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 it delivered a 33% gain in the first half, shifting his focus toward small-capitalization companies tied to a recovery in U.S. housing construction. The move reflects a broader question facing investors: whether the market's leadership can widen beyond the handful of large technology names that have driven much of this year's advance.

Hench's pivot is notable because it pairs two distinct bets — a step back from crowded AI positioning and a wager on a cyclical sector that has lagged. Housing construction is sensitive to interest rates, affordability, and the pace of new home supply, so a sustained recovery would depend on those conditions improving rather than on sentiment alone.

For market watchers, the development is less a signal than a reminder that rotation is an ongoing feature of equity markets. What to watch: whether small-cap and housing-linked names attract broader inflows, and whether the AI trade's momentum persists without the same level of participation. The tension between the two will help indicate how concentrated or broad the next phase of the market proves to be.