Finding the right opportunities in this thematic-rich investing environment

"The world is very thematic rich at this stage," he said. "At the moment, AI is just one of many themes playing out. There's geopolitical tensions. China and US are on divergent paths. There's an energy shock playing out through Hormuz. Rising rates is probably the predominant story of this year at the moment."

"We think a K-shaped economy where the high-end consumer is doing fine, while the low-end consumer is generally struggling and facing a cost of living crisis is one of the more predominant thematics that we are involved with," said Chaudhry. 

While that presents a challenge to many US and other developed market equities, it has offered an opportunity for Fulcrum to take the opposite position. 

"We are basically shorting a number of consumer-related businesses which are exposed to the bottom three or four deciles of the consumer, both in Europe and in the US who are facing challenges through rising energy costs, rising interest rates costs, rising mortgage payments, and not enough real wage growth coming from this AI cycle yet."

"While the central banks are responding to a higher inflation environment from energy or possibly higher capex cycle from AI, the benefits are not flowing through to the consumers yet."

"Cybersecurity is a good example of a beneficiary within the software space," he said. "AI is making it easier to commit cybercrime, to hack. AI can find vulnerabilities in different softwares. So cybersecurity businesses, while they're software companies, are actually a beneficiary of a wider adoption of AI."

Why the AI trade isn't done yet

While many are calling the beginning of the end of the AI capex supercycle, Chaudhry believes investors happy to sit on the sidelines right now risk giving up further returns, especially given the revolutionary impact of the technology.

"The bond selloff is actually accelerating and those who own bonds have figured out that bonds are not as risk-free as they may have imagined in the past," said Chaudhry. "And that is leading to a lot of consternation and search for higher returns out there."

Bond investors themselves need to be extra vigilant given how much the market is moving. 

"Budget deficits of developed markets remain very wide and debt-to-GDP is very high," he said. "The trajectory of that is also concerning. And the recent French drama and French sovereign crisis that is unfolding, leading to higher-term premium and higher rates on the long end. The combination of which means bonds may not provide you the protection you may have thought in the past."

And the bond crisis and higher rates environment also have much bigger ramifications for equities more broadly, which is already at elevated levels of dislocation.