GQG Partners Continues To Outperform ASX Peers

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June quarter metrics for GQG Partners were well received by brokers after a strong investment performance.

-June quarter outperformance by GQG Partners
-Strong funds under management, net flows have slowed 
-Core strategies currently ahead of three-month benchmarks
-Attractive valuation and dividend yield

By Mark Woodruff

Brokers were fulsome in their praise of ASX-listed, US-based global asset manager GQG Partners ((GQG)) following management’s June quarter update showing a strong investment performance.

The company manages equity portfolios across four core strategies: Global Equity; International Equity; Emerging Markets; and US Equity.

(To answer the obvious question: GQG is US-based hence Global means all markets developed and emerging while International is the same, ex-US.)

The fund manager boasts strong distribution capabilities, according to Morgans, across the three primary channels of Institutional, Wholesale and Sub-Advisory, leading to strong diversification not only by channel, but also by client and geography.

In terms of fees, the broker believes GQG Partners has a competitive advantage over legacy managers with higher fee levels as the company was formed in the current industry environment of fee pressure and has positioned its fees accordingly.

The fund manager is the favoured exposure of UBS across its coverage, which includes (in order of preference) Magellan Financial ((MFG)), Perpetual ((PPT)), Pinnacle Investment Management ((PNI)) and Platinum Asset Management ((PTM)).

As at June 30, group funds under management (FUM) were US$104.1bn, up 5.7% over the month and a 6.2% beat against Ord Minnett’s forecast, driven by better-than-expected equity markets.

Group FUM outperformed the MSCI World Index by around 2.6%, normalising for flows, explains the broker. As GQG’s FUM is keeping pace in up markets and outperforming during down markets, it’s felt this latest result was strong.

Relative performance metrics have been more mixed in 2023, observes Macquarie, which has resulted in a slowdown in net flows.

Net inflows for the June quarter were $1.2bn and management confirmed a "reasonable pipeline of client demand".

The asset manager delivered US$6.2bn of net inflows in the six months to June, and, according to Morgans, continues to significantly outperform domestically listed peers in funds flow.

Outlook

Morgans' forecasts include an inflow of US$2.1bn for 2023 and a further US$3bn per year over FY24 and FY25, with ongoing retail inflows as the International fund performance remains strong over most timeframes. Lumpy institutional flows are expected.

Macquarie points out more recent performance has improved, with the four major strategies ahead of their respective three-month benchmarks by some 2-9%.

The relative performance of Emerging Market equities remains well ahead on a one-and three-year basis, with International equities around benchmark over the same period. Global and US Equity performance has been more challenging on a one-year basis, which has also resulted in weaker three-year numbers, explains the broker.

Ord Minnett highlights the stock price remains inexpensive with a price earnings multiple of 12.2x and a dividend yield of 7.8% and expects strong longer-term investment performance will be supportive of longer-term net flows.

The performance history of the asset manager and recent flow performance relative to listed peers warrant a premium multiple, in Macquarie’s view.

FNArena's daily monitoring of GQG Partners consists of five brokers, all with a Buy rating (or equivalent) with only Morgan Stanley yet to update research for the June quarter update.

The average target price of the five brokers rises to $2.10 from $2.05, suggesting nearly 38% upside to the latest share price.

Neutral-rated Goldman Sachs (target $1.74) is not monitored daily. This broker hasn’t updated its research on GQG Partners since mid-February.

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