There is ‘significant dispersion in market risk-reward dynamics’ – King Street’s Brian Higgins

[The Balance of Risk and Reward: A Path Forward]
J Studios

King Street Capital Management founder Brian Higgins sees significant dispersion in market risk-reward dynamics, with indices at multi-decade lows, while many companies urgently need additional capital.

In an interview with CNBC, Higgins, whose firm manages over $29B in assets, highlighted opportunities in liability management exercises and optimistic credit lending as companies navigate higher interest rates.

The private credit market remains strong despite challenges, he said. “The stated default rates are quite low,” though when factoring in liability management exercises and restructurings, default rates rise from the stated 1% to approximately 4%, compared to the traditional high-yield average default rate of 3%.

Higgins emphasized the importance of evaluating opportunities on a sector-by-sector basis rather than making broad market assumptions. He identified promising areas in healthcare (XLV [https://seekingalpha.com/symbol/XLV]), technology (XLK [https://seekingalpha.com/symbol/XLK]), media (SOCL [https://seekingalpha.com/symbol/SOCL]), (GGME [https://seekingalpha.com/symbol/GGME]), telecommunications (XHYT [https://seekingalpha.com/symbol/XHYT]), (XTL [https://seekingalpha.com/symbol/XTL]), (IYZ [https://seekingalpha.com/symbol/IYZ]), and energy sectors (XLE [https://seekingalpha.com/symbol/XLE]), explaining that value lies in specific risk-reward scenarios.

When asked about artificial intelligence investments, Higgins described it as “early innings,” pointing out that “95% of companies [are] supposed to be making no money on this.” His firm purchased an AI liquid cooling data center business a year ago, providing insight into GPU financing, infrastructure, and energy needs within the rapidly evolving AI landscape.

Higgins maintained a cautious outlook on identifying AI investment losers. “When you have this massive inflow of capital, there’s going to be a hangover associated with it.”

He also expressed concern about software (NYSEARCA:IGPT [https://seekingalpha.com/symbol/IGPT]), (XSW [https://seekingalpha.com/symbol/XSW]) companies questioning their competitive moats and unique value propositions as enterprise customers carefully evaluate their cloud strategies.

MORE ON INVESCO AI AND NEXT GEN SOFTWARE ETF:

* Beyond GICS, Why IGPT Offers A Truer AI Portfolio [https://seekingalpha.com/article/4800782-beyond-gics-why-igpt-offers-truer-ai-portfolio]
* IGPT: Another Fund Made Irrelevant By Its Competitors [https://seekingalpha.com/article/4800575-igpt-etf-another-fund-made-irrelevant-by-competitors]
* AI could create nearly $1T in annual value for S&P 500 companies – MS [https://seekingalpha.com/news/4486666-ai-could-create-nearly-1t-in-annual-value-for-s-and-p-500-companies-ms]
* We’re at the cusp of a ‘high-tech production boom’ – Wells Fargo [https://seekingalpha.com/news/4486571-we-re-at-the-cusp-of-a-high-tech-production-boom-wells-fargo]
* Seeking Alpha’s Quant Rating on Invesco AI and Next Gen Software ETF [https://seekingalpha.com/symbol/IGPT/ratings/quant-ratings]