GQG invests in tech and semiconductors suddenly

GQG Partners has made a significant shift in its investment strategy, increasing its exposure to technology and semiconductors after a long period of caution towards these sectors. This move has raised concerns from analysts, given the firm’s previous stance against AI and technology investments.

The firm’s chief investment officer, Rajiv Jain, had previously expressed concerns about the financial results of major tech companies like Meta, Microsoft, and Oracle, citing issues in the AI sector.

In its half-year results, GQG reported $15.1 billion in outflows, leading to a decrease in funds under management to $156 billion, down from $172.4 billion a year ago. The outflows were partially offset by $7.2 billion in investment performance.

Much of the outflow was driven by the firm’s underweight position in technology. However, GQG has now decided to go overweight in technology and semiconductors, with this position held across three of its four funds.

According to the report, the firm’s emerging markets fund remains underweight in technology due to high index technology exposure via South Korea and Taiwan.

In an analyst call, Jain explained that the firm had “grossly underestimated” demand for compute and the broadening of industrial growth in large countries. He also noted that companies like NVIDIA are now selling at lower multiples than they were last summer.

Jain said, “We did not have a philosophical issue with owning them, and we have owned some historically. But some of the data points began to shift in February and March, so we changed some of the names we owned.”

The move into technology has come at the expense of utilities and healthcare, which they cut back aggressively after they failed to meet earnings expectations.

Analysts questioned Jain about the rapid change in the firm’s sector positioning and the logic behind it. Siddharth Parameswaran of JP Morgan asked how clients were taking the news, given the firm’s previous defensive stance on technology.

Jain responded that they had found better opportunities in the technology sector, citing more sustainable drivers on the compute side and lower valuations for hyperscalers. He also noted that the sell-off in Korea and Taiwan presented an excellent opportunity to pick up some of these names.

Chief executive Tim Carver added that it is not unusual for GQG to make significant and rapid changes to its portfolio, as the firm follows the data and makes decisions on a stock-by-stock basis.

It will be interesting to see how clients respond.

The firm’s shift in investment strategy is a notable example of how investment firms can adapt to changing market conditions and adjust their strategies accordingly. As GQG moves forward with its new strategy, the outcome will depend on various factors, including the performance of the technology sector and the firm’s ability to make informed investment decisions.