When change accelerates, fundamentals matter more

For some time, we have held the view that changes in market structure have increased inefficiencies. Combined with the speed of the AI cycle, this is creating a compelling opportunity set for long-term fundamental investors. Our Head of Global Developed Markets, Neil Padoa, made this case at the recent The Investment Forum; what follows is an adaptation of his talk.

SHRINKING TIME HORIZONS AND THE RISE OF THE NON-FUNDAMENTAL INVESTOR

Adult attention spans have shrunk sharply in the screen era (Dr. Gloria Mark's work suggests screen-based focus has fallen to roughly 50 seconds). The investing parallel is hard to miss: the average holding period for US shares has collapsed from roughly 5–8 years in the 1960s/70s to less than half a year today. This means many "investors" are effectively renting exposure rather than compounding alongside a business (see Figure 1).

At the same time, the market structure has shifted as passive assets in the US have grown to exceed active by around $3 trillion; by design, these flows are largely non-fundamental (up to 80% of daily value traded is driven by non-fundamental investors), mechanically allocating capital based on index weights rather than bottom-up price discovery.

We welcome passive investing (this isn't a critique). Still, the combination of shorter time horizons and larger non-fundamental flows helps explain why prices can move faster and further than fundamentals, creating both noise and opportunity for patient, valuation-led investors.

INDEX CONCENTRATION AND WHAT "OWNING THE MARKET" MEANS TODAY

"Owning the market" is often presented as diversification, but it is worth asking how diversified the market really is when leadership has become so concentrated. In 1985, the market cap of the S&P 500's top 10 companies was only $250bn compared to roughly $19tn for the top 10 today, with the latter now also accounting for close to 40% of the index, dominated by technology businesses.

In addition, the US share of global market capitalisation has already risen from around 45% to roughly 65% (see Figure 3) and embeds an assumption that this exceptional period of outperformance can persist. Alongside the shorter time horizons and the rise in non-fundamental flows discussed earlier, that concentration can amplify short-term price moves.

The implication for us is straightforward: short-term price action is a less reliable signal of long-term value, and valuation discipline matters most when markets paint with a broad brush.

THE NEXT PLATFORM SHIFT

AI is the next major platform shift (after mainframes to PCs, the internet, and smartphones), and it is already producing major new entrants such as OpenAI and Anthropic. Early use cases are scaling quickly: large companies report that AI now generates a meaningful share of code, while in customer service, many routine queries can already be resolved without human involvement. Rapid adoption, heavy investment, and genuine uncertainty are now colliding with a more short-term, flow-driven market structure, increasing the likelihood of sharper price moves than fundamentals alone would justify. This helps to explain why AI narratives have become so powerful in markets.

AI NARRATIVES, FAST PRICES, AND OUR OPPORTUNITY SET

AI has the potential to disrupt many business models, and there is a continuum of risk. We remain humble in our views and are willing to change our minds if the facts change. Still, we believe there are strong arguments that many companies are resilient to AI disruption — and that some will prove to be beneficiaries over time.

Against this backdrop, we are already living through an "AI reckoning" in markets. As the technology's promise accelerates, investors are rapidly re-labelling entire business models as potential losers, often with little discrimination. The "Saasmageddon" narrative is a case in point. Sparked by vibe-coding and the idea that software moats can be competed away overnight, it has pushed high-quality incumbents like Microsoft and SAP down 15–20% year-to-date, despite their structural advantages in distribution and their position as systems of record.

The same broad-brush logic has spilled into data: London Stock Exchange Group (and peers like S&P Global) sold off by more than 20% early in the year as the market questioned whether proprietary datasets retain value in an AI world, even though we believe only smaller parts of these businesses are genuinely exposed, and the core franchises remain exceptionally resilient. In financial services, the launch of the AI-enabled tax platform Altruist triggered a sell-off of over 15% in brokers such as LPL Financial and Charles Schwab as investors extrapolated that advice and distribution could be automated - a view we think underestimates the enduring importance of trust and human connection, and ignores how quickly leading platforms can use AI to improve advisor productivity and operating leverage.

Beyond enterprise and finance, consumer platforms have not been spared: Spotify fell almost 30% in a month as AI-generated music tools raised fears about the value of human-created content; our view is that human content remains central, and that even a modest shift in listening behaviour could ultimately benefit the world's largest audio distribution platform (we unpacked this case in a previous article).

OPPORTUNITY FOR THE PREPARED INVESTOR

The point is not to dismiss these risks, and we certainly don't. If anything, these case studies illustrate both AI's potential to disrupt industries and the speed with which narratives can become price moves, amplifying short-term dislocations. In markets that are increasingly driven by headlines and short-term positioning, long-term fundamental investing that separates signal from noise can be rewarded.

As Jeff Bezos has said, the more important question is often not what will change, but what will not. Across three decades and multiple market cycles, Coronation's philosophy has held steady: proprietary research, a long-term lens, and valuation discipline. In an environment where change is accelerating, we believe that discipline and valuation matter more, not less.

Insights Disclaimer