by Nicholas Hamner
Investment Advisor Representative
[email protected]
Investors and analysts love their acronyms. Words like FAANG, MAMAA, and GRANOLA have all had their proverbial 15 minutes in the limelight. Fame-seeking pundits are creating new ones every day. You can do it, too. It’s as easy as riding a Blackstone | International Paper | Kraft Heinz | Equinix.
But, in the wake of AI and its seemingly endless potential to upend existing business practices, there’s a new acronym gaining popularity among a group of analysts and investors. Maybe you’ve seen it, maybe you haven’t. It’s HALO.
Not the angelic headgear, video game series, or low-calorie ice cream; this HALO stands for “Heavy Assets and Low Obsolescence”. But what does that mean? “Heavy assets” means businesses with a lot of physical capital (think: railroads, factories, pipelines, etc.) that cannot be easily replicated digitally. And “low obsolescence” means the businesses have some insulation from rapid technological changes because they are tied to durable industries and essential needs.
That career advice you got back in high school – “Can’t go wrong being a plumber. We’re not going back to using the woods”? Same logic.
The HALO acronym was created by a wealth manager named Josh Brown who, to prove his thinking, compared Delta Airlines and Expedia travel services. Both are closely tied to consumer behaviors and travel, but Delta—with its physical inventory of airplanes—is up for the year while Expedia—an all-digital web service—is down. He considers HALO stocks as a sort of hedge against market changes brought about by AI.
And that’s about as far as anybody gets before disagreements and cracks in the logic start to show. No one can agree on which sectors include HALO stocks, but the general consensus is Energy, Industrials, and Consumer Staples. Within those sectors, selecting subsectors and individual stocks… that’s anybody’s game.
In writing this article, I found articles recommending 4, 6, or 10 different HALO “must haves”. None of them in agreement and all of their recommendations based on the sort of short-term research and ego-driven opinions that made evening financial shows untrustworthy. And reviewing a HALO ETF created earlier this month, I found logistics companies (who own their own trucks), railroads, airlines… all of which fit the heavy asset portion. But I also found plenty of retail outlets and department stores, whose dependence on e-commerce and continual threat of obsolescence make their inclusion questionable.
For a lot of investors, it feels like they like the idea of HALO, but they haven’t figured out what it truly is or how to implement the idea fully yet.
Which brings up another issue the HALO mindset: just because a company is believed to be immune from AI does not mean it is immune from its own bad decisions, or that it is immune from market shifts not related to AI.
For example, one pundit recommended fast food staples like McDonald’s. Yes, it is hard to picture a life where you can’t wheel through the drive-thru and grab a Happy Meal, and yes, McDonald’s has done well over the last 20 years. But they are off considerably from their Q1 highs, and fellow fast-food purveyor (and #5 chain by nationwide sales) Wendy’s is underperforming significantly and closing restaurants left and right.
When it comes to AI, everyone has their opinion. You can’t deny the success that the tech sector has had riding AI’s coattails, and you can’t deny the wake it has left in other industries. But it’s important to understand that the emotional investing brought about by fears of missing out (there’s another acronym: FOMO) can put you in a bad spot. Likewise, misunderstanding the emotions behind a blowback or the purposes of a hedge like HALO can also put you in a bad spot.
If your head is spinning and you need some advice, grab a time with us. We’ll help settle your nerves.