Luxembourg 
Belgium 
Netherlands 
Volatility creates selective opportunities
Markets remain volatile, but the balance between valuation and long-term growth prospects has improved meaningfully compared with even a month ago. Recent corrections, particularly over the summer in artificial intelligence and semiconductor-related equities, have created more selective entry points while reinforcing the importance of valuation discipline.
CapitalatWork’s portfolio management philosophy continues to rely on three interconnected return drivers:
- asset allocation,
- bottom-up security selection
- and active management of exposures within each.
The objective is not simply to capture the market’s most popular themes, but to construct portfolios capable of compounding capital across different market environments.
The recent market environment illustrates why this approach matters. Artificial intelligence remains a major driver of equity-market returns, but parts of the AI complex have experienced sharp swings as investors reassess growth assumptions, capital-expenditure needs and valuation multiples. A broader, valuation-aware portfolio can offer greater resilience during such episodes.
AI exposure requires selectivity
Artificial intelligence remains a powerful structural investment theme for us at CapitalatWork. Its influence is increasingly visible in corporate strategy, productivity initiatives and, in selected cases, financial results.
However, AI exposure should not be confused with blindly following the crowd on the market’s most popular names. Many companies seen as direct beneficiaries of the AI cycle have delivered substantial share-price appreciation in recent years. In some cases, current valuations appear to reflect very optimistic assumptions around future growth, margins and returns on capital.
The investment approach therefore remains constructive but cautious. The focus is on companies where the economic benefit from AI is tangible, the business model is robust, cash generation is attractive and valuation remains reasonable. This enables participation in the long-term AI opportunity without allowing portfolios to become excessively concentrated in one theme, sector or cluster of highly correlated stocks.
Diversification remains central across regions, sectors and business models. While a concentrated AI portfolio may appear more attractive in a momentum-driven market, diversification becomes particularly important when expectations rise too far and equity prices begin to correct.
How active management puts conviction into practice
Portfolio changes reflect a combination of valuation discipline, diversification and selective conviction, all of which must be reassessed frequently. This ties directly to the point we made previously regarding discipline and selectivity in managing our exposure to the ‘AI trade’. To illustrate this, we can discuss two of the many trades we have made this year.
On the one hand, we exited our position in Palo Alto Networks over the summer, after the share price had more than doubled since we initiated the position in our flagship equity funds in February. Palo Alto remains a high-quality cybersecurity franchise with strong products, a compelling industry position and exposure to long-term growth in security spending. However, in our view, the valuation had become stretched, leaving little room for execution missteps in the foreseeable future. This does not mean that we would not be eager to re-enter this fantastic business should its valuation become more reasonable, all else equal.
On the other hand, a new position was initiated this year in Vistra Energy, a U.S. electricity producer. The expansion of AI infrastructure requires enormous computing capacity, which requires reliable electricity. Given the scale of AI-related investments being made in the United States, power demand is likely to remain structurally high in the coming years. Vistra offers exposure to this trend at a valuation that appeared more attractive than that of many seemingly more direct AI beneficiaries.
These are only two examples, but they illustrate our role as an active manager: continuously scanning our investment universe and reassessing our views to keep the golden trifecta of valuation discipline, diversification and, most importantly, conviction at the heart of our investment process.
Returns beyond the largest AI winners
Importantly, returns have not relied solely on a narrow group of AI winners. During the correction in AI and semiconductor-related shares mentioned previously, our portfolios were quite resilient. Although parts of the market experienced sharp declines, broader diversification and exposure to other areas, including software, soften the blow very nicely. And as technology markets recovered, outperformance resumed.
AI-related investments contributed meaningfully, but value creation also came from cybersecurity, industrials, chemicals, agriculture, advertising and energy storage. This breadth matters. It reduces dependence on a single market narrative and helps create a more durable foundation for long-term returns.
Why selectivity will matter more
The outlook remains constructive, but selectivity is likely to become more important as investor expectations rise. AI will continue to reshape corporate investment, productivity and equity-market leadership. Yet the market is likely to differentiate increasingly between companies that can demonstrate genuine earnings and cash-flow benefits from AI, and those whose valuations rely primarily on distant or uncertain future outcomes.
Our strategy remains rooted in high-quality businesses with durable competitive advantages, attractive long-term prospects and reasonable valuations. Some investments provide stability and resilience, while others offer higher potential upside alongside greater uncertainty. Our active management philosophy is intended to balance these characteristics over time.
Our approach may not always generate the most dramatic short-term returns during periods when a small number of popular stocks lead the market. However, it is designed to preserve capital when expectations become excessive while maintaining exposure to structural growth opportunities. In a market where technology, energy infrastructure, industrial capacity and consumer platforms can all contribute to returns, diversification and valuation discipline remain central to long-term portfolio construction. This approach is part of our DNA at CapitalatWork and has supported long-term performance.
