Artificial Intelligence, Concentration and the Case for Active Allocation

Artificial intelligence (AI) has reasserted itself as the dominant market theme in 2026. In the second quarter, investor attention returned to semiconductors, memory chips, digital infrastructure and the wider AI supply chain, supported by easing Middle East tensions, lower oil prices and a more favourable backdrop for risk assets.

That helped drive strong returns in parts of the equity market. Emerging markets ex-China stood out, with South Korea benefiting from its exposure to AI-related memory and semiconductor businesses. In the US, enthusiasm for AI infrastructure and technology listings continued to shape market leadership.

But the AI story is not simply about which stocks are performing well. When returns are driven by a narrow group of companies, sectors or countries, portfolios can appear more diversified than they really are.

The recent wobble in AI-linked stocks highlights the risk. Semiconductor and memory shares in the US, South Korea and Taiwan have come under pressure as investors reassess valuations, capital spending and demand expectations. The long-term case for AI remains compelling, but markets can react sharply when expectations become stretched.

For multi-asset portfolios such as the WLI MPS range of Fairstone’s Nova range, this makes concentration an important consideration. Global equity allocations can carry significant AI exposure through mega-cap technology companies, semiconductor businesses and markets linked to the supply chain. As more AI companies list and enter major indices, that exposure could increase further.

Understanding where AI exposure sits within a portfolio is therefore becoming as important as deciding whether to hold it.

Outlook

Recent market behaviour reinforces the value of active asset allocation. Leadership has rotated as geopolitical risk, oil prices, inflation expectations, bond yields and AI enthusiasm have shifted. The reversal in bond yields since quarter-end is another reminder of how quickly the backdrop can change.

Active allocation does not mean constant trading or trying to predict every market move. It means assessing valuation, risk, macroeconomic conditions and portfolio roles, then making deliberate changes when the evidence supports them. Exposure to sectors such as energy, utilities and healthcare can also help reduce reliance on AI and mega-cap technology.

The investment environment itself is changing. The post-financial-crisis combination of low inflation, low yields and abundant policy support has given way to higher government bond yields, greater fiscal risk, more frequent geopolitical shocks and increased market concentration. Portfolios therefore need both long-term discipline and the flexibility to adapt.

AI remains a compelling investment theme, and investors do not need to avoid it. The challenge is ensuring that enthusiasm for AI does not dominate the rest of the portfolio.

A balanced approach means combining broad global equity exposure with selective AI participation, differentiated regional and sector allocations, and diversified fixed income.

Diversification may feel less important when markets are calm, but it is often when conditions turn that its value becomes most apparent.

If you would like to discuss your pension savins or investments, please contact your adviser or Brooks Wealth direct.

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