24 January 2025: Weekly Update – DeepSeek, AI Competition and US Exceptionalism

However, part of that exceptionalism narrative may soon be challenged with the emergence of a Chinese competitor to the US’s AI dominance.

DeepSeek has been developed as a cost-effective solution using open-source technology and less advanced chips, whilst claiming to achieve effectiveness similar to that of major incumbents like OpenAI, Google, Meta, and Anthropic. It has quickly become a sought after mobile app and, more fundamentally for investors, raises challenging questions of the prevailing AI investment case. That this two-year-old start-up has the potential to disrupt established companies calls into question the necessity of the significant capital expenditure deployed to date and that is planned for the coming years.

This will, no doubt, be a hot topic for the leading technology companies to address in the upcoming earnings season but it is yet to be seen whether this is the moment the AI bubble pops.

From a more defensive perspective, this week we introduced positions in the TM Fulcrum Diversified Core Absolute Return Fund to the T. Bailey Multi-Asset Funds. This absolute return fund aims to achieve long-term returns of inflation +3% to 5% over five-year periods, with low correlation to equity and bond markets, through three broad strategies:

• Dynamic Asset Allocation: Representing around 40% of its portfolio this includes investments in stocks, bonds, and commodities, adjusting based on market conditions and trends.
• Discretionary Macro: Approximately half of its portfolio is allocated to directional and relative value trades across major asset markets that avoid correlation with traditional asset classes.
• Diversifying Strategies: The remaining 10% is allocated to short-term, trend-following strategies.

This takes proportion of the T. Bailey Multi-Asset Dynamic Fund held in absolute return strategies to almost 17% and similarly to a little over 14% for the T. Bailey Multi-Asset Growth Fund.