You know there’s a certain kind of fever that takes over when artificial intelligence (AI) is mentioned. Suddenly, everyone wants a piece of the action, and I can’t blame them. The AI excitement has reached such a fever pitch that investors are scrambling to pick the winners, but one fund manager is taking a different approach and raking in the rewards.
Nick Cregan, of Fairlight Asset Management, isn’t trying to find the ultimate winner in AI. Instead, he’s focusing on companies that will either benefit from the technology or remain unscathed by its impact. It seems to be working; his Fairlight Global Small & Mid Cap fund has surged 24% over the past year, outpacing 97% of its peers. Not too shabby, if I do say so myself.
Cregan is wise to avoid the all-consuming obsession with finding the next big thing in AI. In his words, “We’re not trying to pick the winner in AI, we think that that’s a mugs game.”He might be onto something here. It’s a bit like trying to predict which startup will become the next unicorn or which cryptocurrency will rule them all. Good luck with that.
The AI hype has grown exponentially since ChatGPT’s release last year, and the race is on to create competing tools and products. There’s no doubt that AI will revolutionize several industries, but it’s impossible to know exactly how or when. In the meantime, the Nasdaq Composite Index has climbed 31% in 2023, with tech stocks contributing to a 15% rise in the broader S&P 500 Index.
One of the Sydney-based fund’s top holdings, German online marketplace Scout24 SE, exemplifies Cregan’s strategy. The company has seen a 26% increase year-to-date, and while AI may help it analyze pricing and market trends, it’s unlikely to replace its inventory and customer base. In other words, Cregan’s approach is to invest in companies that can leverage AI without being completely upended by it.
Now, I’m not saying that everyone should follow Cregan’s lead, but his success does highlight the importance of thinking outside the box when it comes to AI investing. Instead of obsessing over finding the “winner,”perhaps we should be on the lookout for companies that can ride the AI wave without wiping out.
As the AI frenzy continues to dominate headlines and capture our collective imagination, remember that it’s not always about picking the winner. Sometimes, the real winners are those who know how to stay afloat in a sea of innovation.
