Robeco Asset Management's global equity portfolio manager Chris Berkouwer advised investors on May 14 to reduce concentration in surging AI stocks and reallocate to financials, healthcare, and consumer sectors, citing elevated valuations and inflation risks. Speaking at a press conference in Seoul, Berkouwer stated that while AI's growth trajectory will continue for years, the firm has trimmed positions in rapidly risen tech stocks and redistributed capital to undervalued sectors. The manager highlighted that current global EPS growth rates are unprecedented outside post-crisis recovery periods, raising concerns that strong growth could trigger inflation pressures and potential interest rate hikes despite no prior recession.
Robeco Maintains Positive Stocks Outlook Despite Inflation Warning
Robeco Asset Management maintained a positive view on global stocks for the second half of the year, supported by economic stimulus effects and AI capital expenditure boosting corporate earnings. Berkouwer noted that these impacts are spreading beyond the US to other regions and industries. However, he flagged the unusually steep profit growth trajectory as a variable requiring caution. "EPS growth rates like the current one have typically appeared after exiting recessions, such as the post-global financial crisis recovery or immediately after the COVID-19 pandemic," Berkouwer said. "It is highly unusual that EPS growth is accelerating this time without having gone through a downturn."
The manager warned of potential inflation pressures emerging during a strong growth phase. While recent inflation concerns appear linked to energy price increases following US-Iran tensions, Berkouwer explained that inflation debates began in markets at the start of the year. "Historically, growth this strong has generally led to rising inflation and Fed tightening, meaning interest rate hikes," he stated. "These effects take time to materialize, but once they appear, the impact can be substantial." Berkouwer added that market narratives have already shifted from rate cuts to potential rate hikes, noting that while he does not fully agree with rate hike projections, it is a scenario that must be sufficiently considered going forward.
Rising interest rates weaken support for valuations and can particularly burden long-duration assets where long-term growth expectations are heavily reflected in stock prices. Even with solid corporate earnings, an unfavorable environment can form for overvalued markets. Berkouwer compared the global stock market situation to a party: "The party can continue, but you should stand a little closer to the exit in case conditions worsen. When market rotation begins, volatility can be quite significant in the early stages."
Berkouwer Reduces AI Stock Weighting and Reallocates to Financials and Healthcare
Berkouwer assessed that AI's emergence as a powerful investment theme has diverted market attention from other sectors. As the effects of expanded AI investment have begun spreading beyond tech stocks to other industries, he views this as the time to trim positions in surged leaders and broaden investment scope to financials, healthcare, and consumer goods that have not yet received attention. The manager characterized current global markets as experiencing an extreme momentum-driven rally amid FOMO (fear of missing out) psychology, where investors anxiously chase already-risen stocks to avoid being left out of gains.
This extreme momentum is also evident in the performance gap between growth and value stocks, according to Berkouwer. "Growth stock weighting within indices currently stands at 60%, exceeding the historical range of 40-50%," he said. A phenomenon has emerged where diversified portfolios underperform overall market returns as a handful of mega-cap tech stocks drive market gains. Market leadership concentrated in a few mega-caps has acted as a factor preventing textbook diversification from fully participating in market upside.
However, Berkouwer drew a distinction between the current market and the early 2000s IT bubble. During the IT bubble, tech companies were not profitable and market rises had a strong speculative character, whereas currently solid profitability of leading companies supports the narrow market leadership. This does not mean investors should completely exit AI investments. Robeco views AI as still a powerful investment theme capable of driving upward revisions to corporate earnings forecasts. The firm judges that as the valuation gap between AI leaders and other sectors has widened, risk-adjusted expected returns for sectors like financials and healthcare are becoming relatively more attractive.
Berkouwer recommended trimming positions in surged stocks and broadening investment scope to sectors that can benefit from the ripple effects of expanded AI investment. Consumer goods, financials, and healthcare are trading at relatively low prices despite solid corporate fundamentals and earnings growth outlooks, overshadowed by AI leaders. "AI has been sucking oxygen away from other sectors, but now the multiplier effects of AI investment are spreading to other areas," Berkouwer said. "Stocks that have lagged may get their chance for price appreciation."
Investment geography also needs to expand beyond the US, according to the manager. While US stock valuations are at the highest level in global markets, Asian, Japanese, European, and UK markets are trading at discounted prices compared to the US. However, he added that even these markets cannot be unconditionally viewed as undervalued compared to their own historical levels, requiring a stock-by-stock approach.
Robeco's Joshua Crabb, head of Asia-Pacific equity management, emphasized: "This does not mean choosing only one between AI and other sectors. If you have achieved results through AI investment, realize some profits and also build up new opportunities that have not yet received market attention."
Growth Stock Concentration Reaches 60% Amid Momentum-Driven Rally
The real warning signal for market volatility was identified as declines in corporate earnings forecasts rather than stock price movements. Recent volatility is largely due to cracks in price momentum where rising stocks keep rising and falling stocks keep sliding, but if corporate earnings outlooks begin downward revisions, the foundation of market upside itself could weaken. "What we should really be concerned about is earnings forecasts turning downward," Berkouwer stated. "There are still more reasons to see solid earnings trends continuing than to see forecasts breaking down."
FAQ
What did Robeco's Chris Berkouwer recommend on May 14 regarding AI stock investments?
Berkouwer recommended reducing concentration in surged AI stocks and reallocating to financials, healthcare, and consumer sectors. He stated that while AI's growth trajectory will continue for years, the firm has trimmed positions in rapidly risen tech stocks and redistributed capital to undervalued sectors due to elevated valuations and inflation risks.
Why does Robeco view current EPS growth as unusual?
Berkouwer explained that EPS growth rates like the current one have typically appeared after exiting recessions, such as the post-global financial crisis recovery or immediately after the COVID-19 pandemic. He noted it is highly unusual that EPS growth is accelerating this time without having gone through a downturn, raising concerns about potential inflation pressures and interest rate hikes.
How does Robeco distinguish the current market from the 2000s IT bubble?
Berkouwer stated that during the IT bubble, tech companies were not profitable and market rises had a strong speculative character, whereas currently solid profitability of leading companies supports the narrow market leadership. He emphasized this does not mean investors should completely exit AI investments, as AI remains a powerful theme capable of driving earnings forecast revisions.
