RUTH SUNDERLAND: Investors should look for a good leader when buying shares

Everyone loves an acronym, and traders are no exception. We have had Taco, standing for Trump always chickens out, or the view that the US President will back away from his threats on tariffs.

Yolo (you only live once) and Fomo (fear of missing out) are exports from social media explaining why people piled into AI shares. Hodl – hold on for dear life – describes the philosophy of bitcoin devotees, no matter how stomach-churning the volatility.

There’s a new acronym on Wall Street: the Halo effect attributed to shares in companies with heavy assets, low obsolescence. Having been scorned for years as boring, low-growth clunkers, they are now seen as safe harbours from AI turmoil.

Halo stocks are found in sectors such as utilities, mining and energy, with real physical assets and high barriers to entry, including regulation.

The idea is they cannot quickly or easily be dismantled by AI. It moved to centre stage in a dramatic Substack post by the small research firm Citrini, suggesting AI will devastate economies. It was dismissed by mainstream observers as hysteria or sci-fi, but the fact it had such an unnerving initial effect is significant.

The mood around AI is so febrile almost anything creates alarm: remember how transport shares tanked when a Florida firm that used to sell karaoke machines said it has an AI tool that could disrupt their business models. In this atmosphere, investors are in search of solidity.

Goldman Sachs waded in with a research note showing a basket of such stocks had outperformed a group reliant on human or digital capital by around 35pc since the start of last year. The Wall Street Journal reported traders piling into McDonald’s, oil giant Exxon and Deere.

In the UK, companies such as BAE Systems and Tesco are being touted as Halo shares, because AI can’t open supermarkets or negotiate contracts with government defence departments for fighter jets.

The Halo trade is one reason the FTSE 100 has been hitting record highs. The index is heavy on mining companies, classic Halo stocks that stand to benefit from demand for metals and minerals for AI and green energy.

What to make of it? There is apprehension about the huge spend on AI and uncertainty over returns.

Fears are mounting over indebtedness and private credit markets that could infect the financial system.

Lurches on markets tell us only that it is too soon to identify the long-term AI winners and losers. Temperamentally, Halo shares appeal to me, as an investor who prefers tangible assets to hype.

But not all Halos are created equal and not all will automatically prosper when the AI bubble bursts.

It is futile to be an AI denier. The companies that do best may well combine solid assets and moats with positive deployment of AI.

Rolls-Royce is a case in point. AI and digital are at the heart of the transformation under Tufan Erginbilgic, who has achieved a 30 per cent improvement in machine utilisation, uses AI monitoring to cut downtime and data analytics to make engine design faster and cheaper.

He has presided over one of the most remarkable turnarounds in FTSE 100 history, with shares up well over 1,000 per cent.

Praising what seem to be visionary chief executives is always dangerous: too many have feet of clay.

But leadership matters in confusing times like these.

The best acronym for investors might be Parl: Pick a Real Leader.