It was a hotly anticipated FUM update this month, by me anyway, given how hard I've gone at this one. With this morning's release of flat FUM both from flows and performance you might be wondering what the fuss was about - and you'd be right!! But that ignores the kafuffle in recent weeks caused by Adani-related allegations of management impropriety. Those allegations led to major falls in Adani-owned companies share prices, and given Adani is one of - if not THE - largest GQG holding, it also led to an immediate major fall in GQG's CDI price.
The GQG fall seemed exaggerated given Adani represented less than 10% of their FUM, but unlike the Adani companies the GQG share price didn't bounce back. The discrepancy could really only be attributed to an expectation that there would be a rush to the exits and institutions would take their GQG business elsewhere. That may still happen but thus far any impact from Adani appears to be minor, with net flows in November actually slightly positive. The inclusion of a table showing gross inflows over the past four Novembers would appear to be a poke in the eye to those who were expecting Armageddon.
Even the short term effect of Adani's performance impact on FUM was able to be offset by positive contributors from other parts of the portfolio, with overall portfolio performance flat in the month. Management also noted both flows and performance have been strong in the first week of December, with total FUM at a near record of US$161.5 billion.
The only slight negative was the announcement that their CDI buyback would be cancelled given concerns about the tax treatment in the US. Mixed feelings. On the one hand if they're going to buy them back, this is the time to do it. On the other, the effect of that would be to reduce the free float, and to some extent it's the lack of free float that is causing such volitivity in their price. Founder Rajiv Jain has indicated he will be personally buying on market instead.
At the current price they're 10x consensus EBIT. I accept "cheap" is a nebulous concept when it comes to valuation but compare them to companies growing at a similar rate, or its peers, or almost any other valuation metric you want to pick and it's hard to come up with any other conclusion than it looks cheap.
Fascinating price action today, with the fund manager being down almost 26% at one point. Why? It follows the revelation that Gautam Adani and fellow execs has been indicted in the US on bribery and fraud charges. Almost 10% of GQG's FUM is made up of Adani companies. Hence the GQG hit.
But that means more than 90% of the FUM isn't related to Adani. Plus, Adani shares are only down around 20%. The only way you can make the GQG price action make any sense is if you assume the Adani link will result in outflows - a lot of outflows. I don't see it. Even if they were to liquidate the position and take a 2-4% FUM performance hit as a one-off, not great but in the washup just one of many bad guys being offset by good guys (one of the latter being the contribution from the Adani investment up until this point).
I think it's an opportunity and topped up at $2.05 IRL this afternoon. With a little more patience I could even have gotten a better price than that.
Poor bastard...he has to sell $88 million worth of shares (to fellow founder Rajiv Jain) to settle a divorce agreement and, on the same day it gets announced, he watches the share price surge as much as 12%. It eased as the day went on to "only" be up 7%, but still...insult to injury. I guess some days you just can't get rid of a bomb!
[Held]
So this is less about GQG's latest FUM update than it is about a single line buried in the commentary. In it they note positions in their portfolios are significantly different now compared to three months ago, in particular two of their portfolios "are now overweight in the information technology sector".
A bit of background here. GQG is a genuinely active fund manager - as opposed to pseudo one that charges active fees while hugging the index. They were lauded for nailing the timing of transitioning from IT to energy in late 2021/early 2022. Fortuitous? Brilliant? Somewhere in between? I dunno, but I do know that a lot has gone right for them having grown FUM from nil in 2016 to approaching US$100B today. They are going to have caught some breaks along the way, but can I put all of that or even most of that down to luck, especially at a time that most of their competitors are going in the other direction? Nup - they're doing something right.
So does April mark the month we're now fully risk off and off to the races? It'd be nice but probably not. Still, it's some affirmation the worst may be behind us and prospects for growth companies may be on the improve.
A summary of GQG's FUM history is shown below. Prior to listing the breakdown between net flows and performance were erratic and sometimes absent. Since listing they've updated FUM monthly and given the breakdown at least quarterly and sometimes more regularly.
[Held]
Interesting article in the AFR (behind paywall) on 2022: The year funds management ate itself. I've put this straw in the GQG stable but it lists any number of other funds management companies (Magellan, Perpetual, Pendal etc.).
I thought this was a really interesting graphic:
A few observations:
- Magellan and GQG aside, active fund managers have been experiencing structural net outflows since about 2017.
- It really brings home just how quickly the tide turned for Magellan. Print this graph in mid-2021 and Magellan would be be an absolute star. In 18 months they have gone from hero to zero.
- It brings home how exceptional GQG's performance has been. It is the only one to consistently have net inflows, and it has done so at different points in the cyclical cycle.
I suspect GQG's ability to record inflows comes down to two things:
- Performance under Rajiv Jain has grown FUM organically
- The lowest management fees of any of its competitors (sub-0.5%) has kept passive strategies at bay.
[Holding GQG]
GQG announced half year numbers today for the first time since listing. Given it reports FUM monthly and generates almost all revenue from a very stable management fee, the top line growth of around 21% YoY was well telegraphed. NPAT was down 14% but that too was expected given it didn't previously pay tax in the US and now must do so as a result of a change in it's status following listing.
Inflows were above prospectus forecasts, which helped offset the performance miss due to general market conditions. Although GQG weren't immune to the downturn they were early to pivot to energy, consumer non-discretionary, materials and health.
This has led to some impressive outperformance versus benchmarks. The graphs below show all four strategies have outperformed their benchmarks versus 1, 3 and 5 year timeframes.
Institutional inflows were not particularly strong so that's a watch to see if that's just the current trading environment or something more structural. Other than that they're just getting on with it and paying out 90% of profits as dividends (unfranked).
I hold IRL only.
After Magellan got walloped yesterday after another disappointing FUM update, GQG is out with their own update today showing a 4.6% increase in FUM during May. On my numbers roughly 2.6% was due to performance and 2.0% was due to net inflow. Not all fund managers are created equal.
This month they also included a performance by fund update which shows all of their funds are beating their benchmarks across 1 year, 3 years and 5 years timeframes.
While others continue to argue over whether Magellan's woes are behind it, GQG Partners continues to do its thing. Unfortunately this month's update went back to the overall FUM update and didn't breakdown flows from performance but in a month when the MSCI fell 8.4%, GQG FUM fell just 2.7% - suggesting inflows are continuing. Combine this with weakness in the Aussie dollar and I'm looking forward to some nice fat dividends rolling in coming months.
