Merryn Talks Money: Man Group's Ed Cole (Podcast)

Ed Cole of Man Group says AI may be as transformative as advocates claim, but it is still too early to judge whether valuations have entered bubble territory. He warns that backlash against globalization and efforts to reshore supply chains could make traditional 60/40 portfolios less effective in the current macro regime. He suggests reallocation toward gold, small caps and liquid alternatives to better navigate inflationary and geopolitically driven market shifts.

Analysis

The market implication is less about AI itself and more about capital misallocation risk. If AI remains a genuine productivity shock, the first-order winners are not just the obvious mega-cap enablers; second-order beneficiaries are firms that can reprice labor, compress SG&A, and deploy software/compute into already scaled distribution. The bigger problem for portfolios is that AI capex can coexist with weak breadth: index-level earnings may be propped up by a narrow set of winners while the rest of the market faces margin pressure from higher financing costs and slower nominal growth.

The more actionable macro takeaway is that deglobalization creates regime dispersion, not a uniform inflation impulse. Reshoring tends to raise domestic wage intensity and inventory buffers while reducing the pricing power of low-cost importers, which should structurally favor asset-light domestic service models and commodity-linked equities over long-duration consumer goods and low-margin industrials. That shift also raises the odds that “sticky” inflation stays above central-bank comfort zones even if headline prints ebb, keeping real yields volatile and making traditional bond duration a less reliable ballast.

The overlooked part of the 60/40 debate is that diversification is failing for different reasons than in prior inflation shocks. If rates stay structurally higher and equity leadership remains concentrated, the classic negative stock-bond correlation can break just when investors need it most; that argues for explicit inflation and geopolitics hedges rather than hoping nominal GDP will do the work. In that environment, gold is less a crisis asset than a portfolio convexity tool against policy error, deglobalization, and FX reserve diversification.

Near term, the catalyst risk is a disorderly factor rotation rather than a macro recession: if AI enthusiasm broadens, small caps and cyclicals can rally on falling recession odds; if rates back up again, those same names can underperform sharply because balance-sheet sensitivity becomes the binding constraint. The consensus is likely underestimating how long this regime can persist, but also overestimating the speed with which AI monetization will offset labor and capex pressures outside the mega-cap complex.

Key Decisions for Investors

• Add a 3-6 month relative-value long gold / short long-duration Treasuries position (GLD vs TLT) as a hedge against sticky inflation and policy error; target asymmetric payoff if real yields reprice higher without an immediate growth scare.
• Express deglobalization/reshoring through a basket long domestic industrials and logistics with pricing power versus import-sensitive consumer cyclicals; use XLI vs XLY over 6-12 months, with stop-loss if inflation rolls over and rates collapse.
• Initiate a selective small-cap duration trade: long IWM only against a basket of unprofitable, rate-sensitive names via put spreads; the idea is to capture a breadth recovery while limiting exposure to refinancing risk.
• Maintain or add upside exposure to AI infrastructure beneficiaries via call spreads in compute/power/capex names for 6-12 months; prefer structured upside over outright longs because valuation compression is the main near-term risk.
• Reduce reliance on traditional 60/40 hedging by replacing part of core bond duration with liquid alternatives or trend/managed-futures exposure; this improves convexity if inflation and geopolitics keep correlations unstable.