Speaking at Morningstar’s annual investment conference this week, GQG chief investment officer Rajiv Jain said the investment house has turned “far more cautious” since the emergence of tariff risks.
“We feel we’re not being paid to take too much risk,” Jain said. “We’re a little more cautious sitting here now.”
GQG has taken a defensive stance on tech, with Jain stating the firm is “as underweight as we were in late 2021, early 2022” due to concerns that many US names face earnings pressure from tariffs and fading post-COVID-19 tailwinds.
“We are struggling to find a lot of names that justify the valuation … A lot of the Mag 7 have their own issues to deal with. Alphabet, for example, was hardly up 2 per cent in Q1,” he said. “This almost looks like a Nifty 50 portfolio from the 1970s.”
Microsoft, IBM and a handful of non-US semiconductor names are among the firm’s few remaining tech positions. “Our exposure is extremely light overall to tech," Jain said.
He added that GQG is favouring “businesses comfortable with smaller growth" but with better downside protection, including some utilities.
In contrast to its cautious stance on tech, GQG also sees opportunity in banks, particularly those in Europe, which Jain described as “not expensive” and attractive from a forward-looking quality perspective.
Overall, he believes a shift may be underway in global equity leadership.
“We do like non-US quite a bit. I think we might have seen some sort of inflection point, where non-US continues to do better, or continues to outperform the US,” he said.
GQG’s outlook reflects a wider concern among seasoned investors that current valuations and structural shifts – from tariffs to inflation – require a recalibration of both expectations and portfolio risk tolerance.
“We feel the tariff issue will be with us for a long, long time,” Jain said. “And we need to incorporate that in how we price in earnings.”
Late-cycle economy makes credit risk less appealing
Turning to private credit, Jain expressed concern that the current environment – marked by ongoing inflation risk and diminished central bank flexibility – makes for poor credit conditions.
“If you’re borrowing at 12 or 13 per cent in a good economy, that can’t be high quality credit,” Jain said.
“People are under assuming the risk in that. These are fairly illiquid … most of these shops were running in 2008 at a fraction of what they are running now. They are the market," he cautioned. “What happens in markets, after good returns big money comes in, and there is obviously the Wall Street sales machine kicking in.”
Jain further added that the late-cycle economy makes credit risk less appealing.
“You are almost 16th, 17th year into this economic expansion. Interest rates are not 0 any more … the Fed doesn’t seem too keen to cut rates aggressively because it is fearful of inflation. For the last 17, 18 years, the issue was disinflation till 2021, 22,” he said.
“Second thing is fiscal expansion. There’s a lot of room for fiscal expansion so we feel the environment is not conducive for taking credit risk.
“We feel private credit is not the best place to be increasing risk at this point, and so late in the cycle.”
Earlier this month, in its monthly funds under management (FUM) update, the US-headquartered asset manager said its FUM was US$163.6 billion ($255.8 billion), up by 1 per cent from US$161.9 billion in April. Since April 2024, FUM has grown by 15 per cent.
Looking at specific asset classes, international equity expanded 2.6 per cent, rising to US$65.4 billion. Emerging markets equity, global equity and US equity assets remained largely unchanged on the previous month.
April was the fourth consecutive month of gains for GQG after a difficult December, which saw FUM fall 4 per cent as a result of institutional redemptions after its investment in Adani Group. The Indian energy and infrastructure company saw its shares plunge after news that the company was facing indictment charges from US authorities over an alleged bribery scheme.
During April, the firm was identified by Morningstar as the sole Australian-listed asset manager that is able to compete against passive players.
Commenting on how active firms are feeling the pressure of exchange-traded fund providers, Morningstar equity analyst Shaun Ler said: “GQG is an exception, benefiting from a strong long-term track record, though short-term challenges highlight the difficulty to consistently outperform.”
