In every gold rush, the biggest winners aren't always the ones doing the digging. The artificial intelligence (AI) boom is proving no different.

US hyperscalers (technology giants like Microsoft) are committing hundreds of billions of dollars to data centres, chips and power infrastructure. That has driven strong performance from their suppliers - Asian technology leaders, including Samsung Electronics and SK Hynix. 

This may look like one AI trade, but one company's capital expenditure is another company's revenue. Their share prices may be moving together, but their economics are not. 

So how do investors tell them apart? I start with cash generation.

One AI trade, two different realities

The hyperscalers are buying vast amounts of computing capacity today, while still needing to prove that AI will generate an adequate return on that investment tomorrow. The suppliers, by contrast, are already seeing that spending appear in revenues, earnings and cash flows.

That doesn't make Asian hardware companies risk-free. The semiconductor industry remains cyclical. Customers can cut orders, supply can catch up and today's exceptional margins won't last forever. However, I think that asking how long the boom will last is very different from asking whether it will arrive at all.

I would rather own businesses already converting demand into cash flow

Cash flow reveals the divide

Many Asian semiconductor companies are generating rising profits and building stronger net cash positions. At the same time, the free cash flow of several hyperscalers is coming under pressure as capital expenditure accelerates. The weakening cash-flow profile of the buyers is, in many respects, the mirror image of the strengthening profile of the suppliers.

This matters if the environment becomes less forgiving - whether because of structurally higher interest rates, weaker economic growth or fading enthusiasm for AI infrastructure. In that environment, balance-sheet strength will become increasingly important. 

I would rather own businesses already converting demand into cash flow than those still relying on future monetisation to justify today's borrowing and spending.

Korea's cash-rich chipmakers

I think Korea's memory-chip leaders illustrate this point. Samsung Electronics and SK Hynix are benefiting from robust demand for advanced memory chips, while accumulating substantial cash resources. Improving shareholder stewardship in Korea is also encouraging more of that cash to be returned to investors through dividends and share buybacks. For me, this brings together a powerful industry cycle, stronger balance sheets and a potentially more shareholder-focused approach to capital allocation.

Who has already been paid?

The market may continue to treat hyperscalers and Asian hardware suppliers together. But I think that's too simplistic. It overlooks a crucial distinction between the companies funding the boom and those profiting from it. 

What I'm watching now is whether supplier orders and cash conversion remain resilient if the spending from hyperscalers begins to slow. Those risks appear low and manageable for the foreseeable future. I'm also watching how the cash-rich hardware names allocate capital between shareholder returns, employees and investments, such as research and development and additional capacity. Getting the balance right will be critical to sustaining their competitive advantage over the long term.

Until then, the most useful question is not whether I think AI is a bubble. I'm more interested in which companies are turning the boom into cash. 

Author: Paolo Tamburrini - Equities Investment Specialist, supporting the Emerging Markets, Asia and China equity teams.

I keep hearing the same argument: sterling investment-grade credit spreads are near their tightest point in this cycle, so these bonds must be expensive.

I have made the argument myself. But I'm no longer convinced it tells the whole story.

A spread is the extra yield a company bond offers over a comparable government bond. For higher-quality sterling-denominated corporate debt, that extra yield is around 0.9%. Bonds prices rise when yields fall and fall when yields rise.

Since 2009, the spread has been narrower at a quarter-end on only three occasions. The long-term average at the end of each quarter is about 1.6%. 

On that measure alone, I can see why sterling credit looks expensive. But I don't think the spread captures the full picture. It's only the extra reward for taking credit risk, not the bond's total starting yield, and the total yield has changed significantly.

The spread is only part of the yield

At the end of 2021, sterling investment-grade bonds yielded 2.06%. The spread over government bonds was 1.14%, accounting for more than half the total yield.

Today, this market yields 6.15%. The spread is only 0.9% and represents less than 15% of the total. That means the underlying government-bond component accounts for roughly the other 85%.

The spread still matters. It compensates investors for risks including downgrades, defaults and difficulty selling bonds in stressed markets. But I don't see it as the only number shaping the outcome.

When government bonds yielded some 1%, the spread had to do most of the work of attracting investors. Today, government-bond yields provide most of the income, even before investors take on additional credit risk.

Higher income provides a larger cushion

Higher starting income from coupon payments can also provide more protection when markets move against investors.

Sterling investment-grade bonds, with an average tenor of around 5.5 years, now yield more than 6%. If government-bond yields remained unchanged, spreads would have to widen by about 1.1 percentage points (doubling from 0.9% to around 2%) to wipe out a year's worth of income. 

