AI Proofing Your Portfolio Jackie Chan Style

• Asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) offer potential protection against AI-related market volatility.
• These investments provide yields and are less exposed to new AI buildouts compared to corporate bonds.
• CMBS demonstrates substantial value, especially in industrial properties, due to continued demand.
• Careful due diligence is essential when investing in CMBS, considering factors like location and underlying tenants.

AI Fears Got You Down? Don't Panic

Hello, everyone, Jackie Chan here. You know me, I fight bad guys, do crazy stunts, and occasionally sing a song or two. But today, I'm talking about something even scarier than a room full of angry ninjas: artificial intelligence disrupting the stock market. Like that time I fought those guys with the ladders, you need a strategy to climb above the chaos. Some people are saying AI, rising oil prices, and all sorts of global events are shaking things up. Now, I'm no financial expert, but I know a thing or two about staying safe in a dangerous situation. Remember, "no matter how difficult things are, you can always trust your team." In this case, your team is your investment strategy.

Securitized Products Are Your Financial Kung Fu

Nicholas Travaglino from Nuveen, a smart guy, says we should look at securitized products. Think of asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) like my movies – they're built on solid foundations. People always need places to live, businesses need buildings, and everyone needs to buy things. Travaglino also said that "The equity side of the market has been focused on businesses with moats and heavy asset type businesses. Securitized fits that narrative very well". It's like when I'm fighting, I use everything around me – tables, chairs, even babies! ABS and CMBS are solid assets that still have a very important purpose in the economy. And, unlike some of those crazy new AI-driven investments, they offer a little extra yield. Now, where's my ladder? Oh and before I forget, speaking of things that are being implicated in lawsuits, you can read more about Google's Gemini Chatbot Implicated in Wrongful Death Lawsuit if you want to see what other types of tech are causing problems.

Digging Deeper Than a Movie Plot

So, what exactly are these things? ABS are like a bunch of smaller loans – car loans, credit card debts – all bundled together. CMBS are similar, but they're backed by loans on commercial properties like office buildings and shopping malls. John Kerschner, another smart cookie from Janus Henderson Investors, notes that these sectors aren't being flooded with new AI-related issues like corporate bonds. In fact, he said securitized products are "a good place to hide out". Think of it as finding a safe spot in the middle of a fight scene. "Don't think about what you have set your mind on. Instead be flexible and mobile like water" said Bruce Lee and a good asset allocation will give you that flexibility and liquidity you need to thrive in any market conditions.

AI Can Actually Help?

Here's a twist, even I didn't see coming. Travaglino believes ABS can actually benefit from AI. New data centers are being built, plugged in, and making money. The payments from these centers help pay off the bonds in the ABS space. It's like finding a hidden weapon in the middle of a fight. He calls it the "most attractive play" for AI-adjacent investments. Don't get me wrong, I'm still wary of robots taking over the world, but this might be a case where they actually help us.

CMBS and the Power of Bricks and Mortar

Travaglino also sees value in CMBS, especially industrial properties. He thinks these properties have a "good moat around it" because they create physical goods that robots can't replicate. As he said, it has staying power because they are required to refine chemicals and do other tasks that need human assistance. Kerschner agrees, noting that AI could actually boost productivity in the CMBS sector. Now, remember, it's all about "no pain, no gain". You have to do your homework. Each deal needs careful consideration of location, tenants, and the operator. It's all about finding the right combination.

Office Spaces and the Future of Work

Okay, let's talk about the elephant in the room – office spaces. They've been struggling thanks to the pandemic and high interest rates. Some people even fear AI will take over white-collar jobs, making offices obsolete. But Kerschner isn't buying it. He sees strength in New York offices and opportunities in multi-family, industrial, and hospitality properties. But, as Travaglino reminds us, it's still early days for AI. We need to watch how it impacts the market. There will be winners and losers. The important thing is to be prepared. As I always say, "Sometimes, it takes a bumbling fool to show everyone else how it's done." Maybe that fool is you, carefully navigating the AI-driven market with a little bit of kung fu and a lot of common sense.