Is AI making diversification harder?

Traditional diversification routes are increasingly exposed to the same drivers that dominate global equity markets, which is why infrastructure may be one of the few remaining sources of differentiated equity exposure.

The diversification mirage

Most investors would probably describe their portfolios as diversified. They own global equities, emerging markets (EMs), and perhaps small caps. On paper, that appears to provide exposure to different regions, sectors and return opportunities. Yet beneath the surface, many of these allocations are increasingly influenced by the same underlying driver: AI.

This matters because diversification has traditionally been about spreading risk across different assets and sources of return. But what if seemingly different investments are being driven by the same theme?

The hidden concentration problem

Technology has been the defining driver of global equity returns since the Global Financial Crisis. The rise of AI has accelerated that trend, increasing the influence of a single theme across multiple asset classes. Successive innovation cycles have created extraordinary wealth as technology's influence on global markets has expanded. The sector's weight within MSCI ACWI Index has risen from around 10% to 31%, while technology now contributes roughly half of overall index risk.^1,2

Importantly, the challenge is not technology itself. Nor is it AI. The challenge is the increasing dependence of global equity portfolios on a single return driver. When a growing share of returns is influenced by the same theme, diversification becomes harder to achieve, even if portfolios appear diversified on the surface.

The rise of AI has amplified this trend. While technology contains many different industries and business models, AI has become one of the dominant drivers of market performance in recent years.

Are investors less diversified than they think?

We examined the relationship between AI and returns across a range of asset classes. Using a popular AI exchange-traded fund (ETF) as a proxy for the theme, we found high correlations across several major equity markets. Global equities exhibited a correlation of 0.79, EMs 0.69, and global small caps 0.75. These figures suggest that AI has become an increasingly important influence across multiple parts of a typical equity portfolio.¹

So, the question is: if global equities, EMs, and small caps are all increasingly influenced by the same theme, are portfolios as diversified as investors believe? Traditional diversification assets such as cash, bonds, and listed property have exhibited much lower correlations to AI. However, investors have historically faced a trade-off when using these assets, often sacrificing return potential in exchange for diversification benefits.

A different way to access the AI build-out

Enter listed infrastructure. It provides exposure to many of the same structural trends underpinning AI adoption, but through a different part of the value chain. Broader equity markets are often driven by developments in AI technology and investor sentiment. Infrastructure companies, by contrast, are typically supported by long-term demand for the essential assets that make digital growth possible.

In other words, infrastructure can benefit from the AI build-out without relying on the same return drivers that dominate wider equity markets.

One example is the current largest electric power and energy infrastructure company in North America. This US-based company is emerging as a key infrastructure partner to the AI build-out, supported by a large pipeline of electricity demand linked to hyperscalers and data centers. As AI adoption increases, demand for power, networks, and other enabling infrastructure should grow alongside it.

This highlights an important distinction. Investors do not necessarily need to avoid AI to achieve diversification. Instead, they may need to consider where within the AI ecosystem they are allocating capital.

Endnotes

¹ MSCI ACWI Index, October 2026. ² "Tech Accounts For 40% Of The S&P 500. Here Are Three Risks To Watch." Forbes, October 2026. ³ Morningstar Direct, two-year data, August 2026. Note: Annualized returns in dollars and correlation to Morningstar Global Artificial Intelligence Select Index; Global equities: MSCI ACWI Index; Global small cap: MSCI ACWI Small Cap Index; Emerging market equities: MSCI Emerging Markets Index; Cash: Secured overnight financing rate; Global bonds: Bloomberg Global Aggregate.

Index glossary

The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-six local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging markets issuers. The Morningstar Global Artificial Intelligence Select Index is a thematic global equity index providing pure exposure to companies engaged in AI technologies, including generative AI, AI data & infrastructure, AI software, and AI services. The MSCI All Country World Index is an index considered representative of stock markets of developed and emerging markets. The index is computed using the net return, which withholds applicable taxes for non‐resident investors. The MSCI ACWI Small Cap Index captures small cap representation across Developed Markets (DM) and Emerging Markets (EM) countries. The index covers about 14% of the free float-adjusted market capitalization in each country. The MSCI Emerging Markets Index℠ is an unmanaged index considered representative of stocks of developing countries. The index is computed using the net return, which withholds applicable taxes for non‐resident investors.

Important information

Past performance is not an indication of future results.
Diversification does not ensure a profit or protect against a loss in a declining market.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
Investments in technology- and AI-related companies may be more volatile than investments in other sectors. These companies face risks associated with rapid technological change, competition, cybersecurity incidents, data privacy concerns, supply chain disruptions, evolving regulation, and changing market demand. AI technologies are relatively new, and their long-term commercial success remains uncertain. Expectations for future growth may not be realized, which could adversely affect the value of investments in these companies.
Products investing in infrastructure are subject to the risk of concentrating investments in infrastructure-related companies, which makes them more susceptible to factors adversely affecting issuers within that industry than would a product investing in a more diversified portfolio of securities. These risks include high interest costs in connection with capital construction programs and the costs associated with environmental and other regulations.

AA-031126-215000-1