The Australian – David Rogers
Global markets are on edge before Nvidia’s quarterly results and US jobs data. And doubts are mounting about whether the artificial intelligence spending boom will end in tears.
Yet Joseph Ziller, founder of Ziller Funds Management, remains upbeat. His fund has delivered a 39 per cent annual return since launching in November 2022 by backing an unfashionable investment thesis: that companies run by their founders consistently outperform the market.
“We’re a growth fund, and so we very much take a long-term view,” says the Australian-based Ziller.
“Clients that allocate with us think ‘I want attractive long-term returns, but for this share of the portfolio I’m giving you, I’m willing to look through some volatility’.”
Ziller Funds Mangement’s Joseph Ziller. Picture: Scott Curtis
The Ziller Global Fund holds a concentrated portfolio of just 15 stocks, including two of the so-called Magnificent Seven – Nvidia and Tesla. But Ziller is quick to point out that 84 per cent of his portfolio sits outside that elite group of mega-cap technology stocks.
What distinguishes his approach is a rigorous assessment of founders.
The median chief executive tenure globally is just 4.8 years.
The median founder-CEO tenure in Ziller’s portfolio is 19 years – almost four times longer.
“These founders have been running the same company through multiple cycles,” Ziller says.
“We have this long track record to assess them and build confidence.”
His team ranks founders across two dimensions: output and quality. Think of it like a plumbing system. Output measures how much water flows. Quality measures the integrity of the system.
“You can have high output, but if you’ve got low quality, that’s where you get the big financial disasters – impressive in their own right, but not what we want from an investment point of view,” Ziller says.
The quality assessment focuses on character and how founders operate under pressure.
“I would rather have low output and high integrity if I couldn’t have both,” Ziller adds.
“There’s no use having high output if the system breaks.”
This philosophy has been tested before. In late 2022, Nvidia fell around 60 per cent on chip oversupply concerns. Palantir, another Ziller holding, dropped 75 per cent on fears it was becoming a consulting business rather than a software monopoly. Both stocks are up 10 to 20 times from those lows.
The research backing founder-led investing is compelling. Ziller’s analysis of S&P 500 companies shows founder-led stocks have outperformed other stocks by almost 10 times since 1994.
Academic studies consistently show founder-led companies generate annual excess returns of between 2 and 12 per cent.
On the current AI anxiety, Ziller sees both sides.
“AI is one of the most transformative technologies we’ll see over the next few decades,” he says.
“But what we’re seeing at the moment is very large capital expenditure spend, and only a small subset of that creating real value from AI at the moment. That’s the issue.”
He sees much of today’s AI spending generating no real return because execution quality is low.
But pockets exist where AI creates enormous value.
Database processing is shifting from traditional chips to Nvidia’s graphics processing units because they’re simply faster and cheaper. Social media recommendation engines – think Facebook and TikTok – require massive computing power but generate real revenue.
Then there’s Palantir, a top holding that epitomises AI’s potential.
The company creates a “digital twin” – a unified view of a business by connecting disparate systems.
AI agents can then optimise processes that were previously impossible to improve.
“If you look at Palantir’s investor presentations, there’s endless examples,” Ziller says.
“This customer came to us, we did this for them, they saved this much, and we did it in 30 days whereas they used to do it in half a year.”
The so-called circularity of tech financing – where Microsoft and Nvidia committed up to US15bn ($A23bn) to Anthropic, which will likely spend much of it on Nvidia chips – doesn’t concern him.
“It’s not actually necessary for them to do for their business,” Ziller argues. “The reason they’re doing it mainly is just because Nvidia is throwing out so much cash at the moment that they can’t spend it.
It’s a capital allocation decision which makes sense at the current time.
His fund added cryptocurrency exchange Coinbase earlier this year after regulatory clarity emerged.
But this isn’t a punt on bitcoin prices.
“Coinbase is actually the leading US retail crypto broker and exchange,” Ziller says.
“We really liked that pairing of being the tech leader but also being the leader in trust, building in the most regulatory compliant way.”
He sees Coinbase shifting from lumpy transaction revenue to higher-quality services like custody, wallets and infrastructure provision. “They’re going to clip the ticket on this growing ecosystem. They’re becoming the Amazon of crypto in terms of the services they provide.”
With Nvidia’s results imminent, Ziller won’t trade around short-term noise.
“We tend not to trade too much in and out of results. If something happened in the results, and maybe we thought the results were strong and Nvidia fell, we might use it as an interesting opportunity to buy.”
It’s an approach grounded in long-term conviction rather than quarterly panic.
With markets now jittery, a focus on proven founders who’ve navigated through crises may prove its worth once again.
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