{"text":[[{"start":6.264,"text":"The writer is head of asset allocation research at Goldman Sachs"}],[{"start":11,"text":"Investors have been well rewarded for taking risk and for exposure to innovation. Since 2023, the AI-driven rally in global technology stocks has boosted equities. Bonds lagged behind due to inflation and fiscal risks, including last year’s US tariff shock and, more recently, the Middle East war."}],[{"start":28.891,"text":"Such divergence has left many portfolios less balanced. The pattern is familiar — long periods of strong asset performance can meaningfully reshape portfolios and equities have outperformed bonds by a wide margin in recent years. The same was true during the 1920s, 1950s and the dotcom bubble in the late 1990s, when innovation drove optimism around rising productivity and profits. The latter period was relatively shortlived but today’s equity and tech leadership has been strengthening since the financial crisis and has gained momentum over the past three years with the AI boom."}],[{"start":65.82,"text":"As a result, over the past decade, a broad global multi-asset portfolio has drifted towards equities. While some investors have rebalanced back to a fixed asset mix, many have not. Asset allocation data for households, pension funds and insurance companies show a growing exposure to equities in recent years; indeed, the value of equity holdings has overtaken residential real estate as a proportion of US households’ financial wealth."}],[{"start":null,"text":"
"}],[{"start":93.12,"text":"This matters because broad equity indices are increasingly concentrated in a small group of megacap tech stocks. The “Magnificent Seven” have dominated the S&P 500 for some time, but they have generally been less correlated with each other and less cyclical, with strong balance sheets and cash flow generation. More recently, semiconductor companies in the US and North Asia have gained market weight; these businesses are more correlated and cyclical, which can further increase portfolio risk as we have seen in recent share price retracements."}],[{"start":124.84,"text":"During the 1920s, 1950s and late 1990s, innovation-driven stocks also became a bigger part of markets, the economy and investor portfolios. In contrast, during the first and second world wars and the 1970s, financial assets struggled while real assets became much more dominant. Large drifts in global financial assets owing to relative performance mean portfolios can end up looking backwards rather than forwards."}],[{"start":151.067,"text":"Portfolios now look too tilted towards innovation and not protected enough against inflation. The AI capex boom could hurt equity returns if the spenders see declining profitability before the benefits from AI adoption come through. And a slowdown in AI spending would weigh heavily on semiconductor stocks, for example, as they are also very operationally geared."}],[{"start":null,"text":""}],[{"start":172.855,"text":"At the same time, inflation volatility and fiscal risks reduce the potential buffer for equities from bonds. Markets have recently become relaxed about inflation again, but the continued Middle East war and its impact on energy prices point to lingering inflation risks and the potential for central bank tightening."}],[{"start":191.56,"text":"Even with these risks, it is hard to bet against current momentum — time in the market competes with timing the market. Equities tend to deliver strong returns late in a bull market. Moreover, earnings growth remains strong and has been the key driver of returns, not valuations as was the case in the tech bubble. Rather than trying to call the end of the AI boom, we think it is preferable to stay invested while adding sources of diversification to improve portfolio balance."}],[{"start":218.038,"text":"Real assets such as commodities, infrastructure and real estate can help protect portfolios from inflation and may decouple during tech-led equity sell-offs. And with dollar strength closely linked to capital flows in search of innovation, managing regional exposure and currency matters more."}],[{"start":234.774,"text":"Within equities, style diversification can also help: low volatility and high dividend yield stocks have often held up better during sharp rotations when investors shift from favouring high-growth companies to seeking out undervalued ones more. The bursting of the dotcom bubble is a useful example: low volatility and high dividend stocks were up subsequently, while the S&P 500 fell almost 50 per cent to its trough and the Nasdaq fell close to 80 per cent."}],[{"start":262.217,"text":"Investor portfolios are increasingly exposed to the AI boom and vulnerable to inflation risk. Portfolio construction from here needs to take that into account. At this point, it might be too early to lean against the tech stock momentum but diversification can be improved with real assets, styles and regional exposures in portfolios."}],[{"start":285.68,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785477586_9453.mp3"}