Are underlying fundamentals in line with current valuations? Many investors are asking this question in the current market environment. Big tech names like Nvidia, Microsoft, and Amazon are spending to shore up their artificial intelligence (AI) capabilities. In turn, this spurs speculation of an AI boom fueling a market bubble. This topic was discussed in a recent MFS market strategist blog post: “‘Is It an AI Bubble?’ is the Wrong Question.”
“If everyone is asking whether artificial intelligence (AI) is a bubble, it’s likely the wrong question,” wrote Robert M. Almeida, Portfolio Manager and Global Investment Strategist. “The focus on whether AI is overhyped distracts from the larger, more critical issue: the misallocation of capital and the physical constraints that limit growth.”
Almeida discussed the artificial suppression of capital costs, a strong AI buildout in a macroenvironment that feels recessionary, and shifting funding dynamics in AI as well as other topics. All in all, while these factors can project themselves at challenges, MFS also views them as opportunities.
“Despite these challenges, we believe that the AI boom presents significant opportunities for investors,” Almeida said. He added that the MFS portfolio management team is “excited about the potential opportunity for best-in-class operators in businesses such as electrical equipment, machinery and tools, specialty chemicals, semiconductor capital and network equipment, power management solutions, and so on.”
MFS Active Advantage
Whether logic points to a bubble or not, it’s an ideal opportunity for investors to get exposure to active management. An active fund worthy of consideration is the MFS Active Growth ETF (MFSG).Because portfolio managers are allowed the autonomy to adjust the holdings as necessary, MFSG offers built-in risk management compared to a passive fund.
As of October 31, the fund’s top holdings include the aforementioned names like Nvidia, Microsoft, and Amazon. However, rather than a passive index that relies on market cap-weighted exposure, investors get exposure to these companies under the watchful eye of MFS portfolio managers with plenty of market knowledge and experience.
MSFG selects its portfolio holdings via a bottom-up process. Companies with a strong economic moat receive consideration. This includes those that operate in a business environment with a high barrier to entry, pricing power, and scalability.
MFSG comes with an expense ratio of 0.49%, or $49 for every $10,000 invested. This falls below the FactSet Segment Average of 0.61%, which makes it a cost-effective solution relative to other active funds.
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