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Tuesday, February 21, 2023

An Anti-Cathie Wooden Investor Is Quietly Constructing a Inventory Empire

Rajiv Jain is all the things that Cathie Wooden isn’t. 

The co-founder of GQG Companions doesn’t have a Twitter account and barely seems on TV. And in his development inventory funds, there aren’t any driverless-car corporations or hypersonic-missile producers. As a substitute, you’ll find numerous industries with a decidedly Twentieth-century really feel: oil, tobacco, banking.

This components has confirmed spectacularly profitable. In lower than seven years, Jain, the previous chief funding officer at Vontobel Asset Administration, has constructed GQG right into a $92 billion powerhouse. Few, if any, startup funds in current reminiscence have raised a lot cash in so little time, based on Morningstar Direct.

In 2022, when most asset managers watched purchasers yank money from their funds as markets cratered, GQG thrived. The agency lured $8 billion in contemporary funding and three of its 4 flagship funds beat benchmark indexes by huge margins.

Pull the lens again additional and the outperformance of GQG’s largest fund, the $26 billion Goldman Sachs GQG Companions Worldwide Alternatives Fund, is even starker. Since its inception in December 2016, the fund has gained 10.8% a yr, greater than double the benchmark’s 3.9% annual return.

All this success, courting again to his days as a star supervisor at Vontobel, has given Jain a sure swagger.

He plunks down big sums of cash on particular person shares and, in a heartbeat, can bail on a complete place — the form of daring strikes most within the trade keep away from. Furthermore, in speaking with him, it shortly turns into clear that he doesn’t make a lot of his rival stock-pickers. Jain considers himself a “high quality development supervisor.” He refers to others, with out naming names, as “quote-unquote high quality development managers.” To him, a lot of them are mere imposters who rode the wave of low cost cash, solely to be uncovered when the period of zero rates of interest got here to an abrupt finish.

“These sorts of unstable years really assist you to differentiate somewhat bit extra,” he says in a phone interview from GQG’s headquarters in Fort Lauderdale, Florida. “Loads of ‘high quality development’ managers principally blew up. We discovered whether or not they actually personal high quality.”

Jain has had his share of missteps, in fact. His large wager on Russia — 16% of all his emerging-market fund’s cash was invested within the nation at first of 2022 — backfired badly when President Vladimir Putin invaded Ukraine. He began to tug again because the battle clouds started to collect however didn’t liquidate all of the fund’s holdings and, because of this, it tumbled 21% final yr, making it the one main GQG fund to underperform its benchmark. 

And this yr, as US tech shares rebounded on hypothesis the Federal Reserve was near ending its rate-hiking cycle, GQG funds have trailed. His determination to underweight China has additionally been pricey as the federal government lifted strict Covid lockdowns that had been hamstringing the economic system. Jain’s worldwide fund — which is distributed to traders by Goldman Sachs Group Inc. — has gained simply 3.4% this yr, in contrast with the benchmark’s 7.8% bounce, placing it within the backside 6 percentile.

“I’m not a contented camper lately,” Jain says with a chuckle.


Calculated Dangers

At some degree, this yr’s underperformance isn’t terribly stunning. The shares Jain likes to personal are usually extra defensive in nature, the type that may maintain up nicely in a downturn however lag when the economic system and inventory market are ripping.  

“He’s a lot extra cautious than different development managers,” says Gregg Wolper, a senior analyst at Morningstar.  

There’s a seeming contradiction to all of it, a minimum of to an outdoor observer. Jain likes secure, defensive shares however then makes outsize, dangerous bets on them. He explains the philosophy this fashion: By loading up on corporations which have what he calls bullet-proof steadiness sheets — names like Exxon Mobil Corp. and Visa Inc. — it’s unlikely any of them will undergo the sort of sudden collapse that’d wreak havoc on his portfolio.

“We attempt to take much less absolute danger,” Jain says. “The companies we personal generate lot of free money stream. So the danger of us shedding on an absolute foundation is so much decrease. However generally which means you must take extra relative danger.” 

Jain sometimes invests in 40 to 50 large-cap shares in his worldwide fund, in contrast with the benchmark’s greater than 2,000 corporations. His US fund holds lower than 30 shares, in contrast with over 500 within the S&P index. Two of the worldwide fund’s prime 10 holdings are tobacco corporations — British American Tobacco and Philip Morris Worldwide. They account for nearly 10% of the portfolio.


Vontobel Years

Born and raised in India, Jain moved to the US in 1990 to pursue his MBA on the College of Miami. He joined Vontobel in 1994, rising by means of the ranks to develop into the Swiss agency’s CIO in 2002. By the point he left the agency to begin GQG in March 2016, Vontobel’s rising market fund returned a complete of 70% in 10 years, greater than double the MSCI Rising Markets Index. 

Jain, who has a majority stake in GQG, invests most of his private wealth in its funds. When GQG went public in Australia in 2021, elevating about $893 million within the nation’s largest IPO that yr, Jain pledged to take a position 95% of the IPO proceeds within the firm and maintain the cash there for seven years.

There are different issues that make Jain totally different than the standard boss at an funding agency: He refuses to fulfill with executives who run corporations he’s contemplating investing in so he doesn’t “drink their Kool-Assist”; he bans GQG workers from buying and selling shares of their private accounts; and when his Russia wager went awry final yr, he apologized on a convention name to GQG traders for the losses they took.

“He has a mixture of confidence and but some humility in understanding that he may be unsuitable about one thing,” says Wolper.  

‘Sport of Survival’

This means to acknowledge errors — and quickly change course, because of this — is one thing Jain believes his rivals lack. For example, they failed, he says, to acknowledge final yr that the tech-stock increase was about to go bust. He began reducing his tech holdings in late 2021 after using the pandemic-fueled tech surge — or “the bubble,” as he calls it — for some time. 

By March of final yr, as inflation was percolating and rates of interest had been hovering, Jain had slashed his worldwide fund’s tech holdings all the best way down to five% of the portfolio from 23% in mid-2021, whereas growing its weighting of power shares to 19% from lower than 2%. That swap paid off handsomely, serving to restrict the fund’s losses, as world power shares jumped 41% final yr whereas tech shares plunged 31%. 

“Investing is a recreation of survival as a result of most individuals received’t survive in the long term,” says Jain. “In order that must be the mindset slightly than attempting to win on a regular basis. It’s as a lot about avoiding shedding slightly than attempting to win.”

And what if he’s unsuitable now? What if the current beneficial properties in tech are only the start of a broader rebound within the trade?

Jain is doubtful. To him, the tech giants shouldn’t even be thought-about development shares anymore. However he’s prepared, he says, to explode his portfolio as soon as once more if wanted. “If the information proves that we’re unsuitable, we’re pleased to alter our thoughts.”

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