While headline stock market indices have done very well this year, it's been a much tougher ride for active managers with more diversified portfolios. A handful of huge AI and chipmaking stocks dominate indices and recent returns, making it tough to keep up with a runaway market that hides its risks in plain sight.
Yes, it's tough now, and it feels uncomfortable. Big market moves and the feelings they create haven't changed over the 25 years my fund has been around. Albeit, shifts recently feel sharper and faster than they used to – my suspicion is that it's a mixture of greater automated trading, easier access and a more gamified experience for retail investors, and higher levels of index-tracking.
But as stressful as it can be at the time, the best opportunities tend to appear when you're playing snakes and ladders with Mr Market. When prices gyrate all over the place despite little change in company fundamentals, you get the chance to take profits at higher prices than you probably should – and make new investments at lows you wouldn't have thought possible.
The passive trap
Passive funds are often touted as the 'safest' way to invest: you get the market return without paying as much in fund fees. Yet this underplays the risks they carry. The greatest is hiding in plain sight: rule number one of investing is to diversify – spread your eggs among different baskets.
Index-tracking ETFs don't evaluate a company's fundamental value, resilience, or underlying quality. They operate mechanically, buying more of what has already grown large and selling what has fallen from favour. After a rapid rise in passive investing over the past decade or so, this has pushed markets to become extremely top-heavy. If you buy the market today, you're no longer well-diversified. You are heavily invested in one overriding theme: AI and building out its infrastructure.
That’s one very different nuance to the last time I saw a building US tech boom when I was first starting out. Back then, the market was booming from hundreds of relatively smaller (and largely lossmaking tech IPOs. Today, the market is dominated by a handful of huge (and hugely profitable) companies. I think that increases the risk of concentration today relative to then.
When the market stops doing the thinking
Right now, markets have been brutal to my fund, yet this isn't the first time I've been here. I've run the fund for almost 23 years and worked on it as the assistant manager from launch a couple of years prior. Over that time, it has bounced back well from moments like these. While it's impossible to guarantee the next quarter-century will be the same, I'm very excited about the businesses we've managed to buy during the 2026 upheaval.
I've bought more new stocks in the first few months of this year than at any other time in my career – not because I'm chasing volatility for its own sake, but because opportunities of this quality and breadth do not present themselves often. Entire sectors are being repriced in a matter of weeks, not because their businesses have collapsed, but because narratives have shifted. This is the type of environment where stock-pickers with an eye on the long game can really make a difference.
In the first quarter alone, we added six new stocks from our watchlist – many we'd had our eye on for years, waiting for the right moment. We added our first UK stock in several years: academic and technical journals and data business RELX, caught up unfairly in the AI disruption hurricane. We also bought CrowdStrike, the cybersecurity business that will actually benefit from additional workloads as AI is deployed and poses ever graver cyber risks.
As perceived obsolescence risk runs high across many industries, we added to our 'HALO' theme: hard assets, low obsolescence. New stocks such as mining equipment supplier Sandvik and heavy vehicles maker Caterpillar join similar names already in the fund, including diversified industrial engineering business Parker Hannifin and cabling and connectors supplier Amphenol.
Resource independence and protectionism will be key themes over the coming years as the most powerful nations increasingly hoard critical minerals for their technology and electrification buildouts. We remain wary of investing in direct, single-commodity stocks, but have taken a lower-risk picks-and-shovels approach.
Volatility is never pleasant to experience. Even decades later, it still makes me sick to my stomach – I hate seeing my investors' wealth fall. Yet market turbulence always rides shotgun with opportunity. It's often in the toughest moments that you get the chance to make truly transformational investments, when people are making rash, shoot-from-the-hip decisions that misprice really great businesses.
