GQG slashes tech exposure, here’s where it’s buying next

Jul 1, 2024 – 5.00am

Alex Gluyas

Brian Kersmanc pictured this week at GQG’s headquarters in Fort Lauderdale, Florida. James Jackmannormal

It seems the $US143 billion ($214.6 billion) investment giant is keeping its cards close to its chest. We decide to proceed with the chat anyway to glean how its global equity and emerging market funds have notched up near-40 per cent returns over the past year and, more importantly, where to next.

“Markets also started pricing in some really blue sky scenarios for these stocks, so although optically they looked cheap on a price-to-earnings basis, to get to the estimates that were prevailing in the market, you had to get to some pretty aggressive assumptions.”

So GQG slashed its tech exposure in the global equity fund to just 21 per cent in April versus 43 per cent a month earlier and is now “underweight” the sector compared to its benchmark. After exiting its position in Google parent Alphabet this year, GQG has also sold shares in Meta, Microsoft and Amazon. And while the firm has cut its stake in Nvidia, the AI chipmaker and market darling remains the largest weight in the global fund.

The magnitude of these moves is familiar territory for Kersmanc, who was promoted to co-portfolio manager of all GQG’s strategies alongside Jain and Sudarshan Murthy in 2022 – a year in which all three fund managers earned their stripes.

GQG famously cut its exposure to the tech sector and rotated into energy stocks leading into that year which proved to be a masterstroke as the tech-heavy Nasdaq index plunged 33 per cent and commodity prices soared after Russia invaded Ukraine.

Bumper returns

Bold calls like that have rocketed GQG up the ranks to among the world’s most elite investment managers, with its performance attracting a wave of inflows that boosted the ASX-listed shares to a fresh record high on Friday.

Indeed, GQG’s $US3.2 billion global equity fund returned 36.3 per cent, net of fees, in the 12 months to the end of May, outperforming its benchmark MSCI All Country World Index ex-Tobacco Index by 16 per cent.

Over three years, the fund has returned an annualised 20.2 per cent, nearly double its benchmark’s gain of 10.6 per cent.

Since dialling back on tech, GQG has been buying up defensive consumer staple stocks as well as utility companies, which Kersmanc believes have been dumped on signs that the global economy will avoid a hard landing.

“We’re seeing staples stocks trading at 52-week lows because they had a multiple de-rating, falling from around 29 times earnings as people realised they didn’t want to pay a premium for safety because a recession wasn’t happening,” he says.

“Now these companies are priced more attractively, with their multiples in the mid-teens, and so a basket of these stocks looks like they’re at some of the lowest premiums to the market that we’ve seen in a very long time.”

One such company is beverage giant Coca-Cola – a long-held favourite of Warren Buffett – which moved into GQG’s top holdings last month and has underperformed the sharemarket so far this year.

Kersmanc also believes markets are underestimating the growth that needs to come from utilities as baseload energy demand increases alongside the transition to renewables and population growth.

GQG first noticed this trend in developing economies like India, which explains the firm’s heavy exposure to infrastructure and utility stocks like Adani Power and Adani Ports in its emerging markets fund.

“We started seeing similar signposts within the US and other developed markets too, especially the areas that have transitioned more aggressively to renewables,” he says.

Among its other big bets, the global equity fund has large positions in pharmaceutical giants Eli Lily and Novo Nordisk due to the pair’s dominance in the budding weight loss drug market, known as GLP-1s.

“It is very much a duopoly – it’s very hard for others to come in and compete from a patent, technology and manufacturing perspective,” Kersmanc says.

He’s confident that GQG’s dynamic rotation across its portfolios this year has the firm well-positioned for the next five years,

“The portfolio is fairly balanced, we’re getting good growth from those healthcare and tech names, and communications services are more appropriately priced so we like what we’re getting there,” he says.

“And then financials and staples, we’re getting that double-digit type return, with reasonable multiples, and it gives us some diversification in the portfolio, and the same with utilities.”

Kersmanc’s role co-managing the research, stock selection and portfolio construction of GQG’s funds has been the culmination of an eight-year career at the investment manager, which started when Jain hired him as the firm’s first analyst.

And by Kersmanc’s own admission, Jain’s recruitment process was anything but normal.

Who is Roger James?

Having spent six years at New York-based global manager Jennison Associates on its small and mid-cap equity research team, Kersmanc wanted a change from the sleepier and more traditional Wall Street shop.

As he was scanning for new job opportunities one day, a Bloomberg classified ad caught his eye – it offered an analyst position at a “well-funded institutional start-up asset manager” based in Florida.

The instructions were simple: send five long-term stock ideas to a so-called “Roger James” at the email address [email protected].

“I had no idea who this Roger James guy was, I Googled him and found out he was an unbelievable auto mechanic in the Midwest,” Kersmanc says.

Before he knew it, Kersmanc was in an intense email exchange as James pushed him to justify his stock picks. It was also just before Kersmanc was going on holidays so he told James to call anytime.

As Kersmanc pulled up to the condo his family was staying at for his cousin’s wedding, he got a phone call from the mysterious Roger James, and turned to his wife and pleaded, “I’ve got to find out who this guy is”.

“I found myself pitching Heico, the aerospace supply parts company, for an hour and a half in the parking lot in the middle of the Colorado Rockies at my cousin’s wedding,” Kersmanc recalls.

Roger liked what he heard, and subsequently revealed his true identity.

“I loved the way you defended your thesis, oh and by the way, my name is Rajiv Jain, I was running $US50 billion at Vontobel before deciding to leave and start my own shop.”

Kersmanc instantly recognised the name – Jain had left the Swiss asset manager in 2016. News of the departure of Vontobel’s rockstar portfolio manager sent the company’s shares tumbling as much as 11 per cent.

Kersmanc ultimately decided to join the start-up. But before doing so, he had to know why Jain was pretending to be someone else.

“Rajiv had a unique opportunity where people didn’t know what he was going to do once he left Vontobel. He could’ve put his name on the ad and got hundreds of resumes from people that looked at his top 10 holdings at Vontobel and spat those names back at him to try and get the job,” Kersmanc says.

“But I had no preconceived notion of what I should pitch to get the job, so I gave him my best stock picks.”

So he moved with his wife and one-year-old son to Florida from New York in 2016.

“I took my chance on a day one start-up,” Kersmanc says. And he’s never looked back.