At the end of 2021, these bonds had an average maturity of some eight and a half years and yielded about 2%. A spread widening of roughly 0.25 percentage points would have erased the income.

This is an illustration, not a forecast. But it shows why two periods with tight spreads can present different risks. Today's higher income provides a much larger cushion.

Tight spreads don't settle the argument

None of this makes sterling credit cheap. Company bonds offer less extra reward for credit risk than they have historically. I still don't see enough value in some areas of this market.

But high overall yields and tight spreads can coexist. Both statements are true, even though one tends to dominate the conversation.

I'd urge you to ask how much total yield you're getting, as well as how far spreads would need to rise before absorbing a year's income.

Viewed this way, sterling investment-grade credit looks less stretched than a conventional spread analysis would suggest.

I'm not arguing for taking substantially more credit risk. But I've stopped treating 'spreads are at their tightest' as an automatic reason to sell.

The most expensive mistake in credit this cycle may not be owning tight spreads. It may be selling 6% income because one chart told us to.
 

Data source: Bloomberg Sterling Aggregate Corporate Index, including option-adjusted spread, yield and duration, and UK 10-year generic gilt yield. Data to 29 September 2026. Note: All views are those of the author. 

In this update we present the quarterly State of Trend report for Q3 2026.

Our report covers the performance of trend following systems compared with traditional investments such as the S&P/ASX 200 Total Return index, and the Australian 60/40 portfolio. Trend following provides exposure to a diverse pool of underlying instruments, and implements trading strategies systematically and without emotional biases. 

Trend followers pull ahead as the bond sell-off stalls conventional asset classes

• Traditional assets were roughly flat in Q3, as a September sell-off on rising bond yields and oil prices gave back earlier gains

• Trend-following systems outperformed. A broad commodity rally and rising bond yields drove strong gains. Over 12 months, trend systems returned 20-21%, well ahead of the 1-3% from traditional assets

Key market movements in Q3 2026

• Energy markets surged and bonds sold off sharply in Q3, while equities were mixed
  • Bonds fell globally as central banks turned more hawkish. The US Federal Reserve and Reserve Bank of Australia both raised rates in September. US Treasuries posted steep losses, with yields reaching highs not seen since 2007. European government bonds also sold off, led by France, and Australian bonds slipped
  • The S&P 500 extended its gains, while Australian equities were broadly flat after a weak September. North Asian markets were volatile, and small caps lagged as rates rose

• Energy led commodities higher

  • Crude Oil and other energy markets rallied strongly as the US-Iran conflict escalated

  • Copper and Gold also gained, while Silver edged higher

  • Grains and Oilseeds performed strongly through the quarter, led by Oats, Rice and Soybean Meal. Selected Food and Fibre markets also rallied, such as Sugar and Rubber

• Trend-following strategies benefited from diversified exposures, outperforming traditional asset classes

Featured chart - UK Natural Gas

• UK Natural Gas was one of the strongest performers in Q3, rising 75.3%. It is now up 134.1% over the past year. The rally followed a sharp fall in Q2, as the US-Iran conflict escalated and pushed global energy prices higher
• Continental European gas followed a similar path, with Dutch gas up 66.5% for Q3. US gas fell over the same period, showing how regional supply conditions can drive very different outcomes
• Commodity markets can move quickly and sharply, often on news that is hard to predict. This is where a systematic approach helps. A rules-based process enters trends as they form and has built-in risk controls for volatile periods

See the full report at our website.

Despite an extremely volatile reporting season, global equity markets pushed higher during the month. In the US, the S&P 500 and NASDAQ rose +1.9% and +1.6%, respectively, whilst in the UK, the FTSE edged +0.6% higher. Domestically, the ASX All-Ordinaries Accumulation index outperformed its international peers, increasing +3.2%. This was driven by the Materials sector (led by the gold sector) and Consumer Discretionary, supported by expectations of further rate cuts.

The expectation of further cuts by the RBA provided a material boost to small caps, with the ASX Small Ordinaries index rising +8.2% in the month. In comparison, the ASX 100 rose +2.1%, weighed down by sharp falls in large-cap names such as James Hardie (-25%), CSL (-21%), Dominoes (-18%), Reece (-18%), Wisetech Global (-15%) and Woolworths (-9%).

In bond markets, the US 10-year bond yield declined -15 basis points (bp) to 4.23%, whilst its Australian counterpart rose marginally by +2bp to close at 4.28%. The Australian dollar was stronger in June, closing at US$0.654, rising 1.2 cents.

60/40 isn't dead but it isn't enough, and when stocks and bonds fall together as in 2022, systematic trend investing offers crisis alpha that traditional diversification can no longer guarantee.

