In this video, James Helliwell argues that the prevailing advice to rely on passive ETFs is increasingly dangerous for long‑term investors. He highlights the concentration risk in the S&P 500, where the "Magnificent Seven" tech firms and a growing number of companies (72% of the index) now list AI as a material risk, potentially exposing investors to over 350 vulnerable firms. Helliwell explains how macro conditions have shifted after four decades of tailwinds: inflation spiked, rates rose at the fastest pace in 40 years, and growth stocks fell, while commodities rallied. He cites 13D Research’s view that we are at the start of a generational rotation from capital‑light tech to capital‑heavy sectors such as metals, mining, and energy infrastructure. Using his own performance data, he shows that a selectively managed ETF strategy delivered a 28× return since 2007, a Sharpe ratio of 1.25 (vs. 0.6 for the S&P), and a maximum drawdown of only 15.7%, far better than a traditional 60/40 portfolio. He promotes an "ETF X‑ray" tool he built to map AI exposure and sector risk, urging investors to be selective and active with their ETF holdings rather than abandoning ETFs altogether. The video concludes with a call to action to access the tool and watch related content.
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ETFs are worshipped like the holy grail of investing these days, but I think it's one of the riskier bets that long-term investors are making today, because what used to be a one-way bet on bulletproof businesses is now looking like a disaster waiting to happen. So in this video, I'll explain why the smartest advice in investing might be wrong this decade and how I've rebuilt my strategy using AI to help you get much better returns whilst navigating the biggest threat we've seen in at least 40 years. You've probably already heard about the concentration problem in the S&P around the Magnificent Seven and how the earnings story is really just handful of tech firms carrying everything else. But I want to flip that around for a minute because the more important question for ETF holders isn't who wins, it's who survives. And with 72% of companies in the S&P reporting AI now as a material risk to their business, you could be holding over 350 companies facing an uncertain future here. And earlier this year we saw what can happen even within the tech sector when sentiment shifts. Other sectors, everything from financials to consumer names, even real estate, are actively being repriced as AI replaces the revenue streams that once justified those valuations. These aren't small corners of the index, they are the index. And to show you exactly what I'm talking about, I'll put a link in the description to the ETF X-ray tool I built, which maps all of this out and shows you exactly who's most likely to be affected by it. But that's just the first risk. And at the same time, something equally significant is happening in the macro environment. So for 40 years, macro was basically a tailwind for markets—falling rates, low inflation, and a world that rewarded businesses that could grow fast without needing to build much of anything, just as long as they can borrow at near zero. And over the last 15 to 20 years, that created a clear winner in tech, whether it was software platforms or semiconductors. The S&P was basically built around them. But in 2022, we saw a glimpse of what was to come because inflation spiked, rates rose at the fastest pace in 40 years, and growth stocks fell as commodities rallied. But it didn't last, because in just 12 months, the Fed's hikes brought inflation down from 9% to only 3%, which capped that rally in commodities. And during that same period, ChatGPT arrived on the scene, and capital flooded back into tech. So the rotation many called for never ultimately materialized. But in 2022, the rotation was overwhelmed by recession fears, and this is what took the wind out the sails of commodities, and there was no compelling reason to own real assets beyond defensiveness. So what's changed is that now there is. The AI revolution, almost paradoxically, is one of the biggest arguments for owning the capital-heavy sectors that it's supposedly replacing. And analysts at 13D Research, which is one of the most respected institutional research houses in the world, think we're now at the beginning of a generational rotation between these sectors. Away from capital-light tech and into metals, mining, and energy infrastructure. So just think about what that means if you're sitting in a standard ETF. You have just 4% exposure to potentially the biggest winners of the next decade, but most of your portfolio is still in companies built for a world that no longer exists. Now, what I'm about to show you might well surprise you, because the answer isn't to abandon ETFs entirely, but to be selective about which ones you own and active in how you manage them. So the most important number on here is arguably the 28x return from 2007 through to date. So the 60/40 portfolio, which is the one in blue, the dotted line, would have returned just 5x over that period. So $10,000 would have grown into $50k. The S&P meanwhile would have taken $10,000 to $80,000 over that period. But there's something equally impressive beneath the surface. When you look at the Sharpe ratio, which is the excess return per unit of risk that you've taken on, you're getting twice as much. So the Sharpe ratio is 1.25 compared to the S&P's 0.6. And then the other number that's really important at the end is the drawdown. Frankly, anything that drops more than sort of 20%, even if you don't sell, feel so uncomfortable to hold onto. So for a drawdown to be at just 15.7% all the way through the Great Financial Crisis, through the period between that and the pandemic, and then the most aggressive hiking cycle and highest inflation in 40 years is pretty impressive. Whereas a supposedly safe or balanced 60/40 portfolio still saw a drawdown of over 30%. But that equity curve really sums it up. It's continuing to rise and you can see that it actually begins to perform better when we are in a risk-off environment, especially if there's inflation and other complications that investors are otherwise getting clobbered with. I won't labour the point 'cause I think for long-term investors this really speaks for itself. But for anyone approaching retirement, that drawdown number is what matters most. I'll include a link below where you can get access to it when it goes live in a few weeks. And in the meantime, watch this video next, which YouTube thinks you're going to love, and frankly, I agree. So going to get out of here and catch a flight to Bali. See you in the next one.
