Asset Management

Exclusive: GQG Explains How It Bucked Negative Equity Performance Trend

Amanda Cheesley, Deputy Editor, London, 26 May 2022

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Mark Barker, managing director at asset manager GQG Partners, outlines key reasons behind their strong performance in a challenging environment.

As investors question where to put their money, Mark Barker, managing director at GQG Partners, highlighted in London this week the strong performance of their funds, driven by a move from tech to energy firms more than a year ago.

There has been a lot of talk about poor equity performance by both major global indices and via managed fund numbers, amidst rising inflation, geopolitical risks and Covid.

But in an exclusive interview with Wealth Briefing, Barker drew attention to the success of GQG Partners, a US-based firm and long-only equity active manager of UCITS and mutual funds, which is bucking the negative performance trend. 

Founded in June 2016, the company has already acquired some $93 billion of assets under management over six years. ”This has never happened before in the equity space,” Barker said. “From day one, the business was funded so that it had an institutional structure and we put in place a best-in-class client service team,” he added.

Over the past three years, its Global Equity Fund was up by 57.7 per cent whilst its US Equity Fund was up 26 per cent over the past year. Top 10 holdings in the Global Equity Fund include Walmart Inc, AstraZeneca PLC, Johnson & Johnson, Occidental Petroleum Corp and Proctor & Gamble Co. 

The firm was primarily institutionally focused and has now broadened its remit to include wealth managers, Barker added. “What has driven our success is the investment philosophy and process, based on forward-looking quality. Our objective is to own businesses that will be screening well in the quality metrics over the next three to five years,” he said.

“What makes us a bit different is our approach. We have a team with diverse backgrounds and our approach has allowed us to be a lot more adaptable. We are living in a world that has been shifting dramatically. Over the last five years, we have seen the US/China trade war, the start of de-globalisation, the Covid pandemic and we are now seeing the implications of this,” he stressed.

He believes that we are only just at the beginning of a big reset of valuations. “It is having an adaptable and dynamic nature that allows you to navigate this,” he explained. “We have grown from $0 to $93 billion in six years. In the past, managers [were] forced to define themselves by style and when the style stopped working, they went out of business,” he said.

Tech to energy
“If you look at our portfolio two years ago, we were 15 per cent overweight in tech. Today we have less than 2.5 per cent investment in tech firms,” he added. “We are in the large, mega cap space. We also had de minimis exposure to energy markets and materials and now we are 25 per cent overweight in energy and 10 per cent overweight in materials. We have also increased our investment in healthcare,” he said. 

ExxonMobil Corp, for example, one of the largest oil companies in the world, has quietly become a truly high-quality growth stock over the past few years, he added.

“Oil has traditionally been a cyclical business but it has become less cyclical. Tech has become the new cyclical sector whereas energy and resources are less cyclical resulting from infrastructure investment required for transition to a low carbon economy,” he explained. “The ESG agenda and exclusionary approach to energy is actually a classic case of the law of unintended consequences. There is a massive infrastructure spend required to move to an electrified world if we are going to move away from fossil fuels. A new transmission grid needs to be built which is an energy-intensive process. By restricting the supply of energy, we have actually delayed the transition to a low carbon economy by decades. We all want to see a carbon neutral world but the exclusionary approach has taken us in the wrong direction,” he stressed.

“We now have under-supply and no demand constraints on energy and therefore we’re looking at a structural opportunity in these underinvested assets, like oil and iron ore. The free cash flow is very attractive to investors,” he added. "The transition to a low carbon economy will take time,” he said.

He also highlighted how businesses like Netflix over-earned because of the pandemic. PC shipments were up 50 per cent too in 2020/21 compared with the previous five years. But now in the post-Covid world, Netflix shares have tumbled. “There are industries that did very well in Covid but in the post-Covid world, those valuations don’t make sense,” he added.

“We also invest in consumer staples, rather than luxury goods. In an inflationary environment and when consumers are under pressure, they stick with what matters and what they can afford,” he explained.

Wrapping up, he said: “What makes GQG successful is our adaptability and our ability to find the earnings that are growing at reasonable prices and we are not constrained by style restrictions.”

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