM growth (largely as a function of market movement, and the generously structured Australian superannuation system) fees charged don’t tend to come down despite scale efficiencies and near zero marginal cost.
So there’s little reason to expect respite from a high fee charging manager, which, if coupled with underperformance, tends to mean ongoing net outflows, and net outflows are a key driver of the share price.
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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
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