Interesting Article: Future of the Portfolio Manager

Earlier this week the CFA Institute published an article on the Future of the PM. The article explores how advances in large language models and deep learning are narrowing the discretionary edge once defined by judgment and narrative skill.

The paper does not forecast the obsolescence of the PM, but rather tries to understand the conditions under which the PM can continue to deliver value.  The discretionary edge is not disappearing wholesale, but it is being reconfigured.

When the Machine Becomes the PM….as AI systems increasingly drive signal generation, narrative construction, and asset allocation decisions, the human contribution is migrating toward oversight, interpretation, and governance.

The bottom line is that while it is premature to declare the end  of the discretionary PM, it is no longer accurate to suggest that its traditional sources of edge (superior information access, quicker execution, or intuitive judgment) remains intact.  The comparative advantage once held by human intuition and experience is being narrowed by systems that operate at greater speed, scale, and consistency.  Asset management firms that define discretion more expansively—as a practice that includes model supervision, output validation, and institutional stewardship—will be better positioned to preserve and extend their relevance in a machine-augmented investment landscape.


Electricity Costs

Here is a chart we have seen a few iterations of recently.

We understand that people posting things will always present for maximum impact/clicks, but we thought taking a deeper dive might be worth the time.

So, a little less frightening from the source.

Going back to the beginning of 2014 that is a 41.7% increase of the average cost of electricity for the US consumer.

But one could argue that the AI revolution did not really start to percolate until 2023. Using the poster child for AI, NVDA, as the measuring stick.

With this in mind, let’s look at the electricity cost chart during that same time frame, we see something a bit different.

During this time frame the % move is 13.9% from $0.168 to $0.19 per Kilowatt hour.

Now, let’s look at the input costs for that generation. If we look at Coal costs for electricity generation during that same time frame, they are actually lower.

Description of Index

From the beginning of 2023 the above Index is down just under 6%.

So, the consumer is paying 14% higher during that time while the Utility companies’ cost has moved 6% lower.

Funny enough during that same time frame, if we look at the Total return of the Utility ETF, we will notice that the price change is 22.4%, if dividends are reinvested it’s even better, 33%.

As the media has consistently pointed out, as well as wall street, one of residual impacts of the AI CapEx boom is the increased need for power, as evidenced by the likes of MSFT and TSLA making sure to secure consistent supplies in the future.

The idea that the input costs have moved lower during this time frame while electricity costs themselves have gone up, might suggest there is a capacity issue? Do the utilities even have the capacity to convert more coal to electricity? If that is the case, and demand is only going to increase while capacity is stagnant, it would appear that the relationship between electricity costs for the consumer and the utility sector would remain status quo.


New Home Sales

On Wednesday, the 26^th New Home Sales was released and surprised many to the upside.

There was a chart we came across during the week that we thought may help explain the upside surprise.

If the builders are both catering to a more price sensitive US consumer, as well as buying down already lower mortgage rates, maybe those sales continue to surprise to the upside?

The MBA 30-year mortgage.

Notable Charts

A couple notable charts from the week.

Since 2019 the S&P 500 is up 125%. 76% of that is coming from earnings growth and 19% from dividends. Not exactly what could be described as a bubble with earnings growth that strong.

Is it possible the strong earnings growth is coming at the expense of the employees?

Have a great weekend!

Best,

Meraki trading team