We have seen a change in the market regime. The rise and euphoria behind the idea of AI suffered a sell-off a few weeks ago. In the meantime, however, the markets have stabilised and recovered. I don't think the rally will pick up speed again, however. The market is very healthy. People have finally started to ask themselves the right questions.

AI is exciting and offers enormous opportunities. The question is what exactly the AI applications will be, and when the time will come when these applications will also have an profitable perspective. In the initial euphoria, people overlooked the details. But these are very important, and are difficult questions that need to be answered.

There has long been a narrative on the markets that bad news is good news. Because bad news means an aggressively accommodative monetary policy for an extended period of time. The markets wanted inflation to come down quickly, so that we would get interest rate cuts and asset prices would go up again. But you have to be careful what you wish for! Then, with the market sell-off, many woke up. Economic growth could slow down faster than we would like. Even cuts in key interest rates cannot bring about a quick turnaround. Investors have now realised this. Sometimes bad news is bad news after all.

There is always a huge amount of criticism of the Fed. It has to do the impossible for the ungrateful. And no matter what it does, it can never make everyone happy. I think the Fed has done its job as well as it can, given the complexity of the situation. And I think it's increasingly likely that we'll get one or two rate cuts in the autumn because, on the one hand, the Fed is sensitive to the slowdown in the economy and, on the other hand, inflation is moving in the right direction. The numbers are still not good, but they are moving in the right direction. Then there is the economy. Demand is still pretty strong. It's a dynamic and tricky situation for the Fed, and it's hard to really get a soft landing. The most dangerous part of flying is the landing, because you're flying very slowly at low altitude. This is often underestimated.

Markets tend to overestimate the impact of elections in advance. Most of the time, there aren't monumental changes that really alter the balance of power in certain sectors. I'm just looking at the facts of historical politics. Harris' policies are more like those of a Bernie Sanders, to give you an idea of policy direction, than those of a Joe Biden or a number of other candidates we've seen in the past, like Barack Obama. Even her first choice, her vice presidential pick, was a more left-leaning choice. But even if she wins the White House, there is still control of Congress. We have this great system of checks and balances.

That's a good question! We have recently seen a very tight market with a few stocks that have made strong gains. This was not just a tight market, but a tight market with names that have turned over trillions of dollars of capital in market capitalisation. I've seen Nvidia explode, literally trillions of dollars in market capitalisation in the course of just six to nine months. Apple, as well as Microsoft, Amazon, Google. We're not talking about billions, but trillions.

You can do a lot of things right with small caps, but small caps are very broadly diversified. It would be good if the market were to change a little and more money were to flow into small caps. We believe that it would be a good development if the market were to broaden. Also because small caps have performed relatively poorly recently. However, one problem could be that these companies are generally affected somewhat disproportionately by economic weakness than large, established companies. So you have to be a little careful.

We pursue a strategy of focussing our portfolios on very strong, economically stable companies. By focussing on quality, we don't have to reorient ourselves depending on the environment. I find it dangerous that quality is equated much more with growth and dynamism than with actual quality. We are focussing on real quality, on resilience in periods of economic weakness, on companies whose business is predictable. That's why I'm less worried about the risks, because we generally have companies that are resilient when economic conditions deteriorate.

We are more focused on med tech than healthcare. That's why we love a company like Abbott Laboratories, which focuses on very predictable, durable areas such as nutrition, clinical nutrition, cardiac devices and diabetes management. In fact, the company hasn't performed that well recently, but we are taking a long-term view on earnings growth. The same applies to Becton Dickinson. In our view, these types of healthcare names offer great protection and great opportunities.

In the food staples sector, which generally underperforms, I still think Coca Cola is completely undervalued. It's a phenomenal long-term company. It's much more innovative than in the past. And they pay up to 3% dividends. Even a company like Mondelez, with biscuits and food products, promises a high single-digit yield and a 3% dividend.

It may not be an insider tip, but in the industrial sector we hold RB Global, a Canadian commercial assets auction company. They have a business model similar to that of Amazon. When the economy is doing well, people buy and sell things, but when the economy is doing badly, people are also forced to buy and sell things. If you have a critical mass of bidders and sellers and the end market is growing and their market share is growing, then it's just a great story. And I think RB Global is actually still pretty cheap.

About the person: Matthew Benkendorf is Chief Investment Officer at Vontobel Quality Growth. He joined Vontobel in 1999 and was co-architect of the Quality Growth investment philosophy and style and has been instrumental in developing the strategies for Vontobel. In 2006, he took over the European Equity strategy as the responsible portfolio manager and two years later the Global Equity, US Equity, International Equity and Emerging Markets Equity strategies. He previously worked as a research analyst and trader. Matthew holds a Bachelor of Science in Business Administration and Finance from the University of Denver in Colorado.