GQG Partners, which is soon to approach US$100 billion in funds under management, has stressed the importance of staying nimble amid market conditions and leaning on good fundamentals.
According to Rajiv Jain, GQG chairman and chief investment officer, most managers continued to fall prey to the enamour of once-trendy stock-picks. He believed they took a dogmatic approach to such allocations, finding “50 new reasons to own the same space” despite falling short of expectations.
“The reason many people don’t survive long-term is that they get too enamored by one area. To a person with a hammer, everything looks like a nail,” he said.
“Our view is to stick with the areas where fundamentals are good, and keep at that, till you walk away.”
Speaking at the 2023 Morningstar Investment Conference Australia, Jain noted that a new playbook was required to navigate current markets, using the example of once-favoured tech stock picks.
“The average tech name, it has not done well year-to-date. What has done well are the mega caps, which are now pretty reasonably valued because they have real earnings, real free cash flow, a lot are buying back stock, and they’re cost-cutting to improve profitability. So it’s a different market versus the frothiness that you saw in 2021. That game is not coming back,” he said.
“What is coming back is high-quality franchises which got a little too expensive in 2021, now they are sensibly valued. Case in point would be Alphabet, the stock is still down 40 per cent since the peak of 2021.”
He continued: “Tech is not broadly ‘coming back’, it’s much more around businesses that have real cash flow, real earnings today, not five years out.
“People talk about innovation — it was not about innovation, it was just frothiness, and we’ve seen that behaviour before in markets. I think a lot of these [companies] got a free run in the name of ‘innovation’ when these companies weren’t innovating at all,” he observed.
The investment manager, who also served as the portfolio manager for all GQG Partners strategies, said most losses were being observed in those who stubbornly continued to “dance to the beat” of once-profitable cycles.
“Around 2001–2002, we didn’t own much tech and it was around when the fundamentals started to deteriorate. If we hadn’t done that, why didn’t the folks who did well in the ’90s survive during the dot-com collapse?
“Just like a lot of folks were big on commodities, remember the commodities supercycle? Not a lot [of them] did well post the GFC because they were still dancing to the beat of the commodities supercycle which didn’t work out that way.
“We strongly feel that a lot of this tech frothiness, where valuation didn’t matter at all, those shops are in the early stages of realising that you might not get the same moves [again] because interest rates aren’t zero anymore.”
Pointing to the firm’s bottom-up investing strategy, focusing on fundamentals, Jain warned against solely trying to chase early players.
“That’s an important aspect in investing, we believe — you don’t have to be the first one to invest. In fact, the early players don’t do well. It’s the second, third generation [that do]. Google wasn’t the first search engine that did well, Microsoft wasn’t the first spreadsheet program,” he said.
