AI, Index Exposure and What Actually Matters for Long-Term Wealth

February 2026

We have had a number of questions recently about artificial intelligence, market concentration and whether long-term portfolios are now taking on unintended risk. 

This note sets out how we think about AI exposure within the Waugh McDonald Portfolios, and why the answer lies in process and planning rather than prediction. 

AI is a market narrative, not a portfolio objective 

Artificial intelligence has become one of the dominant themes driving global equity markets. A relatively small group of large technology companies now represents a meaningful proportion of major indices, particularly in the US. 

This has naturally led to questions about whether markets are becoming overconcentrated, and whether long-term savings, retirement capital or family wealth could be vulnerable if expectations unwind. 

At Waugh McDonald, we do not view this as a question of forecasting whether AI is “a bubble”. Markets have always experienced periods where enthusiasm runs ahead of fundamentals. What matters is how portfolios are built to behave when narratives change. 

These are Waugh McDonald Portfolios, managed with aligned thinking 

The Waugh McDonald Portfolios are our core investment solutions. They are managed on our behalf by Morningstar Investment Management Europe, a UK based, FCA regulated discretionary investment manager. 

We selected Morningstar deliberately because their philosophy aligns closely with our own. They focus on valuation, risk management, diversification and governance, rather than short-term market calls. We focus on planning, behaviour, cashflow and long-term outcomes. Together, this creates a disciplined structure designed to endure uncertainty. 

Index exposure is adaptive, not static 

Most clients are not directly buying individual AI or technology stocks. Exposure typically comes through diversified portfolios that use index based or index aware components. 

This is an important distinction. 

Owning a single company is a binary risk. Owning an index is exposure to a market system that continually adjusts. As prices rise or fall, index weights change. If leadership narrows, concentration increases. If leadership rotates, capital is redistributed across other companies and sectors within the market. 

Index exposure is therefore not a fixed bet on today’s winners. It is a dynamic exposure to how markets evolve over time. 

Within the Waugh McDonald Portfolios, Morningstar monitors concentration risk, factor exposure and potential drawdowns at the total portfolio level, rather than assuming risk sits neatly in one stock, fund or theme. 

Concentration is managed through discipline, not reaction 

Market concentration can increase short-term volatility, and periods of narrow leadership are often uncomfortable. That does not mean the right response is to exit markets or override a disciplined process. 

The Morningstar investment approach addresses this through a structured framework that includes valuation implied returns, explicit risk and concentration limits, reward for risk calibration and continuous oversight. 

Rather than asking whether AI will succeed or disappoint, the focus is on a more practical question. Given current valuations, how should portfolios be structured to remain resilient across a wide range of future outcomes. 

Planning still matters, even with a strong investment process 

Even the best investment process cannot remove the impact of timing on personal outcomes. 

A portfolio designed to withstand volatility may feel very different depending on whether someone is accumulating wealth, transitioning into retirement or drawing income. The same market event can be manageable in one phase and damaging in another. 

This is why investment management and financial planning must work together. 

Morningstar manage the portfolios with discipline and independence. We ensure those portfolios are used appropriately, with clear time horizons, liquidity planning and cashflow structures that reduce the risk of forced decisions at the wrong time. 

The real risk is abandoning process 

Periods of strong narrative momentum, whether around AI or any other theme, tend to test behaviour more than portfolios. 

The danger is not that markets rotate. They always do. 

The danger is reacting emotionally, overriding discipline or assuming that prediction can replace planning. 

We chose Morningstar because their process is designed to behave rationally in less than rational markets. That alignment allows clients to stay invested, diversified and focused on outcomes that matter. 

In summary 

AI will almost certainly play a meaningful role in the global economy over time. So will innovations we cannot yet foresee. 

Our role is not to predict which story dominates next. It is to ensure portfolios are robust, well governed and aligned with long-term plans, and that clients have the structure and confidence to remain invested through change. 

Markets evolve. 

Good process, chosen deliberately, endures. 

For discussion regarding portfolio structure and long-term planning, contact info@waughmcdonald.co.ke