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U.S. Technology Growth & The Future of AI

U.S. Technology Growing

Many people are familiar with our Active Asset Allocation (AAA) portfolio strategy. This is the strategy we developed in 2016 to focus on investment momentum, how to use it when it’s there, and how to avoid it when not. This strategy has been one of our best performers since we introduced it in 2017. And although other firms may offer momentum-based strategies, we are not aware of any firm that publicly advertises having such a strategy. We developed and use this with our clients and it appears to be unique in the industry. The strategy utilizes just a few asset classes and is non-diversified by design. The strategy runs off of a mathematical formula we developed and we run every month to see what changes might be called for. It has been a very successful strategy for us.

Recently, we had an idea to see if we might improve the returns we get with AAA by adding a U.S. Technology component. After a good amount of work and analysis time, we found a solution that worked nicely using a similar mathematical model as the standard AAA strategy. It is a change we intend to incorporate into AAA soon (likely this month). But why did we focus on U.S. Technology? What was the underlying logic? 

For starters, consider how much technology has grown within the framework of the S&P 500. If you go back to 1992, technology exposure in the S&P 500 (our preferred U.S. stock market index) was only 9%. As of the end of 2022, that exposure had grown to 37.5%. To be clear, technology covers a lot of ground, including software, IT services, Fintech, Internet infrastructure, and hardware. This broad basket of technology is what we have targeted in our AAA strategy. We did not want a more narrow investment such as Information Technology only. 

Additionally, we believe that the expected acceleration of Artificial Intelligence (AI) will add to many of these various technology sectors. AI has become quite a hot topic recently and we believe AI could be transformative. If we are right then it seems that U.S. Technology could be a very positive addition to our AAA strategy and to investments in general.

The Future of Artificial Intelligence (AI) 

Currently, AI is being used in Machine Learning (such as image recognition), Computer Vision (such as facial recognition), Natural Language Processing (such as ChatGPT), and General Industry (such as manufacturing and transportation). Many of these uses are only at the introductory level, but as the technology advances, the uses will also advance. There is a real concern about how these advances could affect jobs, especially lower-level workers. No one knows precisely where AI will go and how it will transform our world, but we know the technology will advance. So, what exactly should we expect? We aren’t experts in this area, but our research indicates the following areas where we should expect more development.

First is Generative AI, which entails AI’s ability to create new and original content. Next would be AI Search, which entails searching for information with large databases. Next is Automated Machine Learning, which is the development of tools that expedite the creation of AI learning models by low-experience users. Next on the list is Computer Vision, which is the ability of AI to recognize and extract relevant information from videos or photos. And lastly AI Cybersecurity, which entails using AI to help identify and prevent cyber-related fraud. Given that list of potentially upcoming AI developments it is easy to understand why we felt that focusing on U.S. Technology could be an important area to consider for investing, and the world overall.

All the best,

Barron Financial Group, LLP is a fee-only Registered Investment Advisor regulated by the Securities and Exchange Commission.

This newsletter is for general information only and should not be considered investment advice.  Investors should consult with a trained investment professional to discuss their particular situation.

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