New York — Legendary investor Bill Miller has joined forces with veteran fund manager Joseph Shaposhnik to launch a bold new ETF called Rainwater Equity. This fund is built on a straightforward yet powerful investment philosophy: favor companies with reliable, recurring revenue streams, strong cash flow, and management committed to long-term value instead of short-term gains.
A Return to Active Management
Shaposhnik believes many actively managed funds have drifted away from true value investing, instead mimicking index funds or chasing momentum. With Rainwater Equity, he aims to bring back the discipline of selecting businesses that consistently deliver growth and stability.
While passive index funds dominate headlines, this new fund wants to remind the market of what disciplined, research-driven management can offer—especially in a volatile environment.
Portfolio Highlights
Shaposhnik has already assembled a core set of companies in Rainwater Equity that exemplify the fund’s strategy:
- Microsoft is among the top holdings, praised for its subscription model (Office 365, cloud services) that provides steady, predictable income.
- Broadcom is another big bet, especially in artificial intelligence hardware, with its chip businesses gaining traction globally.
- GE Aerospace is included for its strong position in aerospace propulsion, a sector with long-term demand and high barriers to entry.
- Constellation Software, a Canada-based firm, stands out for its vertical market software and maintenance contracts that lock in revenue for years ahead.
- Loar Holdings, focused on aircraft parts and aftermarket service, provides exposure to a niche but stable segment of the commercial and defense supply chain.
These companies share attributes Shaposhnik calls essential: recurring revenue, solid free cash flow, strong and accountable management, and business models resilient to market downturns.
What Sets Rainwater Equity Apart
- Management Philosophy: Rather than chasing quarterly earnings surprises or trendy sectors, the fund looks for leaders who pragmatically invest in growth, avoid unnecessary risks, and allocate capital carefully.
- Durability & Resilience: The fund aims to protect investors in downturns by choosing businesses less likely to collapse in chaos—those with subscription models, maintenance contracts, or oligopoly-like market positions.
- Diversification: Even within its focused strategy, Rainwater Equity seeks to spread risk across sectors and geographies, so the fund isn’t overly dependent on one market or one kind of tech bet.
Shaposhnik also draws inspiration from Warren Buffett’s concept of “fanatical managers”—executives who live and breathe the long-term interests of their companies and shareholders.
Performance & Track Record
Shaposhnik previously managed the TCW Compounders ETF, which earned recognition for strong performance relative to its large-cap peers. This track record gives Rainwater Equity a solid foundation of credibility.
Investors are watching to see if this approach, which emphasizes fundamentals over hype, can consistently outperform more popular high-growth or momentum-oriented strategies—especially in a market where a few big stocks dominate.
Risks & Challenges
- Valuation Pressures: Some of the companies with recurring revenue models are already richly valued. If expectations are too high, there’s risk of correction.
- Regulatory & Geopolitical Risk: Firms operating in software, AI, aerospace, or defense must contend with regulatory scrutiny, trade restrictions, and global supply chain vulnerabilities.
- Concentration Risk: Although positioned as diversified, much of the value depends on a handful of large holdings. Underperformance in just a couple of major holdings could drag overall results.
What This Means for Investors
For those frustrated by index funds that resemble each other, or worried about market concentration risk, Rainwater Equity offers an alternative: a fund that seeks to marry growth with stability.
It’s an option for investors looking to ride out turbulence with exposure to durable business models. And for those wanting disciplined fund management rather than chasing the latest hot sector, this could be a welcome development.
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