Betting against "AI".

valiant24

I started a new job 40 years ago this month.  It was an artificial intelligence research centre, part of what was then the Polytechnic of the South Bank in London.

I note know the huge enthusiasm about how AI is about to change our lives, and revolutionise valuations.  I am quite the skeptic: I'm not convinced that the technology has really moved on that much, and we just see traditional rule-based systems doing much more because of improved compute power.

Anyway, I'm not interested in debating this opinion with anyone.  I would like some advice though.

I'm a fairly disciplined investor and generally just have Global Trackers, individual gilts, gold and retain some cash.   I'd like to reduce in my equity part my exposure to companies benefitting from the AI boom.  I don't want to spread-bet against The Big Seven though.  If I sold down some of my global tracker what could I replace it with that is less correlated to the AI froth?   Maybe FTSE-100?

Thanks
V

Hoenir

I'd avoid the FTSE100 as a rather archaic index. Purely full capitalisation based. Rather than being filtered in anyway. Won't disagree with the sentiment of UK listed company exposure though. 

jimjames

FTSE250 rather than the 100?

Voyager2002

You could try Value Investing... on the basis of CAPE, both Poland and Korea offer exceptionally good value at the moment. I suspect that a value screen would exclude any AI-focused companies.

masonic

I would second the suggestion of using a value tilt.

Bobziz

How about a developed world ex US tracker?

Linton

Very few major companies have a significant fundamental exposure to AI.  In technological revolutions the ultimate winners are those people who make effective use of the technology rather than the developers.

To reduce the froth my US allocation is limited to about 40% thus permitting a much higher far east and european coverage than a global tracker, especially in small companies.

I would not recommend a high FTSE100 allocation as it includes virtually no technology at all, which is going too far in my view.   Instead it is significantly invested in mining/drilling and the banks.  If you want a high UK allocation the FTSE250 is more diversified.

InvesterJones

As soon as you step away from a global market cap weighting you're into the realm of needing to take a steer on things and have a plan for what conditions need to be met before you revert.

Even companies not involved in the technology of AI are being judged on how well they can take advantage of it to deliver efficiencies or breakthroughs, so it's very hard to escape altogether.

Selling a chunk of global and replacing it with a basket of regions + equal cap US would tilt away from the mega techs, but also other large US companies. Could tilt on value or size factors also.

Eyeful

1. Look through the various portfolio ideas below, you might find one you are happy to use.
How about the "Golden Butterfly"
https://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/
https://portfoliocharts.com/portfolios/
Good Luck on what you decide to do! 

Albermarle

There are index funds that track 'mid cap' companies, so that automatically excluded the Magnificent 7.
Also plenty of OEIC funds and investments trusts that have low AI/Big Tech holdings.

gm0

We need a portfolio design approach to taste.  Factors (Value etc.).  Geography (which is what I use).  As I did not find the permanent portfolio or golden butterfly compelling. I am prepared to carry some risks which these seek to address.  Also the past 3-4 years.  Portfolio designs based on buying lots of bonds have been a hard sell in the front end of that period anyway.

So I have a section of portfolio in the "normal" global space.  Which is 30% top 10 mega cap big tech.  And 60-70 US Been doing amazing.  Also terrifying.

Elsewhere - I use multi-assets as dampening and extend my stock list into small and em.  Still pretty global. Some dampening.  Bit less US.  And versus US short term - some loss of return.

Elsewhere again - I have added deliberate geographic tilts to global developed equities - based on my perspective on long term growth potential around the world due to long term demographic and geographic trends. 
AsiaPac over europe.  Europe over post brexit UK.   Constrained by market maturity and ease of low cost investibility from UK

I cannot possibly ignore US so I don't.  But I am not going all in on it either for reasons including OP's assertion re AI hype cycle.

I am pessimistic about sterling (long term trend to continue more or less).  So I happily use USD base currency funds where any further destruction of value by UKGOV works for me not against me.  And if it's flat so what. 
If GBP/USD rises back >2 then it's a bad choice/fx bet - and that move has a range of impacts.  The global circumstances where that happens are likely to be rather turbulent in quite a range of other ways.

I also use multiple approaches because that is also one of my principles as a novice.  I don't know what I don't know - so jumping on a single "all in" theory of investing - is not for me.   Nor are my tilts super aggressive.

There are valid objections to this strategy around overlaps, mean reversion, complexity vs what is achieved, reduced impact of individual tilts viewed overall etc. And running costs of multiple portfolio platforms. 

Trustnet can be used to address overlaps and individual stock concentration (by accident from particular funds).

For the geographic example - if I hold VHVG/VEVE in a portfolio section. 

Then I add some chunks of VAPX, VERX, even single countries selectively South Korea etc.  To create a geo tilt.
In this example - developed world.  But with Asia ex Japan. South Korea etc.  And Europe ex UK.  Tilted up. More Asia than Europe.  All added to create a mild tilt away from USA. 

Still (largely) excluding China, Russia, Turkey etc - markets which I don't feel I have any business dabbling in as a foreigner and a low net worth consumer.

I could not say how well this is working as the conditions it is designed to help with haven't turned up yet. 

My expectations are that it will help a bit. But small.  The cataclysm of a US megacap bubble popping will roll around the world and as a consumer I will find out too late and be too slow to do much about it.  As for the long term.