(ASX: GQG) GQG Partners’ James Anders defends funds managers amid passive investment surge

“They aren’t expensive versus global peers, but we see few positive catalysts,” equity analyst Michael Cyprys wrote.

In research published in May by Morningstar, analyst Shaun Ler said while he anticipated GQG will win inflows and gain traction with investors due to the slippage in performance of household names such as Magellan and Platinum, it was still constrained by the shift away from active funds management.

“Like all dedicated boutique managers, GQG intends to create shareholder value mainly via picking the right stocks in its managed investments,” he said. “We commend management’s focus on investing, but alas, this is insufficient to help GQG build out a durable competitive advantage relative to peers.

“The balance of power is shifting from asset managers to end clients, who today have no shortage of fund managers to hire, are more intolerant of underperformance and demand lower fees.”

But Anders remains optimistic. He sees real value in funds management, and says GQG has outperformed its peers, bucking the industry trend, to report $2.8 billion of quarterly inflows in June.

Part of this he credits to GQG’s investing style. He will never rule out investing in certain industries such as fossil fuels and energy.

“I know ESG [environmental, social and governance] is an important thing, globally. And it’s part of our process. But we won’t say we’ll never invest in this sector or this industry … If a manager says I will never buy into that space, our view is you’re doing a disservice to clients,” he says.

“We do incorporate ESG in our process. But you also need to be realistic that there are things that are needed for the transition to renewables.”

Much of GQG’s success has been attributed to co-founder Rajiv Jain, whose high profile has led to concern from some investors about what would happen if he were to leave.

Anders says Jain is a majority shareholder in GQG, and unless something unexpected happens to him, he was not walking away from the firm. He also points to his own recent promotion, alongside two others, to portfolio managers last month.

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“[Jain] still maintains veto risk, he can still act unilaterally if he needs to, but there’s four of us as a group versus say just him,” he says.

“We do have a deep bench of investment professionals and it’s not a one-man show.”

In coming months, Anders says he has his eye on energy and healthcare companies, and he is again looking at tech after GQG rotated out of the sector before a broader rout in which tech stocks tumble.

Anders said tech company valuations are becoming more reasonable and prices will come down significantly. There is also the potential for managers who had success driven by tech to become forced sellers of certain stock.

“If they have a bunch of private equity investments, they’re not going to be able to sell them, so they’ll put those aside and sell what they can. A lot of that is big tech,” he said.

“So we’re cognisant and watching, putting them on buy lists, sharpening the pencil on spaces where if we see opportunities where valuations are not just there, but cheap, take advantage of that opportunity.”

A good manager should be willing to say they’re wrong, he says, pointing at Snapchat, which GQG owned before the tech giant delivered a rocky earnings update in the third quarter of 2021.

“We were wrong with our fundamental work, sold the stock, sold out completely at say $5US5,” he said, noting that other big holders were convinced the share price would rise again. Snapchat is now trading at $US9.67.

“Managers that aren’t willing to admit they’re wrong, that’s not a way to have longevity in the business.”

GQG Partners will report its mid-year results on August 11.

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