Why Forager is underweight AI and the US, and the stock that's done 86% this quarter

The market dislocation between large caps and the rest of the market is hardly just an ASX phenomenon. In fact, the extreme dominance of the Mag 7 and the stratospheric rise of the AI trade has arguably distorted the biggest market in the world - the US - to a greater degree than anything we're seeing here. 

And just like the ASX, at an index level everything looks ok in the US, but there have been plenty of quality companies that have become casualties of this distortion both in the US and elsewhere. 

Here, Forager Funds Senior Analyst Chloe Stokes takes us through the big recent changes to the Forager International Shares Fund, including two stocks that are up more than 50% in three months, why she thinks AI has gone from boom to bubble, and why Japan has become one of the fund's favourite hunting grounds. 

What was the most notable addition to the portfolio this quarter and why?

We added Wix.com (NASDAQ: WIX) to the portfolio at the beginning of July. Since then the stock is up 41%, and 72% from its June low.

Wix is a platform for individuals and small businesses to build and host websites without writing code. Its share price was hammered alongside other software stocks on the fear that AI would make its services obsolete, as its customers shifted to vibe coding their websites through large language models like ChatGPT.

We aren’t seeing evidence of that yet. In fact, Wix is seeing significant growth in its recent acquisition, vibe coding development platform, Base44. Wix’s latest results showed 15% revenue growth overall. And management disclosed that they expect Base44’s gross margin, which started the year at 0%, to reach a whopping 60% by the end.

What was the most notable sell or downsize in the portfolio this quarter and why?

This quarter we sold out of four consumer discretionary holdings, for a variety of reasons. Some theses were off track, others were growing nicely but the share price had run hard. 

Overall results in the most recent quarter showed that consumers, especially those in the US, are struggling. It’s clear that 7% mortgage rates and US$100 per barrel oil are biting. We’re not convinced it will reverse anytime soon and our investments in the industry were no longer providing appropriate risk-adjusted returns, so we exited.

We are keeping a close eye on this bombed out sector though, it’s likely to offer some great opportunities at the right point in time.

What’s your most notable overweight and why?

We are benchmark agnostic, so we don’t think in terms of overweight and underweight. Our exposure to Japan, at nearly 18%, is well above any global benchmark though. That’s been true for several years now.

After decades of poor capital allocation, corporate Japan is changing. In March 2023 the Tokyo Stock Exchange asked listed companies to become "conscious of cost of capital and stock price", with particular pressure on those trading below book value to lift return on equity and return capital to shareholders. Since then there have been significant improvements in governance, more companies unwinding cross-shareholdings, and increased capital returns. 

On top of that, the software market, which is where most of our Japanese investments operate, is under-penetrated compared to global peers.

What's your most notable underweight and why?

We’re underweight the US and the AI stocks that dominate its major indices. Not because we’re AI-sceptics. The technology is transformative and we use it every day. But what started as a boom has likely become a bubble. 

A few days after its IPO, SpaceX was valued at more than US$2 trillion on roughly US$20bn of revenue, after sliding back into deep losses last year. Alphabet expects to spend US$200bn on capex in 2026, and more in 2027, turning one of the world's most capital-light businesses into a capital-intensive one. The question is whether those billions earn a decent return.

The Fund did benefit from the capital expenditure of AI giants, through investments in Comfort Systems (NASDAQ: FIX) and Nextpower (NASDAQ: NXT), formerly Nextracker. But valuations reached levels we could no longer justify, so we exited.

US stocks were less than 40% of the portfolio by 30 June this year. That’s fallen closer to 30% today. The US weighting in most global indices is substantially higher. We continue combing US markets for attractively priced setups but they’ve been easier to find elsewhere, which is probably telling us something.

What's been one of your most notable performers over the month/quarter?

Wix, up 41% in less than three months, surprisingly didn’t top the leader board. That position belongs to Northsand (TSE: 446A), a fast-growing Japanese IT consultancy that listed on the Tokyo Stock Exchange in November 2025. The share price is up 86% quarter to date.

Northsand helps Japanese companies modernise their IT systems. Much of corporate Japan still runs on decades-old systems that must eventually be replaced, and there aren’t enough skilled workers to do it.

Revenue almost tripled over the two financial years to 31 January 2026, while operating profit grew fivefold. Management expects another 55% revenue growth this year. It’s still early innings for this technological transition and we think there’s plenty more growth to come.

What themes and trends are dominating discussions right now?

AI for sure. How do we best implement it in our research and idea generation? What risks and opportunities is it creating? The AI boom and the offsetting “SaaSpocalypse” have been the biggest market obsessions in quite some years. When software stocks got hammered indiscriminately early in 2026, we spent most of our time picking through the debris to find the businesses where expectations were overly pessimistic.

This theme started to reverse in late June this year, which has driven our performance during the September quarter to date. It hasn’t been a straight reversal of the trend though, more like market whiplash. AI stocks will rise at the expense of traditional software stocks one day, and will reverse the following day.

Lots of the early gains from capitalising on widespread pessimism about software businesses have been made. We’re still finding lots of attractive businesses in some markets. But our focus has shifted back towards the hunt for idiosyncratic ideas. 

There are lots of interesting small businesses out there and plenty that have been hammered over the past 12 months. You’re not seeing that in most indices because they’re dominated by mega cap stocks. It’s our job to find those attractive smaller stocks and take advantage of the market’s mood swings.

*Prices current as at market close 28 September 2026

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