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, a small-cap portfolio manager at First Eagle, has rotated away from the artificial-intelligence trade after the sector delivered a 33% gain in the first half of the year. According to the source, he is now positioning toward companies tied to a recovery in U.S. housing construction.

The move illustrates a broader question for investors: whether the market's leadership can widen beyond the handful of AI-linked names that have driven index returns. Housing-related small caps are typically sensitive to interest rates, construction activity, and consumer demand, so a sustained recovery would likely require easing financing costs and firmer builder confidence. That makes the rotation a bet on macro conditions as much as on company fundamentals.

What to watch: whether housing starts, builder sentiment, and mortgage rates confirm the recovery Hench is anticipating. If they do, small-cap housing suppliers and builders could attract fresh attention. If rates stay elevated, the pivot may prove early. The episode is a reminder that concentrated leadership often prompts some managers to look for cheaper, less crowded areas of the market.