At a recent Stonehage Fleming investment conference, leading professionals urged investors to rethink how they build and manage wealth. Three pivotal shifts—artificial intelligence, passive investing, and private markets—are redefining portfolios, with implications that stretch far beyond institutional investors.
AI: More Than Just a Tech Story
Artificial intelligence is no longer a niche technology—it’s a structural trend reshaping the global economy. McKinsey reports that 88% of organisations worldwide already use AI in at least one function, while the IMF estimates it could affect 40% of jobs globally, rising to 60% in advanced economies.
But investors should be cautious about chasing AI hype. Picking winners among AI-focused stocks is notoriously difficult. The real opportunity lies in companies across sectors—finance, healthcare, manufacturing, retail—that are embedding AI into operations to cut costs, protect margins, and sharpen competitiveness.
For South African investors, this means looking beyond tech firms to businesses meaningfully integrating AI into their strategies. AI matters not because it changes markets overnight, but because it reshapes how companies compete over decades.
Passive Investing: Not Always the Cheapest or Safest
Passive investing—tracking indices instead of paying managers—has delivered strong returns in efficient markets like US equities. But it carries risks that are often overlooked.
The biggest is concentration. Market-cap-weighted indices give disproportionate weight to the largest companies, regardless of fundamentals. The dominance of the “Magnificent 7” tech stocks in the S&P 500 illustrates this vulnerability.
Stonehage Fleming has responded by allocating part of its passive exposure to equal-weighted indices, spreading risk more evenly. They also caution that the conditions that made passive strategies attractive—low interest rates and stable inflation—may not return. In a world of higher volatility, geopolitical shifts, and elevated inflation, active management in smaller companies, emerging markets, and niche sectors can add genuine value.
The message: portfolios should be built for resilience, not anchored to past returns.
Private Markets: Accessing the Bigger Picture
Here’s a striking fact: in the US, 87% of companies with revenues over $100 million are privately held, while only 13% are listed. Over the past three decades, the number of public companies has halved, while private firms have doubled.
For investors, this means that sticking only to listed markets gives access to a shrinking slice of the economy. Globally, high-net-worth investors allocate more than 20% of portfolios to private equity, but in South Africa, allocations remain far lower. That gap is expected to narrow as local investors recognise the opportunity.
Private assets do require careful sizing—they’re less liquid and need thoughtful integration into portfolios. But for those seeking exposure to the full breadth of economic activity, ignoring private markets is becoming harder to justify.
Three Takeaways for Investors
- Don’t chase AI hype. Focus on companies using AI to drive productivity and margins, not just those building the technology.
- Passive isn’t risk-free. Index concentration is a real risk. Diversify and consider active management in less efficient markets.
- Private markets matter. With most large companies now privately held, some allocation to private assets is essential to capture long-term value creation.
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