Record-high markets don’t necessarily mean safe investments. Alex Hoy from GQG Partners explains why their ETF avoids the biggest tech names, which companies he sees as truly high-quality, and what investors should know before chasing momentum.
00:00 Introduction
00:00:22 What Defines a High-Quality Company?
00:01:45 Why Philip Morris Over Big Tech?
00:02:49 Unexpected High-Quality Growth Picks
00:03:52 Is There Still Quality in Big Tech?
00:04:52 Is This a Defensive Strategy?
00:05:47 What Happens If the AI Bubble Bursts?
00:06:15 Overpaying vs. Missing Out
00:07:16 Is Valuation Risk Market-Wide?
00:07:45 How Much Growth Should Investors Hold?
00:08:25 Advice for Investors Feeling FOMO
Transcript:
Caroline Woods: The market is hitting record highs, but in some sectors valuations are stretched. So how do you find high quality growth without overpaying. Joining me now is Alex Hoy from GQG partners. He joins me at the desk. Great to have you.
Alex Hoy: Oh thanks for having me.
Caroline Woods: So we hear this word quality thrown around a lot. But tell us, what does it mean to you? What’s the one really key metric that matters most to you?
Alex Hoy: Yeah, it’s an interesting question because there really isn’t just one metric. And when we are looking for quality companies at Ukg, we’re really assessing companies on a forward looking basis, looking for forward looking quality characteristics that they may be exhibiting. And what this means is what are the skills, the attributes, fundamentals of course, that they are exhibiting right now that may be supportive of compounding their earnings on a go forward basis. And so getting back to your, you know, the heart of your question, finding these high quality companies without overpaying today. That’s really been the challenge because a lot of the companies that are doing well from a share price perspective are certainly ones where we feel their valuations are stretched, and so we are avoiding many of them. Many of the major seven companies that that we all know well, and instead the companies that we’re looking for, and this is across all periods, not just right now, we’re looking for companies that can achieve a high single digit to a low double digit total return. And we still feel there are plenty of high quality companies out there able to do that at much more reasonable valuations.
Caroline Woods: So that’s where your ETF comes in. ETF spotlight GQ, US equity ETF, GQ, GQ your top holding is Philip Morris followed by Progressive Cigna. So why is a tobacco giant a higher quality name than the Mag seven a? I didn’t even see any of the Mag seven in your ETF.
Alex Hoy: Yeah. And that’s right. And so thinking about Philip Morris for an example, you know, we’ve own Philip Morris for quite some time. And we’ve owned it in the past. We own other tobacco companies and our Gpgpu strategy, which is our US equity portfolio in the past. But what Philip Morris is exhibiting right now, it’s it’s a real growth trajectory away from traditional cigarets or traditional combustible products. They’re now selling excuse me, newer products. Call it the heat, not burn. Call it the pouches. They have specific product lines here that are real drivers of growth for this company. Going forward. So much so that from a revenue perspective, a little over 40% of their revenues lately are now derived from these newer products as opposed to traditional cigarets. So on a forward looking basis, this is a totally different company than what it was in the past, giving us a lot of conviction to, to put it at a higher weight in our portfolio today.
Caroline Woods: I also mentioned Progressive and Cigna. What are some other names in there that might surprise us when it comes to high quality growth?
Alex Hoy: Yeah, progressive and Cigna. So other insurance companies or MCO companies we have a few of them in the portfolio. We also have some utility companies in the portfolio too. Quite a few names and roughly let’s call it 20% of the portfolio. These are boring companies for all intents and purposes. But what do they offer? They offer earnings stability. They offer earnings visibility. Due to the regulated nature of many of these companies, the regulated utilities are where we are focusing more so than some other areas. That gives us more certainty that they’re going to achieve this earnings growth on a go forward basis out over the next 3 to 5 years. And and that’s the time period that we assess every business in which to own. And just given the way that they operate with their regulatory oversight, their rate base that they can charge, the certainty is much higher for us today than some of the other names that you alluded to.
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