Elevator Talk: Rajiv Jain, GQG Partners Emerging Markets Equity

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Includes: GQGPX, HEMZX, HIEMX
by: Mutual Fund Observer

Summary

Rajiv Jain, with the assistance of a seven-person team, has managed GQG Partners since the fund’s launch on December 28, 2016.

Mr. Jain is celebrating his 20th year as an emerging markets investor.

GQG Emerging Markets Equity has a $2500 minimum initial investment which is reduced to $100 for IRAs.

By David Snowball

Since the number of funds we can cover in-depth is smaller than the number of funds worthy of in-depth coverage, we've decided to offer one or two managers each month the opportunity to make a 200 word pitch to you. That's about the number of words a slightly-manic elevator companion could share in a minute and a half. In each case, I've promised to offer a quick capsule of the fund and a link back to the fund's site. Other than that, they've got 200 words and precisely as much of your time and attention as you're willing to share. These aren't endorsements; they're opportunities to learn more.

Rajiv Jain, with the assistance of a seven-person team, has managed GQG Partners since the fund's launch on December 28, 2016. While it's technically accurate to say that Mr. Jain has been managing the fund for six weeks, it would be akin to a 2009 newspaper report noting that Brett Favre has been the Minnesota Vikings quarterback for the past six weeks. Mr. Jain is celebrating his 20th year as an emerging markets investor, the last ten of those years as manager of the Virtus Emerging Markets Opportunities Fund (MUTF:HEMZX) (MUTF:HIEMX).

Mr. Jain joined Vontobel Asset Management as an equity analyst in 1994. By the time he left in May 2016, he'd risen to become their chief investment officer, co-CEO and manager on 15 funds available to American and European investors. He was responsible for portfolios valued at $50 billion, including $30 billion in emerging markets investments and built their Quality Growth boutique. His new firm builds on that tradition: GQG Partners stand for Global Quality Growth Partners, a name which simultaneously reflects his investment style and his interest in creating a partnership with his investors.

It is fair to describe his career to-date as "spectacularly successful."

From the perspective of American investors, the most visible manifestation of his work in the emerging markets was leadership of the Virtus Emerging Markets Opportunities Fund. During that time, he posted the best record of any emerging markets manager available to US investors.

MFO calculated the return, risk, and risk-return measures for Mr. Jain's fund from June 2006 - his first full month on the fund - until the month he left the fund, March 2016, then compared them with the other 67 EM funds in operation over the same period. The results are startling.

Annual returns Maximum drawdown Standard deviation Downside deviation Sharpe ratio
HIEMX 6.8% 53.3% 19.1% 13.5% 0.33
Rank out of 67 3rd 1st 2nd 1st (tie) 2nd

Here's the translation: over a 10 year period, Mr. Jain posted his category's third highest returns and the highest among diversified EM equity funds, behind only two niche funds. His fund suffered the smallest maximum drawdown, had the second lowest volatility, and tied for the lowest downside volatility (a variation of standard deviation focusing on "bad" volatility) which led to the group's second-highest Sharpe ratio (the industry's most widely-used measure of risk-adjusted returns).

Analysts have noticed. He was recognized as Morningstar's International Fund Manager of the Year for 2012 ("Jain's approach has produced attractive risk-adjusted returns over his tenure") and won Morningstar Europe's Global Equity Manager of the Year ("Performance metrics … confirm Jain's ability to limit risk during market downturns, while driving strong returns across a market cycle to offset the inherent weakness in his approach during low-quality rallies. Risk-averse investors who look for global equity exposure are in very good hands here") nod in 2013. London's CityWire, looking back over a decade, concluded "Jain has stuck by many of his convictions and has the numbers to back him up." Investors' short term reaction to Mr. Jain's departure from Vontobel was swift and negative: Vontobel stock dropped 11% and nearly $11 billion left the firm.

We asked Mr. Jain about his decision to strike out on his own and his discipline. Here are Mr. Jain's 200 words on why you should add GQGPX to your due-diligence list:

Make no mistake, I have great respect and affection for my former colleagues but I wanted to create a vehicle that better expressed my own core commitments. I believe GQG Partners will be that vehicle.

Our first commitment to investors is alignment. Managing another person's wealth is a privilege, an honor. I never forget that it is somebody's life and retirement at stake. Respecting that means you have to have true and appropriate alignment. That plays out in a few different ways. I like to have the majority of my personal net worth in the same product as my clients; I invest with no other managers and in no hedge funds. It's meaningful money. We accept no soft dollar commissions. No one at the firm is allowed personal trading; all of us will have a meaningful part of our net worth - including bonuses - in the fund.

We also want our fees to be below the median and we fully expect they will drop over time as our asset base grows.

The second commitment is to a particular culture. It should be very competitive with an intense focus on performance. The average manager has no reason to exist since he can't outperform a simple index. And if we can't deliver, we have no reason to exist. Tim Carver, who has overseen a dozen start-ups, is our CEO because I want my focus to be on my portfolio.

This is my 20th anniversary as an EM sole manager. I've been through 10 bear markets marked by 20% declines and three bear markets that saw 50%-plus declines. I am not forecasting future performance, but I can honestly report that I outperformed in all of them. That required evolution to match changing markets and a consciousness about taking less risk because, ultimately, absolute returns matter.

If I can forecast anything, it is that we will have years in which we underperform and years where we over perform. Across all those years and all those markets, we will strive to eliminate the noise, keep our focus, maintain a long-term view, trade lightly, dig deep, and cover the ground.

The GQG Partners Emerging Markets Equity Fund (MUTF:GQGPX) has a $2500 minimum initial investment which is reduced to $100 for IRAs and other types of tax-advantaged accounts. Expenses are capped at 1.33% through November, 2018. The institutional share class has a $ minimum and expenses capped at 1.08%. Morningstar reports assets of $37 million (1/30/17), though that number is apt to be very fluid. Here's the fund's homepage. There's a nice presentation of the fund's strategy and distinctions in the inelegantly-named "pitch book." It's worth reading.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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