Having outperformed the broader market in four of the past five years, Arup Datta, manager of the Mackenzie GQE Global Equity Fund, has delivered an annualized return of 14.8% over the five years through July 23. That’s significantly ahead of the 11.98% rise for the fund’s benchmark, the MSCI World Index, as well as the Morningstar Global Markets Index’s 12.6% rise.
During the market crash of 2022, the C$5.7 billion fund took a heavy hit, ending up with a 13% loss for the year. But overall, with Datta at its helm since November 2020, the fund has racked up solid returns, beating its benchmark by a wide margin in all but one of the last five years.
Over the past 12 months, the fund has returned 37.5%, outperforming both the Morningstar Global Markets GR CAD Index’s 31% and its category peers’ 21.9%. The fund landed in the top quartile of its category in four of the past five years, and it was among the top 7% among all category funds in three of the past five years.
In a chat with Morningstar, Datta discussed his investment strategy and his thesis for five stocks—two that have done well in the past year, one that didn’t live up to hype, and two more that he currently likes.
Datta’s Stock-Picking Strategy
While most of the top 10 holdings in the 156-stock fund are mega-cap names like Nvidia NVDA and Apple AAPL, Datta says the quantitative strategy behind the fund mainly looks for stocks with lower price/earnings and price/cash flow ratios than the benchmark. “We look for positive growth characteristics, such as upward revisions in analyst estimates,” he explains. “We also focus on quality metrics like free cash flow margins, cash flow return on equity, and share buybacks.”
Calling his approach an “all-weather core philosophy,” Datta says his strategy remains steady “whether the market environment is value-, growth-, or quality-focused.” He claims the portfolio’s characteristics make it cheaper and allow for higher growth and better quality than an index fund.
Mackenzie’s quantitative models predict revenue and earnings estimates for every stock the company covers, according to Datta: “We compare those forecasts to Wall Street estimates, much like a fundamental manager does. It’s not just about being spot-on with every number; it’s about the direction. If our model identifies a stock that is likely to beat expectations, that becomes a compelling reason for us to own it.”
The fund’s strategic mix typically holds 150-200 stocks and remains “sector-neutral and country-neutral to the MSCI World Index,” says Datta. Mirroring its benchmark, Mackenzie GQE Global Equity’s top regional allocations are to the United States, Canada, Japan, and the United Kingdom. Information technology and financials are the top two sectors, making up a more than 43% weighting in the portfolio.
Datta says that no more than 0.4% of the portfolio can be bought or sold each day, and that decisions are executed directly based on the results of the quantitative model. “This keeps us extremely disciplined,” he asserts. “It’s a key reason we win mandates against the largest managers in the world. Most are not willing to run their models every day and act on them.”
The fund is heavily invested in major US technology and semiconductor leaders, even as it remains globally diversified. Its top ten holdings—all blue-chip stocks—make up roughly one-third of its assets.
Two Winners for Mackenzie GQE Global Equity
Nvidia
“Nvidia is the big AI story,” Datta says. “I had peers who were caught napping on Nvidia as its weight in the index increased, but that didn’t happen to us because we use systematic risk control.”
Datta says he first bought Nvidia in early 2023, then he increased his position substantially in mid-2023, after Mackenzie introduced its machine-learning-based fundamentals prediction model. The model led to even greater investment in Nvidia in 2024.
With the stock’s USD 5 trillion market cap, Nvidia remains the most valued company in the world and the top holding in Datta’s fund, with a nearly 6% weighting. What Datta finds particularly attractive is the chipmaker’s “tremendous R&D spending, which is a big positive.”
Datta continues: “When we first bought it, it was a growth and quality play, but today it actually has value support. It looks cheap on a price-to-cash-flow basis relative to its earnings growth. Its earnings and revenue have gone up far more than the stock has in the last two to three years.”
Nvidia is up more than 13% in the year to date, currently trading at a 26% discount to Morningstar’s fair value estimate of USD 280 per share.
