Key insights
- The article explores hypothetical portfolio strategies for navigating a potential 'AI bubble' pop, suggesting a shift towards developed international equities, large-cap value, small-cap value, and mid-cap stocks as resilient assets. It questions the negative correlation of Treasuries and considers potential Fed rate cuts in such a scenario, highlighting the need for diversification beyond US market-cap weighting to mitigate risks associated with a tech-centric downturn.
Where do you want to be positioned for good long-term stability and returns if the AI narrative unwinds quicky?
This is a hypothetical, I don't want to go down rabbit holes debating whether we're in a bubble. And some non-tech sectors will compress (some industrials and power related companies, as an example), so it isn't quite as easy as just avoiding tech.
I'd argue developed international (VEA) would be fine (semis are at the top of the holdings, but Samsung, ASML and SK are ~7%). Large cap value (VTV, BRK-B, etc.). Small cap value. Midcaps. Any other ETF that slices and dices the market in an interesting way to be anti-AI?
Obviously, a real bubble pop will impact the markets generally, but what do you think would be resilient if a 2001 style event happened again?
Any anti tech / AI bets? Anything that's not just uncorrelated, but negatively correlated? Treasuries didn't really spike in 2001. Tech is enough of the economy that rates probably would be cut if AI crashes? Anything else? Short copper? haha
Note: I'm not really anti tech or AI. I do think this is a useful exercise for building a robust portfolio, and that's the goal for this conversation. Identify the gaps for someone who might be largely US market cap based.