Rajiv Jain is everything that Cathie Wood isn’t.
The co-founder of GQG Partners doesn’t have a Twitter account and rarely appears on TV. And in his growth stock funds, there are no driverless-car companies or hypersonic-missile manufacturers. Instead, you will find lots of industries with a decidedly 20th-century feel: oil, tobacco, banking.
This formula has proven spectacularly successful. In less than seven years, Jain, the former chief investment officer at Vontobel Asset Management, has built GQG into a $92 billion powerhouse. Few, if any, startup funds in recent memory have raised so much money in so little time, according to Morningstar Direct.
In 2022, when most asset managers watched clients yank cash from their funds as markets cratered, GQG thrived. The firm lured $8 billion in fresh investment and three of its four flagship funds beat benchmark indexes by wide margins.
Pull the lens back further and the outperformance of GQG’s biggest fund, the $26 billion Goldman Sachs GQG Partners International Opportunities Fund, is even starker. Since its inception in December 2016, the fund has gained 10.8% a year, more than double the benchmark’s 3.9% annual return.
All this success, dating back to his days as a star manager at Vontobel, has given Jain a certain swagger.
He plunks down huge sums of money on individual stocks and, in a heartbeat, can bail on an entire position — the sort of bold moves most in the industry avoid. Moreover, in talking with him, it quickly becomes clear that he doesn’t make much of his rival stock-pickers. Jain considers himself a “quality growth manager.” He refers to others, without naming names, as “quote-unquote quality growth managers.” To him, many of them are mere imposters who rode the wave of cheap money, only to be exposed when the era of zero interest rates came to an abrupt end.
“These kinds of volatile years actually allow you to differentiate a little bit more,” he says in a telephone interview from GQG’s headquarters in Fort Lauderdale, Florida. “A lot of ‘quality growth’ managers basically blew up. We found out whether they really own quality.”
Jain has had his share of missteps, of course. His big bet on Russia — 16% of all his emerging-market fund’s money was invested in the country at the start of 2022 — backfired badly when President Vladimir Putin invaded Ukraine. He started to pull back as the war clouds began to gather but didn’t liquidate all the fund’s holdings and, as a result, it tumbled 21% last year, making it the only major GQG fund to underperform its benchmark.
And this year, as US tech stocks rebounded on speculation the Federal Reserve was close to ending its rate-hiking cycle, GQG funds have trailed. His decision to underweight China has also been costly as the government lifted strict Covid lockdowns that were hamstringing the economy. Jain’s international fund — which is distributed to investors by Goldman Sachs Group Inc. — has gained just 3.4% this year, compared with the benchmark’s 7.8% jump, putting it in the bottom 6 percentile.
“I’m not a happy camper these days,” Jain says with a chuckle.
Calculated Risks
At some level, this year’s underperformance isn’t terribly surprising. The stocks Jain likes to own tend to be more defensive in nature, the kind that will hold up well in a downturn but lag when the economy and stock market are ripping.
“He is so much more cautious than other growth managers,” says Gregg Wolper, a senior analyst at Morningstar.
There is a seeming contradiction to it all, at least to an outside observer. Jain likes safe, defensive stocks but then makes outsize, risky bets on them. He explains the philosophy this way: By loading up on companies that have what he calls bullet-proof balance sheets — names like Exxon Mobil Corp. and Visa Inc. — it’s unlikely any of them will suffer the kind of sudden collapse that’d wreak havoc on his portfolio.
“We try to take less absolute risk,” Jain says. “The businesses we own generate lot of free cash flow. So the risk of us losing on an absolute basis is a lot lower. But sometimes that means you have to take more relative risk.”
Jain typically invests in 40 to 50 large-cap stocks in his international fund, compared with the benchmark’s more than 2,000 companies. His US fund holds less than 30 stocks, compared with over 500 in the S&P index. Two of the international fund’s top 10 holdings are tobacco companies — British American Tobacco and Philip Morris International. They account for almost 10% of the portfolio.
Vontobel Years
Born and raised in India, Jain moved to the US in 1990 to pursue his MBA at the University of Miami. He joined Vontobel in 1994, rising through the ranks to become the Swiss firm’s CIO in 2002. By the time he left the firm to start GQG in March 2016, Vontobel’s emerging market fund returned a total of 70% in 10 years, more than double the MSCI Emerging Markets Index.
Jain, who has a majority stake in GQG, invests most of his personal wealth in its funds. When GQG went public in Australia in 2021, raising about $893 million in the country’s largest IPO that year, Jain pledged to invest 95% of the IPO proceeds in the company and keep the money there for seven years.
There are other things that make Jain different than the typical boss at an investment firm: He refuses to meet with executives who run companies he’s considering investing in so he doesn’t “drink their Kool-Aid”; he bans GQG employees from trading stocks in their personal accounts; and when his Russia bet went awry last year, he apologized on a conference call to GQG investors for the losses they took.
“He has a combination of confidence and yet some humility in understanding that he might be wrong about something,” says Wolper.
‘Game of Survival’
This ability to recognize errors — and rapidly change course, as a result — is something Jain believes his rivals lack. For instance, they failed, he says, to recognize last year that the tech-stock boom was about to go bust. He started cutting his tech holdings in late 2021 after riding the pandemic-fueled tech surge — or “the bubble,” as he calls it — for a while.
By March of last year, as inflation was percolating and interest rates were soaring, Jain had slashed his international fund’s tech holdings all the way down to 5% of the portfolio from 23% in mid-2021, while increasing its weighting of energy stocks to 19% from less than 2%. That switch paid off handsomely, helping limit the fund’s losses, as global energy stocks jumped 41% last year while tech stocks plunged 31%.
“Investing is a game of survival because most people won’t survive in the long run,” says Jain. “So that should be the mindset rather than trying to win all the time. It’s as much about avoiding losing rather than trying to win.”
And what if he’s wrong now? What if the recent gains in tech are just the beginning of a broader rebound in the industry?
Jain is dubious. To him, the tech giants shouldn’t even be considered growth stocks anymore. But he’s ready, he says, to blow up his portfolio once again if needed. “If the data proves that we are wrong, we are happy to change our mind.”