The 60/40 portfolio (60 per cent equities, 40 per cent bonds) was the bedrock of portfolio construction for half a century. Then it delivered its worst calendar year since the Great Depression in 2022. Both asset classes fell simultaneously. The supposed ballast of the bond sleeve offered no protection at all.

The debate that followed has mostly centred on whether 60/40 is dead. That is the wrong question.

The 60/40 framework was built around a specific set of macroeconomic assumptions. Inflation would remain contained. Interest rates would drift lower over time. When equities fell, it would be in response to slowing growth. Central banks would cut rates. Bond prices would rise. Equities and bonds would move in opposite directions when it mattered most.

Inflation has evolved. Consider the current environment. The US-Iran conflict and the surge in oil prices have driven bonds and equities lower at the same time. Buying bonds for risk off is no longer simple portfolio protection. The diversification benefit that looked compelling in normal markets has become far less reliable in the moments it is needed most.

The response to these limitations has been to diversify further and add more asset classes: private equity, private credit, real assets, infrastructure, to portfolio allocations. For many investors, these additions make sense as sources of return diversification over a long horizon.

But they do not solve the specific problem that 60/40 has. Most of them are not designed to perform during sustained periods of market stress. A number of them add breadth, not protection.

This is where systematic trend investing strategies deserve more serious consideration in portfolio construction discussions.

Trend investing harnesses the fact that markets that have been moving in one direction tend to continue doing so for a period, giving rise to the adage that 'trend can be your friend'. This can be across equities, fixed income, commodities and currencies.

During the equity market dislocations of 2000 to 2002, 2008, and 2022, systematic trend investing strategies have historically tended to generate strongly positive returns, consistent with published academic findings that trend investing delivered positive returns in eight of the ten largest global market crises over the past century. These strategies tend to be most valuable precisely when traditional portfolios are most stressed. Practitioners call it crisis alpha: not just low correlation in normal times, but genuine positive performance when conditions deteriorate most sharply.

The case for inclusion

Decades of academic research have demonstrated that adding a systematic trend investing allocation to a traditional portfolio has historically improved risk-adjusted returns, reduced maximum drawdowns, and provided genuine diversification that survives stress testing. This includes a study published in the Journal of Financial Economics on time-series momentum and research published in the Journal of Portfolio Management on a century of trend investing returns.

Beyond its defensive characteristics, trend investing has also demonstrated the capacity to generate strong standalone returns across a full range of market conditions, not just during periods of crisis. The same academic literature that documents its crisis alpha also shows positive average returns in each decade since 1880, across expansions and contractions, high- and low-inflation regimes, and rising and falling rate environments. For allocators, this reframes the conversation: trend investing is not simply a hedge to be tolerated for its diversification benefit, but a return stream capable of standing on its own within a portfolio.

That said, trend investing strategies can experience periods of flat or negative performance when markets are range-bound or subject to sharp reversals. The same is true of bonds in an inflationary environment. The question is whether its underperformance is correlated or uncorrelated with the rest of the portfolio. For systematic trend investing, the evidence consistently suggests the latter.

The incomplete portfolio

The 60/40 portfolio is not broken. It continues to do what it was designed to do, in the conditions it was designed for. The problem is that investors have come to expect it to work in all conditions.

A portfolio genuinely prepared for the full range of macroeconomic environments needs something that 60/40 does not contain. Not more of the same return streams in different wrappers. Rather, a genuine alternative strategy positioned to benefit from the kinds of sustained, directional moves that accompany the most difficult periods for traditional assets.

The conversation has been dominated for too long by whether 60/40 is dead. The more productive question is what belongs alongside it.

Trend investing

Trend investing, often called 'trend following' or 'momentum investing', doesn't attempt to predict markets. It is about identifying what markets are 'actually doing', rather than trying to predict what they 'might do'.

It focuses on buying assets that are moving up in price, and selling when they turn and start moving down. Instead of looking at an individual company's finances and prospects, it ignores earnings calls, balance sheets and stock-picking entirely. It focuses instead on identifying existing market trends and capturing rises that continue for a period of time, using a range of technical indicators, such as moving averages and breakout channels, to gauge price direction and momentum.

It uses systems, quantitative and rules-based processes to provide risk-adjusted diversification and low correlation with traditional investments, trading across diverse global markets and asset classes.

For example, East Coast Capital Management maintains a diversified, liquid portfolio of over 90 international futures markets, spanning commodities, currencies, equity indices and fixed income across geographically diverse markets, a genuinely different set of return drivers to a standard balanced portfolio as well as to most 'alternatives'.

This article was published by Investor Daily and was authored by ECCM's CEO, Simone Haslinger.