Emerging-markets star Rajiv Jain built a $67 billion money manager in just 4 years. His co-PM on the $17.1 billion fund backed by Goldman Sachs breaks down the 2 contrarian bets they are making now. (2024)

One day, a rather peculiar Bloomberg classified ad caught his attention: a self-proclaimed well-funded institutional start-up asset manager based in Florida wanted to build an analyst team and asked candidates to email five stocks they liked on a long-term basis to Roger James.

Kersmanc had no idea what could transpire from answering this ad but he saw it as a "high reward, low risk" opportunity and sent five names over.

Before long, his email exchange with "Roger James" finally culminated in a phone call. After spending an hour and a half pitching stocks and talking about investing with this mysterious man, Kersmanc finally realized it was Rajiv Jain, the former chief investment officer and co-chief executive of Vontobel Asset Management, on the other end of the call.

Jain, who oversaw about $48.1 billion at Vontobel, left the Swiss bank-owned asset manager in 2016. News of his departure sent shares of Vontobel down as much as 11%, according to Bloomberg.

Kersmanc recalled Jain telling him over the phone that he "could have thrown his name out there and got hundreds of resumes from people that looked at the top 10 holdings of his portfolio, his performance, and regurgitated those top 10 stocks to try to get the job."

Instead, with this creative hiring process, Jain had a good sense of what stocks Kersmanc truly liked long-term, and that got him the job.

"That is the most effort I've ever seen somebody make a hiring process to get to know you, to understand how you would fit in the context of what they're trying to build," Kersmanc said. "So I rolled the dice a little bit and it's been a fun ride ever since."

Today, he co-manages the $17.1 billion Goldman Sachs GQG Partners International Opportunities fund, which returned 15.77% in 2020 and has gained 5.22% so far this year, according to Morningstar data.

Earnings are like gravity

Once Kersmanc started working at GQG Partners, he found himself in an entirely new environment compared to the traditional Wall Street shops where he started his career.

The long-only equity shop is staffed with both traditional stock analysts and analysts with fixed income, long/short equity, and even investigative journalism backgrounds.

While the firm has no plans to ever launch fixed income funds or short any stocks, he quickly realized why it's set up this way. Working with a team of analysts from different investing, language, and career backgrounds has not only helped him cover blind spots but also gain an "insight and perspective advantage" on things.

But nothing better illustrates how Jain and his team invest than four simple words: earnings are like gravity.

The saying, which is printed and posted on the wall of GQG offices for all analysts to bear in mind, captures the core of the firm's investment philosophy, which is to buy high-quality stocks that deliver sustainable earnings growth.

"As Benjamin Graham said, in the short run, the market is a voting machine but in the long run, it is a weighing machine. And that's what we're trying to get to in terms of the companies that we're looking at," Kersmanc said.

He added: "So if you want to buy quality, you need to sometimes pay up for that. There is a sensitivity to that price and the fundamentals need to support that price, and you need to be able to see a continued headroom for growth even beyond your three-year or five-year investment thesis."

2 contrarian bets

If companies can demonstrate that continued headroom for profitable growth, then they are most likely to compound earnings over the next five years.

By focusing on long-term compounded growth, some stocks with double-digit multiples, which can look expensive to traditional value managers, are cheap to Kersmanc.

However, investors can get in trouble by piling into some of the coronavirus-propelled high-growth names.

"Where's the headroom beyond 2021, where's the headroom after things do start to normalize a little bit more," he said. "If that headroom is running out in the next couple of years, that's when the multiples will become dramatically compressed, so that's something that we're being very mindful of."

GQG's approach, which can be summarized by Warren Buffett's famous saying that growth and value are joined at the hip, has led Kersmanc to some more contrarian bets.

One example is the banking sector, where the international opportunities fund first bought shares of Swiss bank UBSat the end of September, according to Morningstar.

In an ultra-low interest rate environment, bank stocks seem to be the last resort for growth-minded investors, but Kersmanc sees them as secure balance sheet businesses where both loan growth and fee-based revenues are picking up, especially considering that rates are unlikely to get lower.

"A lot of these banks also have asset management and wealth management franchises, so it's much more of an annuity-like business model," he said. "And you're basically paying a single-digit multiple for those banks."

Another example is the telecom infrastructure space where the fund first bought shares of Cellnex Telecomin 2017.

The Barcelona, Spain-based company might have flown under the radar for many investors, it is one of the largest cell tower companies in the world.

"You have your set capital or returns that you get for erecting one tower, but then each additional tenant value adds to that," Kersmanc said. "You basically get all of that cash flow in the bottom line because it costs you practically nothing to put your radio equipment for the second tenant on the same tower."

He continued: "So these deals can be massively accretive when they bolt on these additional tower portfolios and put those together."