Ann: 2023.07.11 Funds Under Management - June 2023 PTM, page-95

Hi MarsC,

I think most investors are happy to pay an above index fee, if the fund managers demonstrate the skill to generate sustainable alpha (a rarity). GQG is +5% on the index over 5 years.




The question to be asked (as you have) is whether this is the result of simply chasing momentum & the hottest stocks. In GQG's case, I don't believe this is the case. Let's look at the data - below we have GQG's risk statistics which shows that they capture 98.38% of the market upside but only 53.42% of the market downside. They generate their out-performance by avoiding the downside rather than taking more risk on the upside.

The second chart visually shows their allocations to sectors - they shift to a significant degree over time. The most notable example was that they captured the upside of the tech giants post COVID then sold out as valuations got frothy - thus avoiding the NASDAQ correction of 2022. This is exactly what we would ask of any investment manager, to nimbly move as relative value changes. I dare say that if we evaluated Platinum's sector allocation over time, it would be far more stagnant - reflecting their inability to recognise opportunities through different lenses.

This conversation isn't really about GQG - although they clearly justify their fees, which is reflected in their phenomenal investment flows. The conversation is about PTM and why anyone would truly invest with them.

Note - your question was very valid & fair. I believe that Magellan is a great example of a fund whereby the investment skill component was over-stated, due to their returns being boosted mostly by their investment style (tech focus) rather than skill.