These investment trusts may be useful if you're concerned about an AI bubble

Even though capital expenditures on AI infrastructure are being scrutinized more, the industry continues to dominate passive indices

Is the Nasdaq 100 losing its shine?

Reaching an all-time high of 30,730 on June 3, the index, which is essentially a benchmark for US big tech, comprises the top 100 stocks listed on its namesake exchange but excludes finance companies.

The index dropped by 4.6 percent during the following month.

This decline has been attributed in part to growing concerns about a possible artificial intelligence (AI) bubble bursting.

Watch the full video here: The belief that the massive investments made in AI infrastructure would eventually pay for themselves has been a major factor in the AI boom over the past few years.

"Now that is changing, and some tech companies are issuing debt to fund their AI operations," stated Annabel Brodie-Smith, director of communications for the Association of Investment Companies (AIC), a trade association for investment trusts in the UK. "It makes sense that some investors want to diversify their holdings away from the AI boom, and a lot of investment trusts provide a fantastic way to do so."

The large tech stocks that make up the majority of the Nasdaq 100 and the SandP 500 will probably have a significant impact on any passive investments you own.

According to Saftar Sarwar, chief investment officer of Binary Capital, a model portfolio service provider, "correlation is the real risk in current markets." The diversity of a global portfolio is frequently lacking. About 30% of the S&P 500 is made up of five companies, which is an extremely high degree of concentration."

Could these investment trusts, however, provide some diversification and safeguard you in the event that the bubble bursts?

How to diversify away from AI.

Avoiding the "obvious emerging markets" of Korea and Taiwan is one of Sarwar's first recommendations for diversifying away from AI.

He claims that these "are now significant technology-exposed equity markets."

Rather, he suggests "so-called emerging frontier markets" such as Poland, Egypt, and Turkey; BlackRock Frontiers Investment Trust (LON:BRFI), with its 52 percent weighting towards financials, is his choice for gaining exposure.

European stocks are another market that could provide diversification, according to Tomiko Evans, chief investment officer at portfolio manager Crossing Point Investment Management.

According to her, "Europe offers investors access to a wider mix of companies across sectors like industrials, financials, healthcare, consumer goods, and infrastructure-linked areas."

"We find JPMorgan European Growth & Income (LON:JEGI) to be an intriguing option in this market. Evans went on, "The trust offers growth exposure through a diversified European equity portfolio. Its methodology blends quality, value, and earnings momentum, enabling managers to look for businesses with promising growth prospects while maintaining valuation discipline."

To avoid AI, buy British goods.

According to Evans and Sarwar, anyone wishing to lessen their exposure to AI should consider investing in cheap UK stocks.

According to Sarwar, "UK equities have spent a decade unloved and undervalued for exactly the reason that could now look like an important advantage: minimal AI and technology exposure." "UK value or UK traditional equities with dividend yields of about 3% to 4% are owned by trusts like Merchants Trust (LON:MRCH), City of London (LON:CTY), and Law Debenture (LON:LWDB). If you want to steer clear of the entire AI theme and think that the UK offers more attractive equity valuations than other markets, these are good investment trusts."

Additionally, Sarwar emphasized Temple Bar Investment Trust (LON:TMPL) for its strong emphasis on the UK relative to the US and its value discipline.

In contrast, Evans chose Murray Income Trust (LON:MUT). She stated that the trust provides "UK equity exposure, income discipline and relatively limited direct technology exposure" for investors who wish to lower their tech exposure without completely switching to defensive assets. "Rather than simply owning the traditional large cap UK income names, the managers can look across a broader range of companies that can generate cash, pay sustainable dividends and offer scope for capital growth," she said.