Spring this year brought the news that USD160.5 billion active equity manager GQG Partners was launching its first ETF, the GQG US Equity ETF (GQUS).
In a year when active ETFs have dominated the asset flows, this was a perfect example of a traditional institutional-scale active manager stepping into the ETF space.
The firm launched their first ETF using SEI’s Advisors’ Inner Circle offering, continuing a relationship between the two firms that has been in existence for some nine years.
Steve Ford, Head of Global Distribution at GQG Partners explains that the driver behind his firm’s move into ETFs was its response to investor demand. “We have had a long history of rolling out vehicles to give investors access when there is a benefit to them,” he says. “The ETF is the next one in line after our mutual funds, UCITS, private funds and CITs. For many US taxable investors this is the best commingled structure available.”
GQG’s portfolios are long only, fully invested, concentrated and benchmark agnostic.
“They are portfolios that are very active, offering true active management that is more akin to what you might see from a hedge fund’s long only offering,” Ford says.
“We think of risk as absolute loss not relative benchmark risk, so in a long only framework we compound capital consistently over a long time and if we do that well, we believe we will beat the benchmarks without excessive risk taking.”
“In ETF-land there are a lot of products that are either passive or quasi-active, so they often look similar to benchmarks and provide factor exposure to certain areas and themes. That is not what we do – we want to build concentrated portfolios of our best ideas.”
The fund launched its ETF with USD200 million in capital from existing investors who wanted that ETF structure and is seeing new capital inflows each week. The existing investors who seeded the ETF included OCIOs for family offices, institutional investors and high net worth investors.
Mike Beattie, President of SEI’s Advisors’ Inner Circle Fund, explains that SEI has three areas of focus: technology, asset servicing and asset management and the firm’s work with GQG falls under its asset servicing division, offering support in the back-office space.
“We created an eco-system that could service mutual funds with all the necessary components such as a board of trustees, an administrator etc so that all the boxes are ticked and our clients can come in and leverage that infrastructure. It’s quicker to market, more cost effective, and there are fewer administrative things they need to worry about.”
The arrival of the ETF rule 6c-11 in 2019 saw SEI expanding its offering to include ETFs and actively grow out the ETF component of the platform. “We see a lot of opportunities, especially with active ETFs as they become more and more popular in the US,” Beattie says.
“We’ve had a partnership with GQG for over nine years working with them in the mutual fund wrapper and now it’s expanding with the ETF. When they look at their strategies and all the vehicles to get to different distribution areas, our focus is to provide all those wrappers so they can leverage SEI and let us do what we do best.”
Ford says that GQG’s focus has primarily been on institutional and financial intermediaries. “We believe this product has the largest appeal to the financial adviser community, particularly the RIA community who services largely taxable investors, and the other advantage is ease of use. As they scale their businesses, they find it easier to build and rebalance with the ETF structure.”
Beattie agrees saying that the primary reasons why their clients are launching ETFs is because they are the most tax efficient vehicle combined with efficiency and ease of use.
GQG has no plans to launch any more ETFs immediately. Ford says: “It’s been a successful launch, so we feel we need to engage with our clients on this vehicle and grow it. With that said, we are always looking for opportunities to add value for our clients.”
