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Magellan shares just fell by $1.8 billion: Time to buy?

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Magellan's share price has cratered over this week's trading but some analysts say it's now nearly 50% below fair value.

The ASX-listed investment manager, which has a long history of outperforming the market, lost nearly a third of its value following its latest update.

However, this could be the buying opportunity investors need.

Investors run for the exits

Magellan Financial shares have see-sawed during early trading on Tuesday.

At the time of writing the share price was up 0.76% trading at $19.85 per share.

However, this is off the back of shares cratering on Monday after the fund manager announced it had lost an investment mandate from British wealth manager St James's Place (SJP).

The mandate, worth an estimated $18 billion, was MFG's biggest institutional mandate, representing 25% of its institutional managed funds and about 18% of all funds under management at the company.

SJP has now awarded the mandate to US funds management giant State Street Global Advisors.

The loss of the contract will slash about 12% of the group's annual revenues, Magellan said, although there will be no impact on the accounts related to the financial year ending 31 December.

Investors saw this as a sign that more institutions could leave the fund manager, which decimated the share price on Monday.

Why is Magellan underperforming the market?

Magellan is largely defensive asset focused, looking for high quality management with lower downside. This means that during softer markets, the fund will outperform.

However, the flip side is also true.

During the latest tech led bull market Magellan's shares have underperformed.

In fact, the Magellan Global Fund has lagged the MSCI World index by 14.5% over the last 12 months, undermining previous market leading growth that saw Magellan group's funds under management rise beyond $100 billion in 2021.

Time to buy?

According to Morningstar's equity analyst Shaun Ler, Magellan Financial has been "oversold".

"These near-term headwinds are bumps in the road, not nails in the coffin," the equity analyst said.

However, Ler notes his surprise that institutional clients such as SJP have left the organisation instead of negotiating lower fees.

Ler said, "We cut our fair value estimate for narrow-moat Magellan Financial Group by 25% to AUD$38 per share, following the termination of its mandate with its largest client, St James's Place."

Further to fall?

Disagreeing with Morningstar's analysis was Morgan Stanley who had cut Magellan's valuation by 40%.

According to the analysts, Magellan's target price has fallen from $29.30, to $17.50.

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