Lam Research
Lam Research LRCX, one of the largest providers of wafer fabrication equipment for semiconductors, is “a huge beneficiary of the AI cycle,” Datta says. The USD 400 billion market-cap stock has benefited from the recent market rotation, as semiconductor companies have taken over the mantle of growth leadership from software stocks.
“Historically, software was the secular growth story, but the massive spending by hyperscalers on AI has turned semiconductors into a secular growth story for the time being,” says Datta.
The fund has held Lam for over two years, since it ticks the boxes for both growth and quality. Datta says the stock is poised for continued growth: “While it’s slightly expensive on a price-to-cash-flow basis, our machine learning model is very positive and suggests the stock will continue to blow out expectations.”
Datta says he looked at two key metrics to assess Lam’s profitability: “cash flow return on equity and return on invested capital. Those are a couple of the profitability metrics that Lam is strong on.”
The stock is among the fund’s top 10 holdings, making up 1.53% of the portfolio. It has soared more than 86% in the year to date, and it now trades at a 46% premium to Morningstar’s fair value estimate of USD 220 per share.
Two More Stocks That Datta Likes
Zions Bancorp
Utah-based Zions ZION caters primarily to small and midsize businesses across its Western US footprint. “It’s a USD 10 billion regional bank that we bought last July,” Datta says.
While the stock hasn’t risen much since he bought it a year ago, Datta likes its valuation story: “The stock looks cheap on tangible book, it looks cheap on dividend yield, and if you look at some bank-specific factors, it’s cheap on valuation versus net interest income.”
Datta uses value stocks in the financial sector to balance growth stocks in technology. “[Zions] hasn’t grown as fast as our tech names, but it’s a different kind of play,” he says. “Our philosophy is to emphasize value in financials while focusing on growth and quality in tech.” Datta calls his bet on the stock a “hopeful winner,” as its prospects have “not fully played out yet.”
Zions is nearly 20% up in the year to date and is trading within a range that Morningstar analysts consider fairly valued relative to its fair value estimate of USD 66 per share.
Hershey
Bought just a couple of months ago, leading US confectionery manufacturer Hershey HSY is one of Datta’s more recent positions. “It’s a consumer staple that is neutral on value but strong on quality,” he says. “We have an internal ESG model where we look at governance and all of the [other ESG] details, and Hershey scores well there.”
He also observes that Hershey is very profitable, pointing to the company’s first-quarter results, which beat sales, revenue, and profit estimates. The company has managed to hold its own amid the onslaught from competitors such as Walmart and Target. “It’s too early, but we believe it will work out for us,” he says.
Hershey is down 5.3% in the year to date and is trading at a 25% discount to Morningstar’s fair value estimate of USD 228 per share.
A Stock Datta Isn’t Sold On
Tesla
Datta remains underweight in Tesla TSLA, which he believes hasn’t lived up to its billing. Still, he holds a small position in Tesla in the Mackenzie GQE US Alpha Extension Fund. “Tesla is a case where the ‘Elon Musk aura’ and retail following drive the price, but we don’t see the underlying growth and quality metrics we require,” he says.
His skepticism stems from falling car sales and various ambitious projects that have yet to take off. “EV sales are moving in the wrong direction for them, and their self-driving and robotics ambitions are hard to quantify,” Datta says.
There is also the disconnect between the stock’s market price relative to its earnings. “Unlike Nvidia, where the valuation is supported by tremendous profitability, Tesla is a ‘concept’ or ‘hype’ stock for us,” he says. Though “Elon Musk is very smart” and the company has “good marketing and innovation,” he thinks that doesn’t manifest in the stock’s quality. “For us, Tesla is expensive,” he says, adding that “we are fine with expensive if it has growth and quality, but we don’t see that in Tesla.”
With Musk’s other venture, SpaceX, now public, Datta sees even less reason for optimism for Tesla. “My guess is that [Musk’s] focus will be more on SpaceX, and maybe the retail focus will move there, which will make Tesla less intractable for us.”
Tesla has fallen over 27% in the year to date. More recently, the stock plummeted nearly 13% following a mixed second-quarter earnings report, falling well below Morningstar’s fair value estimate of USD 450 per share.
