A surge protector plugged into itself | Market Hang

So, there's been a number of headlines about diversifying, you know, your concentration of risk. Although, the if you think about some of the other sectors, uh Barron's had a interesting article that was about how utility stocks offer nice yields that are less risky than other AI plays. But again, it's kind of, in my opinion, like this is still AI. So, there's So, I'm curious what you guys are thinking as people talk about like we should um move to other sectors of the market and adjust risk. So, I'll um push it over to you Whitney. >> I mean, that you know, I I have mentioned this meme before, but it's like the surge protector plugged into itself. It It's just just meaning like I I don't know that that's a diversification. >> [laughter] >> As far as I can tell, that doesn't work. You shorts are good at some point. But my my point is just, you know, all these things are still part of the AI trade. A- And And so, the question is, you know, this nervousness around circularity, this nervousness around the correlation belies the fact that the correlation should actually seem higher than what it is. Um I I think that is something that the institutional side of investors I speak to, that that's been on their minds for a long time. You know, that hasn't changed. And then one thing I would add is we're we're 2 weeks away right now from US midterms. And one sentiment shift that I started hearing when I was seeing clients in August was just, you know, you've really seen this groundswell of anti-AI, anti-data center sentiment that's relatively bipartisan. You know, and it's like I it's not clear which party is going to claim to be the anti-AI party. Obviously, they all have reasons that behooved them to to continue the AI party, but you see that groundswell coming into midterms. >> And that will become a micro problem when someone in Upstate New York says no to a data center and their muni bonds blow out. You need revenue. So, everyone talks tough in politics until there's an actual problem to be solved and I think the markets the markets will kind of I I think they're kind of sniffing this out on some of the data centers. It's going to be harder than before, but I think the muni bond market will do some speaking on behalf of the lobbyists here. >> And I want to add to your point on utilities cuz this is one of my central investment thesis right now. And these aren't your father's utilities as you correctly all of our father's utilities. Yes, they hold [laughter] up well on the face of all utilities. They pay good dividends, but you're right, they've become a backdoor play into the AI revolution. Look no further than Constellation Energy who just signed a 20-year contract with Alphabet to supply them with nuclear power for their AI ambitions. The same Constellation Energy who partnered with Microsoft to reopen Three Mile Island to supply their data centers with power. So, when I saw that, I asked my research team, "Who owns all the nuclear power plants in our country, whether they're active or dormant?" And what they told me was that 95% of them are owned by utilities. Interesting. So, if nuclear power is not only the future, but the present, let's look at utilities. They're only trading at 15 and 1/2 times forward earnings, below their 5, 10, and 20-year averages. They have the lowest relative beta to the S&P 500 of all 11 gig sectors, and now you get this AI play with some dividend income. Plus, they traded off in the third quarter. So, it seems like an attractive entry point to me for people looking for growth, people looking for perhaps some downside protection, people looking for income, but not a short-term I want to buy Constellation Energy or Duke Energy for a month. This could be a longer-term play in a position to have in your portfolio. >> Independent power producers can kind of move price a little bit more and volume kind of changes their mix. I think it's hard to actually grow into what I think the price is implying today for long-term growth. So like that that makes me a little bit nervous, but my diversifiers halo stocks where I like refiners >> Can you remind us what that is? I always forget that term. >> are halo stocks? >> heavy asset >> No. >> No, they don't consider that halo. Okay. >> No, no, no, no. hard asset low obsolescence >> yeah. >> Got that's what it was. >> So a little bit more of like the touch and feel like stuff in everyday life and a lot of the inflation and affordability problems that you're feeling that companies are passing on are the stocks in that basket. So we we kind of flipped the acronym around to loha for one of our ETFs and we think like that pair with the really growthy stuff short-term has had like a zeroish correlation. But the risks are completely different on what drives the fundamentals there. >> But if >> But I'm curious >> If the If >> No, I just was curious why you why you don't like the IPPs then. >> It's to me there is rate sensitive rate sensitivity and I think they kind of get caught up in this like low beta trade as well, which I think is interesting if you are trying to dampen volatility. But I think a better near-term volatility dampener is just a completely differentiated type of risk right now. >> But if the largest bottleneck to the AI revolution right now is power. Right? And if our grid in our country is old and antiquated and ripe for shutdown as we recognize it all is and the answer to that is nuclear. Right now nuclear supplies about 19% of our electricity in our country. The Biden administration, the Trump administration both have wanted to triple that. How we get there, we'll see. But if you have a combination of utilities that supply natural gas and nuclear capabilities in addition to some of these smaller cap plays that are providing small modular reactors to the data centers and become nuclear power off-grid. Boy, doesn't that sound like an interesting portfolio? Not just for downside protection, I take your point on beta, but for growth opportunities with a kind of a different way to attack the AI revolution than just trying to pick a semiconductor or so. >> This is what makes markets, by the way. This is great. Um I just I think like my my framing's like 5 years in my head. >> Yeah. >> Uh I think the I think markets are getting a little bit greedy of how much they want to pull forward on that, but for a 10-long-term, 10-year ultra-long-term holding, it it makes a lot of sense. And for the right type of investor, it makes a lot of sense, too. But yeah, to me like I think like I'm I'm thinking a little bit like more tactically how I want to pair things together. Like some of the inflation-hard asset stuff to me is like a really good diversifier in portfolios right now.