Please see todays Daily Update from EPIC Investment Partners received this afternoon (14/05/2026):
Momentum has outperformed quality so decisively that, at times, it appears to be the only game in town. Extreme concentration in index leadership, persistent passive inflows, and continuous earnings upgrades within a narrow group of semiconductor and AI infrastructure names have created a self-reinforcing structure that mechanically rewards trend persistence.
Momentum strategies thrive when market leadership narrows and earnings dispersion widens. That is precisely what has unfolded across semiconductor and AI infrastructure equities. Companies within this cohort have combined genuine fundamental strength with relentless incremental capital inflows. Importantly, this is not purely speculative momentum. It is momentum anchored in businesses generating structurally high returns on capital, dominant competitive positioning, and multiyear visibility into AI driven demand expansion.
However, these dynamics are self-reinforcing, not necessarily self-sustaining. As positioning becomes increasingly one sided and valuation assumptions begin to embed near perfection, market sensitivity to incremental disappointment rises materially. Momentum regimes often appear most stable precisely at the point where underlying fragility is accelerating beneath the surface.
Quality investing operates across a different spectrum. Earnings trajectories tend to be smoother, valuation rerating is typically more gradual, and relative underperformance is common during periods when investors prioritise narrative concentration and thematic exposure over balance sheet strength, pricing durability, and long duration free cash flow generation.
We continue to maintain exposure to businesses such as NVIDIA, TSMC, and Broadcom, where we see substantial long term value creation potential. The AI infrastructure buildout remains firmly in an expansion phase, supported by strong hyperscale capital expenditure visibility and broad based enterprise adoption trends. These businesses remain exceptional quality compounders embedded within one of the most powerful investment cycles seen in modern capital markets.
At the same time, periods of extreme concentration inevitably create valuation distortions and narrative blind spots elsewhere in the market. One of the clearest examples today is high quality luxury compounders, particularly Ferrari.
Over the past year Ferrari shares have materially underperformed as broader automotive sentiment deteriorated under the weight of tariff concerns, cyclical fears, and global growth uncertainty. Yet Ferrari is fundamentally misclassified when viewed through a traditional automotive framework. Its economics are structurally inconsistent with the broader OEM universe. Production volumes are intentionally constrained, not demand constrained. Pricing power is structural rather than cyclical. Order books are supported by multiyear waiting lists rather than promotional activity or financing incentives.
The critical distinction lies in earnings quality through the cycle. Unlike traditional manufacturers, Ferrari’s earnings power is not primarily exposed to volume volatility or macroeconomic sensitivity. It is driven by brand equity, engineered scarcity, and sustained pricing authority. Historically, this combination has translated into materially higher and more stable returns on invested capital than the broader automotive sector, alongside significantly lower earnings cyclicality than is implied by its sector classification.
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Andrew Lloyd
14/05/2026