- A Franklin Templeton fund is outperforming 96% of peers with big bets on artificial intelligence.
- Nvidia, ASML Holding, and Microsoft are among the fund's top holdings, according to Bloomberg.
A fund manager found that betting big on artificial intelligence stocks while avoiding other Big Tech names has been the key to beating the market.
According to Bloomberg, Franklin Templeton's $158 million FTGF Martin Currie Global Long-Term Unconstrained Fund has outperformed 96% of peers this year.
Its 15% gain also tops the 8% gain in the MSCI All-Country World Index, a benchmark used for tracking equity funds.
The fund's biggest equity holdings include Nvidia, a top maker of AI chips; Microsoft, an investor in ChatGPT parent OpenAI; and ASML Holding, a Dutch semiconductor manufacturer.
"Tech is still attractive as we think the Federal Reserve is done hiking rates, although we don't expect rate cuts," fund manager Zehrid Osmani told Bloomberg. "But you have to look at it through different segments rather than invest across Big Tech."
In fact, the fund is avoiding traditional tech heavyweights such as Apple, Alphabet, Meta, and Netflix. While Alphabet is racing to advance its own AI technology, including a rival chatbot, Osmani said these stocks are more exposed to consumers.
The fund's enthusiasm for AI reflects a broader eagerness among market players, with some of the biggest investing names jumping on the trend. These include billionaire investors such as Stanley Druckenmiller, Bill Ackman, and David Tepper.
Research from Morgan Stanley estimated a $6 trillion investing boom from AI, while Bank of America has predicted a $15.7 trillion boost in the next seven years, as the technology would lead to an "iPhone moment."
Meanwhile, Osmani is staying away from the banking sector, even as investors like Michael Burry snap up shares of regional lenders that sold off heavily in the wake of SVB's collapse.
"Banking is an industry that has high competitive pressures, diminishing barriers to entry, low pricing power and is facing a higher risk of disruption," Osmani told Bloomberg. "All of which leads us to believe that the industry dynamics aren't attractive."