Aniket PujariInvestment firm GQG Partners has one fund that’s holding up better than the broader market during this latest bout of volatility — adding to its long-term outperformance. The Florida-based firm’s U.S. Select Quality Equity Fund (GQEPX) is down just 3% this year, while the S & P 500 has lost more than 5%. The fund, rated five stars by Morningstar, also beat the benchmark last year and has seen stronger returns over the past five years: GQEPX ended 2024 up 30%, beating the S & P 500′s 24% total return GQEPX has returned 154% over the past five years, 12 points more than the 142% in the S & P 500 during the same time, including reinvested dividends, according to FactSet. “We have done a very good job of making sure we outperform in bear markets,” Sid Jain, GQG deputy portfolio manager, told CNBC. “We are very quick to sell positions when either the facts change or we get new data points or there’s a new risk that we just weren’t aware of,” he said. That ability to stay nimble is coming in handy. The S & P 500 briefly dipped into a correction on Tuesday, down 10% from a record set in February, as investors worried that escalating tensions between the U.S. and key trade partners could help conribute to an economic slowdown or even a recession. Here’s how Jain and GQG are navigating these swings. Stepping away from tech The $4 billion fund has continued to cut back its exposure to technology stocks, including semiconductor makers, although pockets of the “Magnificent Seven” group of stocks are still attractive, according to Jain. While GQG still likes Meta Platforms , Alphabet , Amazon and Microsoft , the fund cut Apple from its portfolio last fall. The iPhone maker once last year made up nearly 7% of the fund. “Apple, we don’t own it anymore. We were hoping to see an AI-driven smartphone upgrade cycle. Hasn’t exactly panned out, so we no longer own the position,” Jain said. “So we still like tech generally speaking, we’re not negative per se, but it’s also a relative risk-reward where we’re sometimes finding better opportunities in, again, other areas more than anything else.” The fund also reduced its exposure to Nvidia and Broadcom between the second and fourth financial quarter of 2024, growing cautious on the sustainability of semiconductor stocks’ earnings growth after their blowout numbers last year. Nvidia was worth 4.76% of GQEPX by the end of last year, down from its 8.95% stake from the June quarter. Meta, on the other hand, was the GQEPX’s top holding, worth 7.97%, by the end of the December quarter and has been one of the fund’s top positions for several years. “We believe, thus far actually, the killer app [for AI] is Meta. They proved themselves to be the single biggest beneficiary of AI outside of the semiconductor names, outside of Nvidia,” Jain said, noting that Meta customers are benefiting from the company’s AI-empowered targeted advertisements. “The revenue growth outlook has actually accelerated structurally now than was the case pre-Covid.” Finding ‘bottom-up opportunities’ in defensive stocks GQG has picked up more shares of defensive plays Philip Morris , AT & T and Progressive as volatility crept into the market. Philip Morris was GQEPX’s fifth-largest holding through December just ahead of AT & T at roughly 6.1% of assets. Its shares have jumped more than 25.5% this year after the Marlboro owner beat Wall Street’s fourth-quarter expectations after seeing a jump in sales of its next-generation products such as Zyn nicotine pouches. “Philip Morris is, in our opinion, one of the most innovative companies in the world — not just within consumer staples, but across sectors,” Jain said, noting that Philip Morris’ IQOS brand has scaled to $10 billion in revenue faster than some megacap tech giants have. “The scale of coming out of this typically defensively oriented sector is pretty remarkable. So you’re getting better volume growth, better either margin accretive products, and so the earnings are inflecting pretty sharply.” PM 1Y mountain Philip Morris stock performance. Structural changes in the U.S. telecom industry have made AT & T an attractive pick, and one of GQEPX’s largest positions, according to Jain. “Obviously we do have this overarching concern about U.S. valuation … but when you go back to our forward looking quality mantra, we’re finding some of the best rate-of-change stories in some of these defensively-oriented sectors,” Jain said. “So it’s not just a top-down call, but also where we are finding bottom-up opportunities. It’s in telecom, as an example.” AT & T is one of the biggest names in what has become a three-player market for telecom companies in the U.S., giving AT & T strong operating leverage that should yield earnings growth, the portfolio manager said. The company is also paying huge dividends, as it plans to return more than $40 billion to shareholders between this year and 2027. “In terms of forward looking quality, last decade, we viewed the sector as low quality. But now, on a go-forward basis, we think it’s actually an improving story and valuations are pretty attractive,” Jain said. “Plus you get a juicy dividend as well. That’s one area we’re quite positive on.” AT & T’s stock is up roughly 12.6% year to date and has gained more than 57% over the past year. GQEPX has $3.6 billion in assets and charges 0.67% in fees. Its minimum investment is $2,500. The firm manages more than $160.5 billion across all funds, as of Feb. 28.
