How can a plan for an AI crash be prepared?

In the event of an AI crash, you are less likely to panic if you know what funds you will use to lower risk

I was recently asked by a friend, "What should I do if there's an AI crash". We don't know if there will be an AI crash, so it's a very reasonable question, but it's better to have a clear plan in place when you start to worry than to wait and panic.

But it's also a very challenging question because the AI theme is so important to the market: tech accounts for more than 35% of the MSCI World index (after accounting for companies like Amazon and Alphabet that are classified as non-tech sectors), and the trillions of dollars spent on AI capital expenditures are also supporting other industries.

My first recommendation is to examine the assets held by wealth preservation trusts like Ruffer Investment Company (LSE: RICA), Capital Gearing (LSE: CGT), and Personal Assets Trusts (LSE: PNL).

These have diversified portfolios designed to achieve growth while protecting against a market downturn. A portion of your portfolio could be placed directly into these trusts, or you could use their allocation to cash, bonds, gold, and other assets like infrastructure as a model.

Watch the entire video here: Portfolios like these offer you ideas for temporarily lowering risk that might be preferable to holding cash, even if you are a growth investor who is comfortable with high volatility to earn higher long-term returns.

If you like open-ended funds, Orbis Global Balanced is unique among multi-asset funds in that it takes an active approach with a more bottom-up value philosophy.

Use value stocks as a hedge against an AI crash.

You should think about which stocks are not affected by the AI boom and may sell off less or rebound more quickly if you want to remain fully invested in stocks while lowering risk.

Consider this top-down by sector (e.g., pharmaceuticals and finance) or region (e.g., the UK and Europe). Alternatively, you could search for stockpickers who prioritize other sectors and are value-oriented.

However, bear in mind that a European company that produces power equipment and is part of a value portfolio might still be experimenting with building a data center.

Therefore, it is hard to predict how much pain an AI crash will cause.

AVI Global (LSE:AGT) is the world's most value-focused trust, whereas the majority of UK trusts have a value bias.

Ranmore Global Equity is one of the open-ended funds that consistently generates returns from a portfolio that differs greatly from the average global fund.

The price of BH Macro shares is plotted from before 2010 to after 2025.

A specialized investment trust is BH Macro (LSE:BHMG).

Consider a few specialty funds.

Examining extremely specialized strategies, whose medium-term returns should ideally be unrelated to the AI-heavy global index, is the third option.

These days, Majedie Investments (LSE:MAJE) is focused on these kinds of investments. It's an intriguing holding on its own, and examining its approach could influence your own.

BH Macro (LSE:BHMG), BioPharma Credit (LSE:BPCR), BlackRock Frontiers (LSE:BRFI), Nippon Active Value Fund (LSE:NAVF), Rockwood Strategic (LSE:RKW), or Polar Capital Global Insurance are just a few of the numerous specialty investment trusts and funds.

However, selecting such funds is a strategy best left to seasoned investors who have a thorough understanding of what they are purchasing.