Alliance Witan’s Craig Baker: navigating the AI surge, gold, and bitcoin with a long-term lens

Craig Baker, chair of the Alliance Witan Investment Committee and global chief investment strategist at Willis Towers Watson, says the current rally around artificial intelligence has sparked debate about whether asset prices have outrun fundamentals. While he concedes there are signs of froth in AI-linked stocks, he cautions against declaring a broad, market-wide bubble. “It is difficult to say,” Baker says, “but there are certainly multiple companies whose share prices have risen well beyond what current profits would justify, while other AI beneficiaries show real, tangible earnings potential.” He stresses that even if a bubble exists, timing its burst would be risky, quoting the investing maxim that markets can stay irrational longer than investors can stay solvent.

Alliance Witan is an investment trust that aims to beat inflation over the long term through a blend of capital growth and rising dividends. Its largest holding is Microsoft, with sizeable positions in Amazon, Visa and Mastercard. The trust currently trades at a discount of about 5.28% to its net asset value and yields roughly 2.09% in dividends. Over the past five years, Alliance Witan delivered a total return of 58% and 221.9% over 10 years, reflecting a long-run growth focus across global equities.

If you could invest in only one company for the next decade, Baker says he might choose Microsoft. He praises the software giant for its resilience and enduring dominance in IT ecosystems, while acknowledging that competition remains intense. “Microsoft is a large, high-quality company that has shown remarkable resilience for decades,” he notes. “It’s embedded in the world’s IT infrastructure and well positioned to capture ongoing cloud and Gen AI-related demand.”

Looking at a shorter horizon, Baker emphasizes that Alliance Witan does not base stock selection on a 12-month view. Nevertheless, he points to opportunities where well-run businesses trade at depressed prices due to short-term dynamics. One example he cites is Diageo, a long-standing brand with real intrinsic value that the market appears to be pricing down temporarily. He adds that, as with any active strategy, a good portion of ideas will not work out, but the aim is to have enough winners to drive long-term outperformance.

In terms of sector stance, Baker says he and fellow managers focus on bottom-up stock selection rather than aggressive top-down bets. Still, they see potential in healthcare equities that have underperformed in recent years, suggesting a likely recovery for firms with solid fundamentals.

When asked which country currently offers the best value, Baker highlights Japan. He points to corporate reforms lifting profitability and shareholder returns, an improving macro picture as inflation retreats, and a weaker yen that can boost repatriated profits back to investors’ home markets.

On the AI bubble question, Baker concedes the signs are nuanced. While part of the rally is justified by AI’s productivity potential and the earnings power of some large, profitable AI beneficiaries, he cautions that many AI-exposed startups lack strong fundamentals. He distinguishes between established beneficiaries with robust profitability and newer, hype-driven names whose valuations may be unsustainably high. “There may well be a bubble in the valuations of some AI-related stock prices, but there isn’t enough evidence to say it is about to burst,” he says, underscoring the difficulty of timing any adjustment.

Despite high valuations in parts of the US market, Baker sees continued opportunities there but stresses diversification. He argues that investors should not simply chase the US because it has led over the past decade; instead, they should balance exposure across regions. On the flip side, he warns against a blanket move away from the US, noting that passive indices have benefited from the dominance of mega-cap names but that a shift toward more selective, active stock picking could become advantageous over time.

Baker also addresses the question of passive investing. He acknowledges its merits but argues that the extraordinary recent performance of mega-cap stocks may render a purely passive approach riskier than usual. Active management has historically moved in extended cycles—periods of underperformance followed by later outperformance—and he believes markets may be entering a phase where active selection could again add value.

Why should an investor choose Alliance Witan over a passive index fund? Baker argues that the aim is to outperform over the long term, not to chase average market returns. If a broad-cap index might return around 8% per year over long horizons, he suggests a successful active approach could add 1–2 percentage points of annual value, compounding to meaningful differences for long-term savers. He notes Alliance Witan’s portfolio is less concentrated than many indices, which he describes as reducing risk relative to passive exposures while still pursuing long-run outperformance.

The question of whether gold belongs in every portfolio arises during the interview. Baker is cautious about adding gold during a price surge, but he concedes gold can provide meaningful diversification away from equities. On crypto, he says he has not invested personally, though he has been tempted by bitcoin as it becomes accessible through regulated vehicles like exchange-traded products for UK retail investors.

Looking back, Baker singles out Alphabet as his greatest investment to date. By contrast, his greatest investing mistake was not owning Nvidia overweight during its rapid rise, a reflection of the difficulty in calling the momentum and the importance of positioning for structural shifts in AI-enabled growth.

Beyond individual positions, Baker cautions against the belief that any asset class is permanently safe. Since the financial crisis and the long period of low rates, virtually all major asset classes—stocks, bonds, property, gold and commodities—have appreciated, and he warns against complacency about safety as a blanket description.

For investors seeking income, Baker cautions against loading a single company with £100,000. Diversification across a range of names via an investment trust or a fund remains a more prudent approach, in his view.

As the market landscape evolves, Alliance Witan's strategy centers on disciplined stock picking, a willingness to tilt toward long-term value opportunities, and a readiness to adapt as macro and policy shifts unfold. The fund aims to deliver inflation-beating returns through a diversified global equity approach, leveraging active management to navigate periods of dispersion between winners and laggards. In Baker’s words, the path to durable, compounding growth lies in patience, rigorous evaluation of fundamentals, and careful attention to valuation amid a dynamic, AI-influenced market backdrop.