AI may be reshaping markets, but building resilient portfolios still requires balance. Darius McDermott, investment manager of the VT Chelsea Managed Fund Range examines where investors can find opportunities beyond the technology driving today’s headlines.
“AI will probably most likely lead to the end of the world, but in the meantime, there’ll be great companies.”
That quote from OpenAI CEO and co-founder Sam Altman dates back to 2015, but it has attracted renewed attention after he joined Anthropic CEO Dario Amodei and other AI leaders in arguing that the pace of frontier AI development needs to be more carefully managed while safety measures catch up.
Anthropic alignment researcher Evan Hubinger has gone further, saying that he personally believes there is a more than 10% chance that AI could cause human extinction within the next decade.
It is remarkable that, in a world with Donald Trump as US president and wars in Ukraine and the Middle East, AI is comfortably the dominant investment and geopolitical theme.
You can understand why. Many see AI as the next industrial revolution. Governments increasingly view frontier AI as strategically important to military, intelligence and economic power, while companies are committing hundreds of billions of dollars to the infrastructure required to support it.
The problem is that nobody really knows how this story ends.
Two speeds of AI
For investors, we think it is useful to consider AI at two different speeds.
The first is the next 12–18 months. How quickly will AI improve productivity? How much capital will companies spend on data centres and infrastructure? Which companies will benefit? And are current valuations already pricing much of this in?
The second is the four- or five-year question. Does AI fundamentally transform the workforce? Does it create substantially higher productivity, or does it lead to widespread job displacement?
Does it prove inflationary because of the enormous infrastructure required, or deflationary because machines become increasingly efficient?
There are more questions than answers. What is becoming harder to dispute, however, is the scale of the technological progress already taking place. That creates both opportunities and challenges.
Global equities have risen strongly so far in 2026, with the AI theme playing a significant role. We have therefore been looking for ways to put some of our cash holdings to work while avoiding excessive dependence on a single outcome.
That brings us to one of our key themes for the VT funds:
The AI diversifiers
With so much uncertainty, one of our focuses has been on areas which have not (and are unlikely to be) disrupted by AI. A good example was our decision to top-up our position in BlackRock World Mining where we have already benefitted from the strong rise in gold and silver prices in the 2025.
But we’ve also bought the trust for the likes of iron ore, copper and nickel. It is a diversified mining trust and you need all of these metals for the likes of data centres, electric vehicles and general infrastructure build out and renewal across the globe.
We’ve also been adding to our oil equities exposure – not just because as of writing it has hit $100 a barrel but because energy historically outperforms in periods of higher inflation.
We have continued to add to our commodities exposure in 2026 and that is unlikely to change.
Another question surrounding AI is whether it leads to inflation or deflation – the aforementioned oil prices suggest the former at this stage. As a result, we’ve also added to the Jupiter Monthly Income Bond fund, managed by Hilary Blandy.
Despite adding the holding to three of our funds, the attraction was the income tilt. The fund yields over 6% by investing in both investment grade and high yield bonds, but with a short-duration focus.
The last point is the most important. You can now buy a 30-year gilt yielding almost 6%, but if interest rates go up by 1% it could see you lose 30% of your capital. Some of that is priced into the market but it is still a risky strategy. The short-duration focus of the fund offers a significant degree of security, making it a good risk/reward trade.
Another is Regnan Sustainable Water & Waste, a fund which invests in defensive/quality companies with decent yields and operating share buybacks. It is an example of quality being out of favour and we have been looking to add on weakness across the funds.
We also continue to support a number of specialist holdings in the portfolio which offer diversification away from AI. Examples include Primary Healthcare Properties and BioPharma Credit, which yield 7.9% and 7.25% respectively, despite discounts narrowing across the sector*.
Other opportunities to exploit amid uncertainty
However, it is impossible to ignore the impact of AI completely. Take Schiehallion, for example, a Baillie Gifford-managed growth trust we’ve also been adding to.
The trust invests in high-growth private companies at an early stage and continues to hold them as they grow. A good example is SpaceX, which completed a landmark IPO earlier this year. It also owns Anthropic, which has been reported to be preparing for an IPO.
The trust also owns Bending Spoons, an Italian business which acquires and restructures established software companies.
The company went public in July 2026, but when a company such as Bending Spoons rises in value while Schiehallion’s share price falls, we think that can create an opportunity. This was one of the reasons we added to the trust in our Aggressive and Balanced funds.
The final area of focus is small-caps, an area we’ve been strong supporters of since launching the fund range in 2017. Interest continues to grow, highlighted by the increased mergers and acquisitions (M&A) activity we are seeing from private equity in the UK, for example.
We’ve added to the Artemis SmartGARP Global Smaller Companies fund. The SmartGARP franchise uses a quantitative investment system to identify stocks, with value and momentum among its key inputs. More broadly, we see small-caps as offering attractive long-term value given current valuations.
The message for us for some time now has been that balance and diversification have never been more important. Geopolitics and AI shape much of the macroeconomic conversation at the moment, but there are still opportunities arising from both.
It is tough to ignore AI today. But investing in areas where returns are less dependent on continually rising AI valuations seems a sensible way to manage risk while still participating in the opportunities the technology creates.
We don’t need to know exactly how the story ends to build portfolios that can perform across different outcomes.
*Source: AIC, 15 September 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
Main image: AI, conny-schneider-xuTJZ7uD7PI-unsplash
