5th June 2026
We are in a period of markets that many professional investors dread: when neighbours / fellow parents at the school gate / taxi drivers / family members etc all seem to be better at investing than we are. They may all seem to have portfolios full of companies benefitting from the latest “AI bottleneck”. In addition, the next wave of hot IPOs is upon us – not many in number, but huge in value terms – with excitement at levels rarely seen since the dot.com years. Indeed, we suspect few news-aware people have not heard of private companies such as SpaceX, Anthropic and OpenAI.
The purpose of this week’s blog is not to pompously declare a forthcoming bursting of a bubble; we are reminded of the age-old adage “bears sound clever, bulls make money”. Indeed, our process keeps us fully invested partly for that reason. But our process does keep us away from the most highly priced investments, and thus, at times like these, our performance can start to look pedestrian (despite strong absolute performance year to date).
Instead, we’d like to list the investments we are excited about as well as remind (reassure?!) our investors that other investments beyond semiconductors, memory and space technology are available and priced very attractively.
But first, we can’t deny that there are currently dynamics at play that challenge approaches to portfolio construction that have worked for 30-40 years and we must be mindful of them and check we’re not being too stubborn:
- From globalisation to deglobalisation
- From peace to conflict and rearmament
- From disinflation to inflation
- Relentless growth in passive investing
- Wealth management consolidation (especially in the UK, but globally too)
- AI
We are trying to stay open-minded and evolve our process while staying true to our philosophy. In our blog just two weeks ago (see here), we summarised the findings of an extensive piece of work we undertook to self-reflect and coldly analyse what we have been good at, and what we’re getting wrong consistently.
But equally, we must also recognise that some of the dynamics listed above may be altering the nature of investment cycles in a way that doesn’t necessarily involve a change in the way we invest or in the way we perform over a full market cycle, but will change the way we perform during a market cycle – especially relative to our peers.
For example, ongoing wealth management consolidation means larger pools of capital are being managed by fewer firms, which is likely to exacerbate the impact of the shift from active to passive investing. As firms manage more capital, they need greater liquidity in their underlying holdings, encouraging greater levels of (market-cap-weighted) benchmark-aware investing, which in turn puts further upward pressure on the valuations of the world’s largest listed companies. In other words, equity markets may remain highly valued for longer than analysis of historical cycles might suggest.
The correct response to this is to keep communicating with our investors and forewarning them that our typical underperformance of exuberant markets may well be more prolonged than it has been historically. We think this is a better reaction than to alter our process to relax our valuation discipline in the hope we can ride waves along with many others and jump off them in a timely manner. That is not to say that our introspection hasn’t revealed some overly cautious asset allocation at times – and we are working on staying invested for longer in areas where we have a particularly high conviction in the longevity of earnings growth where it is possible to derive a margin of safety from how quickly some companies can look inexpensive.
In any case, while we do have some exposure to the world’s hottest trades in AI bottlenecks, the bulk of our funds’ portfolios consist of investments that are trading on undemanding valuations, with excellent return prospects. Here are a few of them:
- UK small caps: exceptionally cheap world-leading companies but beset by outflows of capital and a UK political scene that is politely described as “chaotic” and a policy-making environment that is unimaginative and short-termist.
- Renewable energy and infrastructure assets: available via discounted investment companies; low economic sensitivity and excellent diversifiers to equity and fixed income risk; policy uncertainty has put off investors over the past few years.
- Gold equities: exceptionally cheap, churning out cash flow – even at gold prices far below today’s prices; capital allocation by management teams far less profligate than prior cycles; barely-invested in by large allocators due to small size of the sector.
- Valuation dispersion everywhere: look beyond the equities and bonds issues by the world’s largest companies and talented active managers can build cheaply-valued portfolios with relatively little factor or style risk.
So, while we can’t help but feel frustrated that some of the excellent recent performance of our investments in renewable energy and infrastructure is being lost amid surging performance from semiconductor memory stocks, we are determined to continue to offer a carefully curated selection of attractively priced investments to investors via our multi-asset funds.
This is not to undermine the managers of (and investors in) those funds benefitting from the AI and space themes. Instead, we’d like to urge investors not to forget about the vast swathes of investable assets that still exist beyond a relatively small set of companies that may even outperform over the fullness of time. We have always advocated investors invest in a blend of solutions. The way we invest sits very well alongside processes (including passively oriented ones) that have much heavier weights to companies benefitting from AI-related themes.
Ben Conway – Head of Fund Management
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For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC260603
