Why this fund manager remains overweight on energy

Name: Why this fund manager remains overweight on energy
Uploaded: 2023-03-08T06:35:00Z
Description: Laird Abertheny from GQG Partners says earnings matter in a rising interest rate environment.

Laird Abertheny from GQG Partners says earnings matter in a rising interest rate environment.

Sarah Dowling

08 March 2023

Key points:

GQG Partners won the Global Equities category at the 2023 Morningstar Awards for its silver rated Global Equity fund.
The fund delivered total annual returns of 0.8% in 2022 against the benchmark of -12.4%.
GQG Australian managing director Laird Abertheny says the fund shifted out of technology in 2021 and remains overweight on energy.

See more from the 2023 Morningstar Awards here.

Transcript:

Sarah Dowling: I'm here with Laird Abernethy from GQG Partners. Congratulations Laird on taking out the Global Equities Award at the Morningstar Awards. So, can you just talk through your investment philosophy for people who maybe aren't familiar with your fund?

Laird Abernethy: Yeah, certainly. So, GQG Partners, we're a U.S.-based boutique asset manager that specializes in global equities and emerging market equities. And I think the key thing that I feel is a competitive difference for us is the way we think about searching for the companies. We have an absolute focus on what's called forward-looking quality. So, it's balance sheet strength, the pricing power it has, the moat it has, what that quality looks like in two, three, five years' time as opposed to now or historically. And what that allows us to do? It allows us to think across all sectors and find quality in all sectors of the markets.

Dowling: So, is it quite diversified? It's not necessarily just skewed towards value or growth.

Abernethy: Yeah, great question. So, again, I think forward-looking quality means we don't have to think through those traditional prisms of value and growth. We are just focused on the future quality compounders, and they may be quite expensive. So, we may pay up for a name like NVIDIA, or we may pay down for a name like Exxon. Both companies are extraordinarily high-quality companies but priced very differently. So, we don't think in that traditional prism of value and growth.

Dowling: It's been quite a volatile year. So, what sort of sectors, I suppose, were you really looking at to get you through the volatility of 2022?

Abernethy: Yeah, great question. I mean, I think 2022 has been a standout year for all the wrong reasons, a really tough year for investment managers. Late in 2021, we started to find that our technology holdings we felt had over-earned. So, they've benefited greatly through COVID. And we felt having an overweight to technology going into 2022 where inflation was more persistent, where interest rates were inevitably rising, we felt there was quite a big risk to continue holding that overweight to technology. So, we underweighted technology and with those assets started to buy energy names in late 2021. Again, talking about forward-looking quality, we could see in the energy sector, which had been really an underperformer for the previous 10 years, we could see there was a significant supply/demand imbalance in the energy sector, much better capital discipline management by the players in the energy sector, and we ended up having quite a significant overweight to energy going into 2022. Energy was the only sector that outperformed over calendar year 2022 in U.S. dollar terms. So, we benefited greatly from that underweight to tech and that overweight to energy.

Dowling: And finally, looking ahead, there's still quite a lot of uncertainty. Interest rates are going to continue to rise. What are you looking for how are you positioning?

Abernethy: Yeah. Not a lot changed, actually. So, we made that big rotation in 2021 out of tech into energy, and we still continue to think whilst inflation is coming down, it's not so much about the apex of inflation, it's about where it's going to settle and how long it's going to stay there. And if you look at our portfolio today, it still has that overweight to energy and that underweight to tech. We still think tech, whilst it's not as expensive as it looked in 2021, it's still relatively expensive. And you look at some of the names that we have in the portfolio are trading at very, very low multiples, particularly in the energy sector and are paying very, very high dividends. And we think earnings matter in 2023, and we haven't changed our portfolio that much, to be honest.

Dowling: Well, thank you so much for your time, Laird, and congratulations once again.

Abernethy: Thanks very much.

AUTHOR

Sarah Dowling
is the editorial manager for Morningstar Australia

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