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16 July 2026
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Shares Magazine
Going against the tide means fighting against our inherent make up. It’s a longstanding tenet of behavioural finance that humans are driven by herd behaviour and we can see this dynamic at play in the markets on a regular basis.
For us as investors, this creates the risk of getting involved in a crowded trade which the US Treasury has defined as situation “in which market participants have large and similar positions, creating the risk that there will be insufficient liquidity should market participants seek to unwind their positions simultaneously”.
During the dotcom boom people frantically put huge amounts of money into internet-related stocks even though they often had no track record of cash flow, profits or sometimes even revenue.
They were then left to absorb painful losses when sentiment towards the sector turned and everyone rushed to exit these speculative investments at the same time.
This is an extreme example but a relevant one given the comparisons drawn with the current AI trade which has dominated financial markets in recent years.
Investment bank Bank of America notes: “Higher rates, lower free cash flows [as hyperscalers like Amazon, Alphabet and Meta spend heavily on AI] and record index concentration have sent investors into stocks that are smaller, less expensive, and less crowded.”
It believes there is scope for more rotation with $21 trillion in US household cash, some 33% over the pre-Covid trend, and notes the returns from cash still look limited when you factor in inflation.
At the same time, the AI trade, and the US tech sector more broadly, has been a great place to invest for a long period up until 2026. Many of us will have significant exposure to it because, as Bank of America points out, the market is very concentrated and lots of people start their investment journey by investing in vehicles which offer broad exposure to global markets.
It might not be practical or even sensible to steer clear of AI entirely but you can consider investing elsewhere to help bring a bit more balance to your portfolio. Bank of America highlights four areas which it thinks offer relative value compared with AI-related stocks.
These include Latin American shares, banks, gold miners and undervalued small caps. On Latin America it says: "Latin America equities are the least expensive region globally at 10.6% [earnings yield], with relative earnings yield to the US approaching all-time highs."
The earnings yield is the inverse of the price to earnings ratio, where you divide the earnings by the share price and express the result as a percentage.
On gold miners it observes that “free cash flow is 10 times higher than it was in 2020, with half the long-term debt as a percentage of equity”. While on global small cap value stocks it notes they trade at an 8.6% earnings yield which is 3.7 percentage points higher than the S&P 500.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...
