The ASX-listed fund manager separating itself from the pack

The performance of ASX-listed fund managers, purely from a share price perspective, could best be described as ‘mixed' over the past 12 months. 

There are some standout performers, there is a meaty middle of mediocrity, and there are some clear underperformers.

I’ll let you determine which is which from the chart below.

I’m not here to beat up on the underperformers, the foibles of which are already known to the market. Instead, the focus is on the company at the top of the pops – GQG Partners (ASX: GQG).

How is it that this fund manager has been able to separate itself from the pack so emphatically? Are they doing something different, or are they simply doing everything just a little bit better than the next manager?

To answer those questions, who better to canvas than the fellow fund managers who cover the stock? To do that, we’ll be leaning on prior commentary that has appeared on the Livewire platform, as well as a fresh take from 1851 Capital’s Martin Hickson.

Previous commentary

Glenmore Asset Management’s Robert Gregory was one of the first managers to express a strong view on the platform, all the way back in August last year – when the share price was around $1.60 - today it is north of $3. 

At the time, Gregory said:

"Despite excellent fund performance and strong net inflows since IPO, GQG continues to trade on cheap valuation metrics. If we assume the company can generate a CY22 NPAT of US$260 million, the stock trades on a P/E multiple of around 12x, which seems too cheap given the quality of the business.

We believe a stock price of $2.00 - $2.20 is quite achievable over a 12-18 month timeframe, particularly if central banks globally ease from the current interest rate hiking phase, which is impacting investor sentiment towards listed fund managers".

It’s fair to say, Gregory was well and truly on the money. He followed up the August commentary with another wire dedicated solely to his thesis on GQG in October, which is available below:

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Why we're backing this ASX-listed fund manager trading on cheap valuation metrics

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In March this year, Medallion’s Michael Wayne expressed a bullish view on GQG, saying;

"This is a company that's got very high-quality fund managers rather than one specific fund management star. The business has seen very strong fund inflows in recent times, with dividend per share growth being very impressive. A

In an industry that has generally struggled, being an equity fund manager, they have been a shining light. And in many cases, they traded a big discount to many of their listed peers globally. So that's one particular business that we like and have been adding to recently".

In May this year, appearing on the Rules of Investing podcast, 1851 Capital’s Chris Stott outlined his bull thesis on GQG, declaring that he had held the position for around six months. Having previously invested in Magellan’s early success, Stott said:

“We’ve seen this before, with good performance bringing strong inflows. If they can execute, from a sales perspective, we think their FUM and inflows can be quite material over the next couple of years”.

“They’ve essentially undercut their competitors but also delivered really strong outperformance…we think they’re in a terrific position in the next couple of years and will be a standout in that listed fund management space,” Stott says.

More recently, Seneca Financial Solution’s Luke Laretive, OC Funds’ Aaron Yeoh, and Centennial Asset Management’s Micheal Carmody have expressed bullish views on the platform, with Laretive believing the company could double over the next 5-10 years.

"We think GQG Partners, at $8.5 billion market cap, has the scope to double over the next 5-10 years. It wouldn’t quite make the top 20, but we certainly can see it being included in the major indices once the free float is increased."

Yeoh had the following to say on a recent episode of Buy Hold Sell:

All of its major funds are performing extremely well. They've shown an ability to outperform through all market cycles. The stock is trading on 11x PE and we think that they can continue to deliver double-digit growth over medium term. We just think it's too cheap, so it's a strong buy.

Centennial’s Michael Carmody is also a believer, saying the following in a recent wire:

"At the company’s recent AGM presentation, management confirmed strong investment returns and FUM inflows for the group. 

The company has robust momentum into the remainder of 2024. We expect GQG’s strong investment performance is likely to deliver ongoing FUM growth. 

Compared to the outlook and the market, we see the company as being inexpensive and expect the aligned management team to deliver share price outperform in the current environment".

A more recent take

We reached out to 1851 Capital Portfolio Manager, Martin Hickson, for a more recent take and deeper dive into the success of GQG Partners.

He began by saying that while looking at fund flows and outperformance is a simplistic way of looking at GQG’s success, it’s “probably the right way to look at it”.

“You can overthink these things sometimes”, said Hickson, noting that Rajiv Jain, the founder of GQG, has a very strong track record both at GQG and also at his prior company – Vontobel Asset Management.

“He performed extremely well there and since he founded GQG seven or eight years ago, they've outperformed the market by 5% per annum over that period and that's accelerated over the last 18 months”.

Hickson adds that over the last 12 months, GQG has outperformed the market by around 18%, which he describes as “pretty significant for any fund manager, but especially one their size - they're managing over $150 billion now”.

GQG’s focus on highly liquid, large-cap stocks has also been a masterstroke according to Hickson, allowing it to “manage significant pools of capital, without having the constraint of being able to move in and out of stocks like we have in small caps”, says Hickson.

The other driver of the share price, according to Hickson, has been GQG’s calls on the market and stock picking. Hickson notes they nailed the tech rally a couple of years back, bought “energy right near the bottom”, and have since moved back into tech at the right time.

“They have shown over time that they're not wedded to their positions. So they’re an actively managed fund manager that has delivered very, very strong performance,” says Hickson.

Add into the mix the fact that GQG charges “very low fees” – something discussed by others above – and you’ve got a winning formula according to Hickson.

“You’re getting access to a fund manager with a history of outperforming at a very low management fee and the vast majority of their funds don't charge a performance fee. That’s why they're generating such high levels of inflows and that's why I think the market likes it”, adds Hickson.

Outlook from here

Despite the run-up in the share price, 1851 Capital still sees GQG as undervalued, with Hickson noting that when Magellan was growing its funds under management and performing strongly, it traded it on a multiple north of 25x. GQG is currently on a 1-year forward P/E of around 13x.

“We still think that GQG can rerate north of 17x multiple over time, which is the multiple it originally floated at, on the proviso that they can continue the strong level of outperformance that they've been delivering and continue generating strong inflows”.

Continuing to generate strong performance is an important caveat to the outlook, with Hickson noting that “everyone has bad months, but over a medium period of time, if their performance did start to fall away, that would be a negative for us”.

The other significant risk, says Hickson, would be if something happened to co-founder, chairman and CIO Rajiv Jain. “That would be a significant negative because he's still the key person there”.