Why it's worth looking at Magellan holdings, not headlines

Magellan Financial Group (ASX: MFG) seems to be caught in a never-ending cycle of dips, with its latest funds under management (FUM) update flagging $3.6bn worth of outflows in April.

FUM was $65bn at the end of last month, down from $68.6bn at the end of April and $109.9bn a year ago. Magellan hasn’t seen such FUM levels since early 2018.

What underperformance looks like

The Magellan Global Fund is the company's flagship fund with around $10.8bn under management (as at 30 April 2022).

The fund has a core holding of 20-40 of the "world's best global stocks" and aims to deliver 9% p.a returns over the economic cycle.

A glance at the fund's half-year FY22 interim results can give investors insight as to why the stock has been such a dumpster fire.

As at 31 December 2021, the fund's top holdings include (year-to-date performance):

• Microsoft -19.3%

• Alphabet -21%

• Netflix -66.7%

• Starbucks -32.3%

• Yum! Brands -13%

Note: The Global Fund has since reduced its exposure in several top positions including Netflix, Starbucks, and Yum! Brands

Source: Magellan Global Fund Interim Report (Dec 2021)

In April, the Global Fund's performance was:

• 1 Month: -0.6%

• 3 Months: -10.4%

• 1 Year: -3.8%

On the 1 month and 1 year basis, the fund had underperformed its benchmark - the MSCI World Net Total Return Index.

When the Nasdaq falls, so does Magellan

Magellan's heavy exposure to tech and secular growth makes the stock quite vulnerable to big swings in US tech.

While the FUM outflow has headlined today's -12% selloff. It's worth noting that the Nasdaq closed -2.7% last Friday. The decline was headlined by megacap names including:

• Meta -4.1%

• Apple -3.9%

• Alphabet -2.6%

• Amazon -2.5%

• Microsoft -1.7%

This is perhaps a factor that's worth keeping an eye out for.

The continued volatility and vulnerability of US tech stocks, especially as the US Federal Reserve kicks off 'Quantitative Easing' and ramps up interest rate hikes, could flag more unsurprising fund outflows and weigh on performance fees.

Magellan shares are down -32% year-to-date, trading near 8 year lows.

Magellan share price chart