HALO stocks: AI-immune areas the pros are backing

Artificial intelligence (AI) isn’t only coming for your job; it’s also targeting many of the companies in which you invest. Across whole swathes of the modern economy, from software development to financial services and from retail to media, AI tools and technologies threaten to disrupt incumbent businesses. Investors with exposure to those businesses could be big losers.

As a result, there is growing interest in so-called HALO companies. The acronym stands for “heavy assets, low obsolescence” – these are capital-intensive businesses with sustainable business models that AI will find difficult to replace. Think of the big utility companies or the industrial engineers, which rely on extensive physical assets and look set to remain economically relevant for years to come.

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It’s not just that HALO companies offer a bulwark against the oncoming tidal wave of AI, argues Jacob de Tusch-Lec, manager of the Artemis Global Income I Acc (B5ZX1M7) fund, important though that is. Their appeal also reflects the value they offer in a stock market that has in recent years only seemed interested in technology companies and related stories.

“These companies have a lot of physical assets in areas where there has been painfully little new investment for decades,” explains de Tusch-Lec. “Financial markets are increasingly realising the value of these unfashionable assets; in general, most investors accept that the market value of a company should not be below the replacement cost of its assets.”

HALO stocks outperformed in first half of 2026

Indeed, during the first half of the year, heavy asset sectors such as utilities, mining and energy outperformed the stock market as a whole by roughly 20 percentage points. And while some of this outperformance is related to the outbreak of war in Iran – energy companies in particular have benefited from rising oil prices – the HALO trade was gaining ground well before the conflict began. Goldman Sachs analysis suggests a basket of shares in capital-intensive businesses outperformed a capital-light alternative by 35 percentage points in the first quarter alone.

“HALO stocks are seen as a diversifying force versus richly valued, tech-dominant US and global indices and are themselves more heavily represented in European and UK indices,” says Alex Watts, a senior investment analyst at interactive investor. “Typically, such companies haven’t commanded the same elevated – and some may view excessive – valuations of the world’s most innovative tech companies.”

That’s not to say HALO-style investment excludes technology altogether. Analysts point out that some tech sector businesses are heavy investors in physical assets and that they also boast healthy staying power. Chip makers are a good example – Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), for instance, has invested an average of $32 billion (£24 billion) a year over the past five years.

Economic moats

Generally, however, HALO investment represents a departure from the more hyped areas of the stock market, just as investors turned to “old economy” stocks in the years following the dot.com collapse of 2000.

“When the technology, media and telecoms bubble ended, one of the best-performing sectors through the subsequent bust was mining,” recalls Simon Edelsten, an investment manager on the Goshawk Global G GBP Acc (BMWVYH9) and Goshawk Global Balanced UCITS ETF GBP (LSE:ROES), which is actively managed. Edelsten adds: “Mining stocks had appeal as the investments had real assets while the stocks you were selling didn’t.”

In other words, while the acronym may be new, the concept of HALO investment isn’t really so novel. Indeed, the idea has much in common with the Warren Buffett theory that it makes sense to invest in businesses that enjoy economic moats – for example, barriers to entry that make it tough for new entrants and brand power that can help ensure the business model is sustainable.

“Real assets possess a longstanding investment thesis of their own,” adds Watts. “They provide opportunities to diversify portfolio returns and, in some instances, offer protection from inflation via regulated or contractual income streams.”

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The diversification point is particularly important: if you expect AI to destroy value in your portfolio, one possibility is just to switch into those AI stocks. But putting all your eggs in the technology basket feels too risky. There are already signs of a pullback – an index of AI token prices, which measures what users pay the leading large language model companies, has fallen sharply in recent weeks.

HALO stocks are not a panacea

That said, HALO investing is not a panacea for those who are concerned about risk.

“There are times where these companies can struggle too,” warns Watts. “HALO comprises a wide range of companies with varying sensitivities. As the war in Iran has reminded us, miners and natural resource producers can be highly sensitive to energy, commodity prices and input costs. Infrastructure, utilities companies and property – often seen as bond-proxies – proved interest-rate sensitive as central banks tightened monetary policy in 2022.”

Dan Cartridge, a fund manager at Hawksmoor Fund Managers, adds: “When it comes to AI risks centred on the huge amount of capital pouring into AI infrastructure build-out, some HALO-style assets could be susceptible to this bubble bursting.” He points out: “Data centre build-out and AI-related chip manufacturing are resource-intensive and have bolstered the prices of many commodities and materials used in construction.”

Such warnings suggest that simply swapping your AI-vulnerable holdings en masse for HALO alternatives is probably not a sensible move. But adding HALO exposure to your portfolio could be a smart diversification strategy.

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Edelsten urges investors to “consider the balance of their portfolios”. He holds around 25% of its funds’ assets in industrials and energy. “We are underweight technology compared to the tech-heavy index,” Edelsten adds. “That’s a balance I’m more comfortable with.”

Artemis’ de Tusch-Lec points out that it’s not just the cost of capital investment that provides HALO companies with protection from disruption but also the amount of time it would take a rival to reach a point where they could compete.

“Think about how long it takes to open a new mine or build a new airport. In the meantime, HALO companies con extract additional margin,” he says. “And if you add in the geopolitical dimension, that idea is even more interesting – if you no longer want to buy steel tubes from China or refined products from Russia, say, you have to look elsewhere, and opening new steel works or a refinery will not only be expensive but take years – if it gets done at all.”

How to pursue the HALO strategy

Investors could focus on funds with a strategy that prioritises assets with HALO-like attributes. Watts suggests the FTF ClearBridge Global Infras Inc WAcc (BMF7D55) fund, which buys listed infrastructure equities, and focuses on reliable income streams and inflation-linked capital growth over the long term. “The positioning favours regulated and contracted utilities over economically sensitive user-paying assets,” he explains.

In the investment trust universe, meanwhile, one fund often highlighted as a possible HALO play is TR Property Ord (LSE:TRY), which offers exposure to a pan-European portfolio of property shares, as well as some physical property assets. Real estate is an obvious example of a physical asset that in itself can’t be replaced by AI.

“Property is an interest rate-sensitive asset class and in June 2026 the European Central Bank raised rates by 25 basis points on inflation concerns,” says Alan Ray, an analyst at Kepler Trust Intelligence.

“This is likely to give investors pause for thought, but remember that first, many European rents are indexed to inflation, and second, this will help to further limit new supply. This means that underlying rents could continue to grow and so when upward pressure on rates abates, TR Property will be very well positioned for the next phase.”