Bowmore Asset Management is urging investors to trim exposure to the soaring artificial intelligence sector and reallocate to alternatives such as infrastructure, property and bonds, amid mounting concerns that the rally in AI-linked equities has inflated bubble-like conditions.
Global stock markets have surged to record highs this year, propelled by a narrow cohort of technology companies whose valuations have expanded at breakneck speed. Ten groups, namely Apple, Amazon, Alphabet, Broadcom, Nvidia, Meta, Microsoft, Tesla, Oracle and Palantir, have accounted for roughly 58 per cent of the S&P 500 Index’s $7.7tn increase in market capitalisation since January. The scale of that concentration has raised alarms among portfolio managers wary of a sudden reversal.
Bowmore said that investors uneasy about their growing reliance on a handful of AI beneficiaries should consider broadening their portfolios with assets that have historically shown low correlation to global equities. Such diversification, the firm argues, offers the best chance of cushioning losses should sentiment towards AI turn sharply.
“Alternatives like infrastructure, commodities, property, private equity and structured products provide return streams less correlated with traditional markets,” said Jonathan Webster-Smith, Bowmore’s chief investment officer. “Their role is not to shoot the lights out, but to stabilise portfolios in times of market stress, whilst offering strong return opportunities at particular points in the economic cycle.”
The firm highlights infrastructure, renewable energy assets, commercial property and hedge funds as among the categories offering the lowest correlation to the FTSE All-World index over three-, five- and ten-year periods. Infrastructure-focused investment trusts show correlation scores ranging from 0.28 to 0.44, while renewable energy funds register even lower readings of 0.13 to 0.28. Commercial property sits between 0.23 and 0.38 across the same time frames.
Hedge funds, with correlations ranging from –0.12 to 0.28, rank as the least connected to global equities. Bonds, meanwhile, show moderate correlation — between 0.28 and 0.52 — but remain a core diversification tool, Bowmore said, particularly as yields hover at mid-single-digit levels and interest rates begin to ease.
The warnings come as prominent investors question the durability of the AI boom. Michael Burry, the hedge fund manager whose bets against the US housing market were chronicled in The Big Short, has disclosed positions shorting AI-exposed stocks, adding to unease that valuations in the sector may be vulnerable.
