- GQG has more than tripled the technology allocation in its emerging markets fund to about 35% in August, erasing most of a sizable underweight. Technology now accounts for 28% of the flagship international equity fund, up from 5.4% in July, leaving it overweight the sector.
- That completes a full round trip. The $53 billion international fund had cut technology from a peak of 28% in early 2024 to just 3% earlier this year, while the $20 billion emerging markets fund fell to 7% from 30%. Jain described the AI boom a year ago as a dot-com bubble on steroids and called AI spending fuelled by circular funding a misallocation of capital against insufficient demand.
- The cost was severe. The international fund returned about 12% over the past year against 21% for its benchmark, and other GQG strategies moved from beating benchmarks by wide margins to trailing them over three and five years. Investors withdrew $12 billion in the second half of last year and another $24 billion through August, $36 billion in total, with GQG shares falling to record lows.
- Funding the reversal required selling elsewhere. Jain pared heavy overweights in Brazil and India, and local investors said the selling worsened declines in some Brazilian stocks.
What Happened?
Jain, who built GQG into a $150 billion firm in a decade, cited improved valuations, stronger demand for computing power and a recovery in graphics processing unit prices, telling analysts the firm had clearly underestimated some things. Writing on the GQG website in late July, he pointed to enterprise AI demand and to hyperscaler margins at Alphabet and Microsoft holding up better than expected, arguing that managers must react to the market they face rather than the one they want. Alex Shahidi of Evoke Advisors said Jain willingness to change as facts emerge is a strength. JPMorgan analysts led by Siddharth Parameswaran cautioned that the sharp turn could prompt further redemptions near term, noting that past underperformance will not unwind if the original thesis proves correct. James St. Aubin of Ocean Park Asset Management said Jain track record affords him latitude few managers have.
Why It Matters?
The JPMorgan observation is the important one and it deserves more weight than the reversal narrative. Jain diagnosis was that AI capital spending is inflated by circular funding and insufficient end demand. Nothing has disproven that. Nvidia has since committed $2 billion to a Brookfield AI infrastructure fund and $3 billion to SB Energy, a company whose facilities buy Nvidia processors, while OpenAI invests in the same provider. Capital is visibly circulating among supplier, infrastructure and customer, which is precisely the mechanism he described. His thesis was unprofitable rather than wrong, and those are different things. What changed was not the evidence but his capacity to hold the position through $36 billion of redemptions. That is the more uncomfortable lesson for allocators. A manager with a three-decade record and a coherent contrarian view was effectively liquidated by his own investors before his thesis could be tested, which raises a structural question about whether contrarian positioning is fundable at all when one theme dominates index returns. Anyone selecting managers on the basis of independent thinking should recognise that the redemption mechanism punishes it. Note also the second-order effect: funding the switch meant selling Brazil and India hard enough to move Brazilian stocks, so AI concentration is now pulling capital out of emerging markets through the portfolios of managers who capitulate.
What Next?
Watch GQG flows over the next two quarters, since JPMorgan expects the reversal itself to trigger further outflows from clients who bought the original thesis. The performance test is now symmetrical: having sold near the bottom of his underweight and bought at these levels, Jain needs the rally to continue simply to recover the nine-point gap to benchmark. Track the emerging markets fund specifically, where the allocation swing from 30% to 7% to 35% is the most extreme, and where the Brazil and India positions that funded it were concentrated. The broader signal to monitor is whether other underweight managers capitulate, because a wave of forced repositioning would add flow-driven support to AI shares that has nothing to do with fundamentals, and it would arrive late in the move.
Affected Tickers and Coins: NVDA, TSM, KRX, GOOGL, MSFT
Source: Bloomberg
