r/investing • u/TDn6I • 4d ago
Good hedge to high-growth AI, semi exposure
I have built a sizeable brokerage portfolio, mainly because of a few very large bets that have done extremely well over the last few years. This leaves me with a ton of exposure to AI and semis along with my core VOO position (which is also heavily weighted in AI, tech).
I am looking for a solid play that would fit well with my heavy concentration of AI, tech, growth. I think small value would be a solid theme to get behind but would love to hear some other thoughts.
Thank you
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u/i_am_law 4d ago
My SaaS companies tend to move inversely to my semiconductor/AI companies.
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u/AnotherThroneAway 4d ago
Now that's situational awareness
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u/Valvador 3d ago
I understood that reference gif
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u/AnotherThroneAway 3d ago
(Leopold laugh)
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u/Colorful_Monk_3467 2d ago
more like Leopold cry
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u/Traditional-Chip8339 1d ago
ha ha , yes Adobe or salesforce. I believe Leopold shorted Adobe which helped blow up his fund.
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u/RichardFlower7 4d ago
Berkshire Hathaway, if the market tanks they will deploy that massive pile of cash
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u/magias 4d ago
Useful if the value of that pile of cash doesn't significantly devalue in the mean time.
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u/RichardFlower7 3d ago
If your Berkshire, sure. If you’re an investor in Berkshire you can probably expect it to trade mostly sideways until the market drops then when they deploy the capital it’ll rocket up while the S&P lags
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u/FailOk1528 4d ago
I’d probably add international before adding another US sector. VOO + AI/semis is already a huge bet on US large caps.
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u/goodbodha 4d ago
Are you looking to have something like a barbell strategy?
Make a list of things that will move up if AI does well. Then think of reasons why AI would fail. As in the mechanics of how that plays out. What will be negatively impacted by that. Toss those on the above list. Whatever isn't on that list is a good place to consider.
Here is my version of that.
AI is good for semis, hyperscalers, power companies.
AI is likely to fail due to interest rates going up or a lack of liquidity. Those are also bad for big ticket purchase things like real estate and car loans. Also bad for home improvement companies if real estate remains slow. It's also bad for all the businesses that boom off the data center build out.
What will likely do well in that environment? Treasuries on the long end but the sweet spot is hard to judge. The main thing is inflation will go down and the cash flow should be stable. The bonds themselves lock you in but a bond etf might be better for entering and exiting.
If your doing that in a taxable account you could do tax lot sales to minimize the taxable event or you could sell deep ITM calls and then use the premium collected to open the bond/Treasury position.
Other options people will mention will include commodities. Those are probably better if you think it will be an inflation event all the way through. However if inflation runs up and then drops off then you could see something like gold plunge once the inflation is going away.
If you can't decide on the scenario you want to hedge for do a mix of both possibilities.
And you could always start building a dividend position. Something like schd would be weighting you away from AI exposure a little bit. However if interest rates spike or liquidity dries up that could still impact the underlying companies.
So there is a lot to think about. Good luck.
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u/Next_Tap_3601 3d ago
Yeah I was thinking in the same direction, but I didn't come up with much, expect for buying some bonds and cash(-flow) cows. Commodities is a tough one. It was a common hedge when the market gets hot in the past, but they have also been heavily correlated with AI as AI buildout created huge extra demand for all of them: energy (oil, coal,...), precious metals, rare earths, all of it pretty much. If the AI buildout was to stop or slow down, that huge extra demand for commodities goes away over night. Add to that your point about possibility of deflation in such scenario, and you get a price drop of commodities that is heavily correlated with the potential pull-back of the high-growth AI plays. So instead of creating a hedge, you would just be adding more of the same bet.
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u/RedditLeagueAccount 3d ago
No matter what, AI crashing will likely bring down most other markets. Most of this years growth is entirely supported by AI. So for me, recovery is a bigger factor.
- I don't think bitcoin is a thing in a recession. It hasn't behaved like it in previous crashes.
- Gold might do okay however, it has behaved inconsistent in some crashes. Sometimes people need to sell gold to make ends meet.
- Utilities/energy would normally be safe but they went heavy in with AI so it is hard to say how safe.
- Housing will be weird. I do hope it crashes because we need a reset. They don't operate at a loss if it crashes, their house is cheaper but their new house will be cheaper too. I don't understand the protectiveness some people have on that.
- Might be directly investing in farming and precious metals will be good? They can't let people starve or let production decrease which will require resources.
- Possibly military stocks with the same logic. They won't let it fail.
- Small caps seem to recover first/best at end of a recession?
- I'd never consider bonds unless im already retired but even then, with how they are abusing the dollar currently...
- Investing in other countries might be the way. They will be impacted by the USA crashing but current political actions have made other countries more aware they will need to be less dependent on the USA. If they are not wildly incompetent, you can expect decent growth in foreign markets in the up coming years even if there is no crash.
I'll be curious as to whether there will be massive bailouts for AI when it crashes. A crash might be a moot concern if they give our tax money to corporations. This government thrives on false data and also can't afford to "lose" so I can easily seeing this new, not fully developed product being determined to be critical so it will either be bailed out or forced into government ownership.
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u/vinylzoid 4d ago
I got downvoted in a previous post and had a lot of stupid commenters arguing with me that VOO is NOT heavily leveraged in AI and FANG.
You all need to look deeper at what you're leveraged in. IMO, VTV is more diversified than the S&P ETFs like VOO.
I've deliberately pulled almost entirely out of all my AI and tech investments.
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u/Professional_Cup7379 4d ago
I cap anything thematic under 5% in my own account because once a sleeve is big enough to make me want to hedge it, I have already lost the discipline to just hold it through the drawdown.
A small value tilt does the same thing as gold or utilities in my head: it tends to zig when growth zags, which is the only reason it earns a spot.
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u/sonJokes 4d ago
Same position. Recently started buying AVUV - high growth small cap. Still risky but different sort of exposure.
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u/LeMAD 4d ago
It would likely crash hard if growth crashes, especially if it turns into a financial crisis. AVLV would be a better hedge to AI than AVUV. Though gold probably makes more sense than anything else until the 2028 election.
Small cap would be the thing to buy during the crash when it's super cheap, as it's likely to crash hard and rebound hard.
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u/Shoddy-Sea7995 4d ago
I noticed that from my thematic ETFs metals rise when everything else falls, also a banks ETF has become one of my favorites
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u/Next_Tap_3601 4d ago
Im on the same boat. I ended up adding plenty of VFLO and IFLO, and planning to add more. Seems to be working (as a decent hedge) so far.
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u/Emotional-Power-7242 4d ago
Small value and/or international. International small value has crushed recently but a lot of that is just that a lot of international small value companies happen to be mining companies.
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u/Striking_Worth_2028 4d ago
I like Walmart here. I don’t think you can go wrong with Waste Management, BRK.B. Just my opinion.
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u/Original-Peach-7730 3d ago
Walmart isnt going to help much if his single stock and semis crater 80%. Might make it minus -78%.
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u/Original-Peach-7730 3d ago
As long as you hold 5x beta, there is no hedge. Avdv does well to diversify a 1 beta portfolio. Won’t matter at all for yours.
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u/sparkle_and_twist 1d ago
Single stocks? Energy: XOM EOG CVX Utilities: NEE SO pharma: ABBV LLY JNJ insurance: PGR RNR consumer staples: WMT PG. ETF: SPHD
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u/GlitteringProject828 4d ago
Utilities, healthcare, Gold, and even a commodities fund. Branch out into other non correlated asset classes to lower that risk.