A specialized method of spreading your exposure to the AI boom

Although markets are still dominated by the AI boom, specialized strategies can help you diversify your risks

The past few weeks have been perplexing. Because investors are suddenly more concerned about how much money they are spending and whether it will yield a respectable rate of return, mega-cap tech stocks and other companies involved in the AI boom have suffered.

At the same time, a wide range of businesses that AI could potentially disrupt have also been forced out of business.

This isn't totally contradictory; for example, you could imagine a world where AI is revolutionary but early investors aren't compensated for their foresight because too much money was spent too quickly.

This has occurred during past revolutions: the stagecoach was rendered obsolete and many of its early supporters were bankrupted by the British railway boom of the 1840s, one of the greatest investment manias in history. However, it's challenging to identify the underlying thesis of the recent actions.

Instead, it seems that investors are becoming more uncertain about who will benefit and what will be lost as a result of the AI boom. It's true that anyone who is overconfident is risky.

I have a gut feeling that some AI companies are overpriced, and that some struggling businesses will probably benefit from AI.

Nevertheless, I wouldn't want to risk a large portion of my portfolio on that opinion.

However, a lot of investors are actually doing so due to the high level of market concentration, which explains why they are prone to overreact in both directions.

Relax about the AI boom.

I attended an event with Majedie Investments (LSE: MAJE), a flexible, long-term growth plus capital-preservation trust, just before the markets' most recent nervous outburst. Their strategy provides some intriguing ideas for this. So, how do you invest if you want to lessen these concerns? In summary, Majedie holds a complementary mix of niche funds in particular areas (roughly 60% of the portfolio), direct investments in individual equities (roughly 20%), and special situations (the remaining 20%). James Mackreides wrote an article about this trust a year ago, which you can read for more information.

You might be able to generate respectable returns virtually regardless of the state of the markets as a whole if you can identify niches with solid structural justifications for outperformance or where a skilled manager can continuously add value. You will experience fluctuations, but the performance of tech stocks shouldn't determine the returns of biotech, distressed credit, activist Japanese small-cap stocks, and other investments. It is obviously difficult to find these niches and obtain quality funding, which is where Majedies managers must perform their duties. In addition to a global equity portfolio that is not benchmarked against the tech-heavy indices, special situations should, by definition, offer very different returns to the broader market.

While the broader strategy of assembling complementary strategies is a reasonable solution, particularly in these times, Majedies' strategy is unique in the industry and is performing well, making it worth a look in and of itself.

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