ACI CEO Todd R. Walsh was recently quoted in Citywire to discuss traditional concepts about asset allocation in today’s large-cap, technology-dominated stock market.
Here is an excerpt below from Citywire:
“To capture meaningful innovation in their portfolios, clients of Alpha Cubed Investments typically have no more than 15% of their total growth sector allocations in small and mid-caps.
‘Looking at things from a historical perspective, it may be tempting to add small and mid-caps hoping for a positive reversion-to-the-mean trade,’ says Todd R Walsh, the firm’s chief executive officer and chief technical analyst, from Irvine, California.
‘Small and mid-caps, along with international investments, have been lagging in recent years, so is it a question of these sectors being poised to catch up or is something else going on? We think something else is afoot.’
It is innovation that drives stock market gains, says Walsh. ‘In 1977, you could build a personal computer in your garage and begin competing almost from scratch like Steve Jobs did, launching the Apple II computer.
‘Innovation today means things like artificial intelligence, autonomous driving and battery technology. It takes hundreds of millions of dollars to develop these new technologies and large companies have the deep pockets required to build out these areas of future growth.
‘As we move into other areas of future innovation, the capital expenditures required for development only go up in areas like quantum computing and space exploration.’
It is for this reason that Alpha Cubed expects large-cap stocks to continue to dominate for generations to come.
‘There will be marginal winners that emerge in the small and mid-cap space but the sector may generally continue to underperform over the long term because of the huge costs and barriers to entry in almost all the new technologies today.
‘In our opinion, the more you want to focus on capturing meaningful innovation in your portfolio, the higher your exposure to large caps should be.’”
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