MW This new Bill Miller-backed fund is banking on a simple but winning formula

By Barbara Kollmeyer

Joseph Shaposhnik's secret sauce is savvy CEOs who can deliver recurring revenue

Veteran manager Joseph Shaposhnik is betting on companies like Loar Group and GE Aerospace.

Veteran money manager Joseph Shaposhnik believes many investors have given up on actively managed funds, a business he sees as "broken" but fixable.

"There are too many actively managed funds out there with managers who spend all of their days trying to make investments and decisions based on the constituents in their index," the founder of Rainwater Equity told MarketWatch in a Monday interview.

His plan to fix that? Shaposhnik launched the Rainwater Equity ETF RW this summer with a cornerstone contribution by value investor and former chairman and CIO of Legg Mason Asset Management, Bill Miller, who he met when starting out at Fidelity.

Shaposhnik spent 13 years at global asset management firm TCW, running several investment strategies and managing the TCW Compounders ETF GRW, ranked the top-performing fund out of 343 peers in its U.S. large-cap core equity category by Nasdaq eVestment.

His big takeaway from his TCW days: predictable-growth businesses deliver better performance.

He chiefly looks for companies with recurring revenue, secured or under contract through subscriptions or contracts, which "gives management the confidence to invest in growth," leading to better earnings, free cashflow and far better stock performance, he said. His second-biggest holding is Microsoft $(MSFT)$, where he notes its powerful subscriptions via Office 365.

The fund also holds Wall Street darling Broadcom $(AVGO)$, whose shares have delivered a 46% gain this year. The company announced a big new AI customer this summer, and Shaposhnik flagged huge orders for its specialized chips business.

Recurring revenue can also come from companies with oligopoly-type positions, such as top pick, GE Aerospace $(GE)$, which dominates in the propulsion of commercial aerospace across the world. "That's an end market that has very, very steady growth," he said.

GE Aerospace is also "run by one of the best industrial CEOs of our time," Larry Culp, whose "phenomenal track record" will help him turn the company around after taking over two years ago, he said.

Once the crown jewel of GE, it's now a "pure-play investment on the long-term growth of commercial aerospace and defense," and he sees free cashflow and earnings growing at 20% for an extended period of time.

He also likes Canada-based Constellation Software (CA:CSU), owner and operator of vertical markets software. "What we like about it is that about 75% of total sales are tied to long-term maintenance contracts on critical software the company provides customers."

Shaposhnik also loves Constellation's culture. "We think that the CEO and the management team are some of the best capital allocators of our time, and we think that Constellation will be able to grow in good times and in bad at a higher rate than the market 15% to 20% for a long period of time."

He looks for strong management teams, because he wants to hold those stocks for the long run, and give company leaders time to execute on strategies. Companies also need lots of free cashflow, which managers need to be savvy at reallocating in order to generate even more. He considers dividends "a draw on capital, away from compounding free cash flow inside the company."

"We're looking for what [Warren] Buffett described as fanatical managers. That means an individual who is totally dedicated to the company and has a track record of allocating capital in a way that creates value for shareholders," he said.

His third-biggest position is Loar Holdings $(LOAR)$, an acquirer of aircraft parts for commercial and defense. "We like the fact Loar's growth is tied to aftermarket replacement parts on commercial aerospace and defense programs. That generates very predictable free cashflow and gives them the opportunity to grow at a higher rate."

Loar will also benefit from what he calls "the defense supercycle" from Europe, where he sees NATO defense spending moving from $400 billion to $1.4 trillion a year.

Last question to Shaposhnik - why invest in his fund? "It provides diversification, it has a track record of outperforming, and it can provide investors some level of protection in the event the stock market declines because it's invested in these durable, recurrent revenue businesses," he replied.

That's especially given broader market benchmarks are "more concentrated than they've ever been in just a handful of stocks," he said.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are mostly steady, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD30Y also holding mostly steady, while gold (GC00) (GCZ25) is headed for another record high.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6693.75    1.19%   3.95%   13.81%   17.05% 
   Nasdaq Composite                                                     22,788.98  1.97%   6.25%   18.01%   26.79% 
   10-year Treasury                                                     4.136      10.10   -13.20  -44.00   40.30 
   Gold                                                                 3790.9     1.70%   10.10%  43.63%   41.34% 
   Oil                                                                  62.08      -3.83%  -1.94%  -13.62%  -13.22% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Fed Chair Jerome Powell will speak at 12:35 p.m. on the economic outlook. Ahead of that, Fed Vice Chair for Supervision Michelle Bowman will speak, and then Atlanta Fed Pres. Raphael Bostic at 10 a.m.

On the data front, S&P flash U.S. services and manufacturing purchasing managers indexes will be released at 9:45 am.

Kenvue shares $(KVUE)$ are bouncing off a record low after a White House warning for pregnant women not to use its Tylenol painkiller didn't provide fresh evidence for lawsuits against it.

The OECD lifted its U.S. growth forecast. Don't get too excited.

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The chart

Fundstrat's head of technical strategy, Mark Newton is flagging stock market bifurcation. His chart shows just three out of 11 major sector exchange-traded funds have been positive in the past month, on an equal-weighted basis: technology, communication services and energy. "Meanwhile, eight sectors have fallen more than 1% in the last month, despite the S&P 500 SPX and QQQ QQQ having reached record heights. This kind of divergence has the potential to be troubling if/when technology's torrid runup stalls out," he writes.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   OPEN    Opendoor Technologies 
   PLUG    Plug Power 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   PLTR    Palantir Technologies 
   NIO     NIO 
   ORCL    Oracle 

Random reads

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-Barbara Kollmeyer

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September 23, 2025 07:06 ET (11:06 GMT)

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