Interesting in a declining stock market, page-3

Hi @saintex
Thanks for taking the time to post your thoughts. Thought I would do the same, but as always wanted to look into some aspects of your points. I want to go through recent performance, is this a one off and what the valuation should be based on this.

Is this time different?
I know this is one of the most famous questions in Investing to ask. This time stock market valuations are different, yes they can continue to grow to the moon (or as Rajiv says to the heavens). This is the typical response when euphoria hits certain sector valuations and the market keeps going and going, until one day markets tank.

I want to ask the same question of the recent performance we have seen in GQG's portfolios - is this time different? We all know that GQG portfolios have performed above market peers and is continuing to outperform monthly in the high single digit region against global peers and indexes. Looking back at the market fall in March 2020, the below shows the performance of key holdings during this time from December 2019 through to June 2020. What I see is that this period was the time to be overweight the tech sector and GQG was in with a bit of BABA/Chinese stocks. Here is the performance of the key holdings over the 6 months:

As you will notice, not everything went well. The other thing to notice is that the bad performers were removed from the portfolio over this period. HDFC Bank and Citigroup were completely removed from the Portfolio (sec.gov GQG quarterly 13-F's).

The following is the portfolio holdings reported to the SEC for GQG Holdings in 13-F's (only one third of the holdings at the time).
June 2020 - $USD22.18B

March 2020 - $USD14.53B

December 2019 - $USD14.48B


With the above data we can see GQG has been able to achieve what few fund managers have done twice - performed well in selecting equity holdings during an economic climate that is significantly challenging. Fund Mangers across the globe have struggled and has resulted in lower valuations, large listed Australian Fund Mangers Magellan, Platinum, Pendal and Janus Henderson have struggled to perform and generate inflows during this time. These companies are valued at PE Ratios under 8 times.

So the answer to the question, is this time different, I think the answer is yes. GQG during this challenging environment has been able to select a different industry group to weight the portfolio towards so that performance is not impacted. The difference is that the portfolios are overweight Energy and Health stocks, rather than Tech/Chinese holdings which performed well through the COVID period.

So why would GQG be assigned a low valuation based on its current growth trajectory, the ability to grow a business at a good rate during a challenging economic climate and looking after customers funds protecting against losses experienced at other fund managers and index hugging ETF's? Should GQG have a higher valuation?

I don't know the answer to what value should be ascribed to GQG, however I do believe a fair value for GQG is in the range of 15 to 18 times earnings ($1.74 to $2.08). Once the global economy starts to lift growth again we will see an uptick in GQG's FUM and then the PE Ratio will start to lift in a similar manner to previous upticks. Most larger Global Fund Managers are in the range of 10 to 14, however they are experiencing performance hiccups similar to Platinum, Pendal, Perpetual and Janus Henderson (losses in the -18% to -5% range). GQG's current performance should lead to a higher valuation against all peers, ASX listed and globally listed. There is confidence that FUM is unlikely to sink to a level experienced by Magellan, Platinum, Pendal and Janus Henderson - purely based on how GQG has performed during two challenging economic environments now.

I believe the better than peer performance justifies a higher rating for GQG. The question is when will we see it? My thought is that PE Ratios will lift when global economy starts to increase growth again.

Should not assume GQG is unique or can continue on this path, so needs to be monitored as Fund Management company fortunes can turn quickly. I am sure there is a fund manager or two out there that has performed in a similar manner to GQG. I would be interested to hear if anyone has seen it. What we do know is there is a high probability that GQG will be able to perform in all future scenarios where there are high risks of an economic impact upon portfolio holdings.

Keen to hear others thoughts?

Best of Luck
Lost