Without doubt, GQG has been a fantastic fund manager seeing average monthly inflows of around $2bn, with the funds they manage increasing over 50% in the past 12 months to ~$160bn. That’s been driven by a big distribution network tapping into strong performance and a lower fee structure than most other active managers i.e. what’s not to like. However, while GQG’s performance has been very good over 3-5years, recent numbers have underwhelmed and that was starting to have an impact on FUM flows which, as UBS highlighted well in a note this week, were under pressure from late October. In simple terms, a fund managers share price will follow FUM flows, and FUM flows follow performance & confidence in the manager. Just look at Platinum (PTM)! In the sShort term, the trends were starting to look less favourable for GQG.
Then came Adani…with GQG holding a ~$US10bn investment in the ports-to-power group founded by billionaire Gautam Adani, who was recently charged by US authorities over an alleged $US265 million bribery scheme. It’s hard to know how this will play out, however our gut feel is US authorities will go very hard at this, and they claim to have a lot of evidence of wrongdoing. This will be all over the news for many months ahead and GQG is implicated by association. With performance starting to underwhelm, big inflows potentially turning into outflows, and an issue that will remain front of mind for a while to come, we think GQG is best avoided, even though they now have a $100mn buyback in place.
While GQG looks interesting value and we’re not one to shy away from buying into negative headlines, we think GQG will see outflows for months to come, and the share price will remain under pressure because of that – the fund manager area is a fickle space!
MM is neutral GQG, not interested in buying the dip.
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