Reflecting on the past month, Jeremy Richardson, Senior Portfolio Manager, Global Equities, RBC Global Asset Management (UK) Limited, looks at some events within the market that are starting to raise questions.
Highlights:
Significant level of enthusiasm within the market in response to a number of events.
Investors should however remain circumspect and comfortable with the characteristics of their investments.
More public investment going into artificial intelligence.
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Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update. Well, there used to be a song many years ago entitled, "Things That Make You Go Hmmm." I've been reminded of that song recently, as we've seen a number of events, that have started to raise questions. Some of those events, in no particular order, include the trying to beat the establishment of a U.S. industrial champion in the production of semiconductors, with strategic investments being made by the U.S. government and also customers.
We have seen the announcements of the world's largest leveraged buyout comparatively recently. We've also seen the announcement of very optimistic and generous management incentivization packets, which have been greeted with a high degree of enthusiasm by investors. All of this is creating a degree of excitement, which is propelling global equity markets onwards.
And it's something that I think investors need to be somewhat circumspect about, because although a large part of this enthusiasm for the future is being driven by confidence in artificial intelligence, up until recently it has generally been the case that a lot of the new investment going into AI has been funded by private companies. And the public companies have had the role of selling the picks and shovels to the companies pursuing the AI gold rush.
Well, now actually as we're seeing more sort of cross-subsidy, more cross investments going into artificial intelligence, it means that for the public companies you are now adding financial risk on top of business risk. And this is something that I think investors need to acknowledge and perhaps sort of reflect in their positioning within portfolios. So firstly, what can we do about this?
What does good discipline look like in this type of environment? But firstly, you continue to do the fundamental research from a bottom-up point of view. Make sure you're comfortable with the characteristics of the businesses that you're investing in. But also from a portfolio point of view, and I think this is especially relevant at this particular moment, pay attention to the housekeeping. Making sure that our old friends momentum and star risk don't get out of line, as they can easily do when you have moments of enthusiasm in markets such as we're seeing now.
I hope that's been of interest. And I look forward to catching up with you again soon.