Quantitative investing frameworks that have guided large pools of capital are undergoing a notable recalibration as market participants reassess what constitutes durable, low-risk exposure. The category of stocks typically classified as "Quality" - often high-margin, cash-generative technology and services firms - suffered a sharp relative decline in February, trailing "Value" peers by over 5 percentage points. That shortfall marks the most pronounced underperformance by quality-indexed stocks in five years.
Investors point to a growing fear that competitive moats long thought to shield high-valuation companies could be compromised by breakthroughs in artificial intelligence. The concern is that once-protective advantages tied to software, proprietary services, or entrenched business models may be narrowed or circumvented rapidly as new capabilities emerge, reducing the premium once attached to those businesses.
As a result, portfolio managers and institutional allocators are rotating away from what they view as "future-growth" exposures and toward firms judged resilient to technological displacement. The beneficiaries of this shift include companies with significant physical footprints or stable consumer franchises, with Coca-Cola Co highlighted as an example of a business seeing renewed investor interest. Utility firms and other asset-heavy sectors have also attracted fresh capital as investors prize low obsolescence risk.
Momentum dynamics have changed
Longstanding momentum strategies - which chase recent winners on the assumption that earnings revisions will follow price strength - have started to show strains. Analysts at Man Group report that recent market leaders display a weak link to conventional earnings-revision signals. Instead, the market has increasingly rewarded companies based on perceived insulation from, or utility to, the evolving AI landscape.
This reorientation has spawned a labeled approach among some investors: the "HALO" trade, an acronym for Heavy Assets, Low Obsolescence. Under that rubric, operators of physical infrastructure - from power grids and pipelines to certain semiconductor manufacturers - are being treated as defensive holdings in the current environment.
Volatility intensified after a widely circulated thought experiment about the possible effects of advanced technology on white-collar employment created sudden, concentrated selling pressure in the technology complex. The episode coincided with IBM registering its largest one-day decline in 25 years and pushed software stocks to new intraday lows.
With uncertainty elevated, appetite for long-duration growth wagers has diminished. Exchange-traded funds emphasizing immediate cash returns - including dividends and shareholder buybacks - recorded inflows of $7 billion in the month referenced. One chief investment officer described the market as effectively behaving like a concentrated portfolio driven by technology-disruption risk.
Tools for assessment
Some services presented in the marketplace analyze companies using broad metric sets. One such product evaluates IBM alongside thousands of other firms using more than 100 financial measures and highlights past top-performing selections, including Super Micro Computer and AppLovin with previously reported strong returns. These tools frame opportunities by weighing fundamentals, price momentum, and valuation to identify candidates that meet their risk-reward criteria.
For now, the key market signal is a rebalancing of investor preference: from perceived, durable quality in high-valuation technology names toward tangible, lower-obsolescence assets that promise more immediate cash returns and a shorter horizon for risk realization.