Joseph Shaposhnik’s Winning Formula: Great CEOs + Recurring Revenue
Veteran investor Joseph Shaposhnik believes actively managed funds have lost their way. “There are too many managers who spend their days making decisions based on index constituents,” he told MarketWatch. “The system is broken, but it’s fixable.”
His solution: focus on businesses with predictable growth and leaders who know how to allocate capital. This summer, Shaposhnik launched the Rainwater Equity ETF (RW), backed by a cornerstone investment from legendary value investor Bill Miller, whom he first met during his early career at Fidelity.
Shaposhnik spent 13 years at TCW, where he managed strategies including the TCW Compounders ETF (GRW)—ranked the top performer among 343 U.S. large-cap core equity funds by Nasdaq eVestment. The biggest lesson from that experience? Companies with recurring revenue consistently deliver superior results.
“Recurring revenue gives management confidence to invest in growth,” he said. “That leads to stronger earnings, higher free cash flow, and better stock performance.”
His ETF holdings reflect that philosophy:
- Microsoft (MSFT), driven by its powerful subscription base through Office 365.
- Broadcom (AVGO), up 46% this year, with massive new AI-driven chip orders.
- GE Aerospace (GE), led by CEO Larry Culp, a top pick thanks to steady demand in jet propulsion and a projected 20% growth in earnings and cash flow.
- Constellation Software (CSU), with 75% of sales locked into long-term maintenance contracts and a culture of world-class capital allocation.
- Loar Holdings (LOAR), which benefits from steady aftermarket aerospace parts sales and what Shaposhnik calls Europe’s coming “defense supercycle.”
Underlying his strategy is a focus on exceptional CEOs. He looks for what Warren Buffett once called “fanatical managers”—leaders fully dedicated to their companies, proven in capital allocation, and capable of compounding free cash flow over time.
Shaposhnik isn’t a fan of dividends, calling them “a draw on capital” that could otherwise be reinvested into growth. Instead, he prefers companies that plow cash back into strengthening their businesses and rewarding shareholders long-term.
As for why investors should back his fund? He points to three reasons: diversification, a proven track record of outperformance, and protection during downturns thanks to resilient, recurring-revenue businesses.
“Today’s benchmarks are more concentrated than ever in just a handful of stocks,” Shaposhnik noted. “Our approach is built to endure in both good times and bad.”
