Positioning Broadens Beyond AI Leaders

Key takeaways

Managers are strategically maintaining AI exposure toward memory and semiconductor supply chains, and rotating toward enterprise adopters while trimming crowded hyperscalers.
We see selective profit-taking in U.S. industrials and European banks as some valuations approach ceilings.
Quality defensives, including consumer staples, healthcare, and P&C insurers, are being rebuilt without fanfare at multi-year lows.
Brazil has moved firmly into overweight territory, while China exposure remains highly selective.

Optimism builds as positioning evolves

Equity managers are navigating a challenging backdrop: concentrated market leadership, wide valuation gaps between U.S. and non-U.S. equities, and policy uncertainty as we move through Q1 2026. AI positioning remains crowded, rate cycles are diverging across regions, and dispersion within cyclicals are increasing. At the same time, industrial capex is reaccelerating and fiscal measures are beginning to pull forward demand.

As the first quarter progresses we examine where active managers are expressing optimism, where they are reducing risk, and where they see new opportunity. The message is consistent: conviction in core themes remains intact, but implementation is more disciplined. Managers are refining exposures rather than expanding them.

AI remains core, but exposure is shifting

Managers remain comfortable underwriting a longer-duration AI investment cycle. Industrial and manufacturing spending continues to rise, supported by automation upgrades and deferred investment returning to the market.

Positioning reflects a deliberate effort to manage crowding risk. Oversized positions in hyperscalers and some infrastructure names have been trimmed, alongside profit-taking in prior leaders. Early-stage AI and SaaS names that rallied sharply in 2025 remain underweight across many portfolios.

Capital is being redirected toward more targeted exposures:

Global memory producers, where allocations rose meaningfully into year-end
Semiconductor and hardware supply chains in Asia, tied to processing, electrification, and advanced compute
Enterprise adopters and service integrators with visible returns on AI spend
Peripheral beneficiaries across electronic components, materials, machinery, and construction

Among long-short managers, gross AI exposure was seasonally reduced into year-end, though net exposure remained constructive. Rotation, not broad deleveraging, marked the shift.

Therefore, managers remain committed to the AI cycle, but with tighter underwriting and greater sensitivity to earnings durability.

Cyclicals advance with valuation discipline

Sentiment across financials and industrials continues to improve. Several value managers believe an upgrade and replacement cycle is forming after years of deferred capital spending. Still, valuation discipline remains central for such participants.

European banks and U.S. industrial leaders that drove much of the rebound are being selectively trimmed as multiples approach upper ranges. Managers remain constructive on the cycle, though position sizes are being recalibrated, and capital is being recycled into less extended names.

Germany’s fiscal expansion is viewed as highly structural, driving allocations into defense, infrastructure, and niche industrial and technology firms.

Conversely the UK has emerged as a contrarian opportunity. Wide valuation dispersion and limited mega-cap AI concentration are creating differentiated opportunities in domestic and SMID-cap stocks. Managers are seeking alternative ideas in a market less dominated by narrow technology stocks.

Revisiting quality and income

After prolonged underperformance, selective bottom-up investors are quietly picking up quality defensives.

These managers have added exposure to consumer staples, healthcare, and property and casualty insurers, many of which are trading near multi-year lows. Dividend support and lower-beta characteristics are attractive risk/rewards, playing a role as portfolios balance cyclical exposure with fundamental resilience.

Durable growth franchises are also screening well. Diversified financials, niche equipment companies, and scaled consumer brands serving higher-income cohorts are favored for their earnings durability.

Among those consumer names, exposure is becoming segmented. Companies tied to travel, retirement living, and premium brands are preferred. Businesses reliant on middle- and lower-income consumers require deeper valuation support before becoming more appealing.

Emerging markets show clear divergence

Emerging markets positioning has become more selective as dispersion widens.

Brazil has moved firmly into overweight territory following severe deratings. Both growth and value managers are adding exposure, favoring financials and industrials, supported by an easing rate cycle and improving real incomes.

In Asia, allocations to South Korea remain high as managers seek out critical AI bottlenecks, particularly in memory and advanced processing supply chains. Taiwan also has a central role here in terms of next-generation compute and electrification.

Managers remain highly selective on China, focusing on companies with earnings recovery or those with competitive strengths in automation and advanced manufacturing. However, property oversupply and fragmentation limits broader conviction.

ASEAN markets face headwinds. Indonesia and the Philippines, for example, continue to struggle with high real rates and slow policy transmission, prompting managers to remain patient and valuation-sensitive.

Investor implications

As we move deeper into 2026, equity managers are cautiously confident. Core themes remain intact, but implementation is more refined. AI exposure is broadening beyond crowded leaders, cyclicals are being managed with valuation discipline, and emerging market allocations offer active opportunities.

Improving breadth and disciplined rotation reinforce the case for active management. In a concentrated market backdrop, selective positioning and valuation awareness remain central to capturing opportunity while managing risk.

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