24 Aug 2026
AI may dominate headlines, but is it the biggest risk facing investors? Chris Forgan and Caroline Shaw explore why increasing market concentration, rather than AI itself, could be the greater challenge for portfolios today.
Investors have been concerned with the same question of late: has the artificial intelligence (AI) rally gone too far? These worries have only intensified in recent weeks after the correction we’ve seen in memory stocks.
History teaches us to be cautious whenever one investment theme captures so much attention. However, AI has become the lens through which investors view almost everything. When company earnings, economic data and central bank decisions are announced, the first question is invariably: does this strengthen or weaken the AI investment story?
As portfolio managers, we think another question needs to be asked. With AI continuing to offer some of the strongest structural growth opportunities available, the issue is market leadership has become increasingly narrow. Consequently, portfolios can appear diversified but, when you dig deeper, returns may be too reliant on the same theme.
The structural investment case remains compelling because, unlike previous periods of market exuberance, today’s leading AI businesses are generating exceptional earnings growth and significant cash flows. Investment in data centres, semiconductors and digital infrastructure continues at a remarkable speed. What we need to consider is how that exposure is expressed within portfolios.
Much has been said about the dominance of US technology stocks but concentration is no longer just an American story. In Korea and Taiwan, for example, returns have become heavily dependent on a relatively small number of semiconductor manufacturers. As a result, investors may be more exposed to technology than they think, even when investing across different regions or seemingly diversified strategies.
So, how do we approach the issue of concentration? Our strategy over recent months has been to reduce reliance on the narrowest parts of the market. For example, we have increased our exposure to the S&P 500 Equal Weight Index and to US mid-caps. These positions enable us to retain exposure to the resilient US economy and supportive earnings backdrop while, at the same time, reducing exposure to a handful of mega-cap companies that account for an outsized share of the traditional index. The added advantage is our portfolios are well positioned to benefit if earnings growth begins to broaden into other sectors of the US market, where valuations remain considerably more attractive.
While technology continues to capture most of the headlines, earnings growth elsewhere has quietly remained resilient. Financials are supported by a relatively healthy economic backdrop, industrial companies are benefitting from infrastructure investment, and several cyclical areas of the market look to be under-owned despite improving fundamentals. If investors start to rotate beyond the current market leaders, opportunities may emerge in relatively unloved parts of the market.
This view also shapes our regional positioning. Emerging markets remain one of our highest conviction areas, but we increasingly prefer selective rather than broad exposure. India continues to be a compelling long-term structural growth story, underpinned by favourable demographics, strong domestic demand and ongoing reform. Opportunities remain in China and Latin America too, where we see attractive valuations along with supportive domestic policies. We are also mindful of increasing technology concentration across parts of Asia, reinforcing the importance of active country and manager selection.
Diversification across asset classes is as valuable as ever. Within fixed income, credit spreads leave little room for disappointment and so we prefer specialist active managers that can be selective rather than relying on broad market exposure. Alternatives also have a key role to play within portfolios. Themes such as industrial metals and European defence give exposure to longer-term structural trends that are supported by fundamentals rather than short-term market sentiment. In addition, gold remains a useful diversifier against geopolitical and inflation risks.
Looking ahead, our expectation is that markets will be driven by a combination of strong earnings and changing policy expectations. They may also be affected by rapid shifts in investor sentiment. AI, in all likelihood, will remain central to that story.
Successful investing may well depend on recognising that today’s greatest risk may not be owning technology, but owning too much of the same technology in too many different locations. This is a time to broaden the sources of growth rather than becoming too defensive. We believe the best approach is to maintain exposure to long-term structural winners but, importantly, building greater diversification across sectors, regions and investment styles. As such, investors can tap into the opportunities ahead without becoming overly dependent on a single market narrative.
Important information
This information is for investment professionals only and should not be relied upon by private investors. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific shares/investments is not a recommendation to buy or sell. The Fidelity Multi Asset funds use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The investment policy of these funds and portfolios means they invest mainly in units in collective investment schemes. Changes in currency exchange rates may affect the value of investments in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers.
UKM0826/416920/SSO/NA