After a 33% gain in the first half, this fund manager grew tired of the AI trade. Here’s where he’s looking now.

Bill Hench of First Eagle has reduced exposure to the artificial-intelligence trade after a 33% first-half gain and shifted toward small-capitalization companies tied to a recovery in U.S. housing construction. The move illustrates a broader portfolio decision: rotating out of a crowded, momentum-driven theme and into areas whose earnings depend on economic activity rather than AI-related capital spending.

The shift matters because it highlights where some managers see relative value after a strong run in AI-linked names. Housing construction is sensitive to interest rates, affordability, and the supply of homes, so a recovery thesis depends on those conditions improving. Small-cap companies in that supply chain may offer more upside if activity picks up, but they also carry greater sensitivity to a slowdown.

What to watch: interest-rate expectations, housing starts and building permits, and whether small-cap earnings begin to reflect a construction rebound. The episode is less a signal to follow a single manager than a reminder that leadership can rotate as valuations and macro conditions change.