May 2024 Active Management Insights: Beyond the Magnificent Seven

Executive summary:

  • Managers are increasingly focusing on sectors beyond tech that could benefit from the rise in AI in the short term. These include healthcare and consumer companies, which also have more attractive valuations.
  • Globally, managers anticipate an increase in mergers and acquisitions through the rest of 2024, which should be supportive of small and mid-cap names.
  • Managers see recent corporate governance reforms as likely to improve the return on equity in both developed markets (Japan) and emerging markets (South Korea).

Broad global trends

More discernment on technology

  • While some technology stocks continue to have long runways for growth with visible earnings coming through, investors are becoming increasingly wary and discerning of valuations, given the whole sector was lifted by the AI (artificial intelligence) theme over the last year.
  • As such, there has been increasing profit-taking in the sector across various markets.

Beyond the Magnificent Seven

  • The broadening opportunity set in the U.S. has investors increasingly looking at companies that will benefit from the use of AI in the near term.
  • Growth and value investors have been shifting positions toward healthcare and consumer companies, where valuations are more attractive and AI is already having a transformational impact.