Can we still call ourselves contrarians if we buy into “mainstream” trends like the stunning growth of AI? Of course we can.
Today we’re going to do just that. But of course we’re not picking up obvious names like NVIDIA (NVDA). Instead we’re looking to an 8%-paying fund I see having even more upside than the “go-to” AI stocks everyone else is buying.
For Profitable Contrarian Investing, Think “Oblique,” Not “Direct”
The technique we’re going to use here is a very underappreciated concept called “oblique investing.”
Sounds a bit dry, I know, but it’s anything but. The idea here is, roughly speaking, to invest in big forces driving the market and shifting the economy over the foreseeable future.
Obvious, right? There’s more here, though, because, of course, doing this directly by investing in the trend itself means you’ll likely overpay, since the market has already picked up on it.
So instead, we’re going to look to stocks (and funds!) that are well-positioned to ride the trend higher but aren’t the obvious names in their sectors.
NVIDIA Was a Prime “Oblique” Investment in the Last Decade …
It’s best to look at this through an example: In the mid-2010s, technology’s rise to dominance over other sectors was a clear trend. So anyone who bought the “big three” semiconductor stocks—NVIDIA, Advanced Micro Devices (AMD) and Intel (INTC)—would have easily beaten the S&P 500 on average.
As we can see, big gains from AMD (in blue) and NVIDIA (in purple) more than offset losses on Intel (in green).
However, back then, buying NVIDIA, which was best known for making graphics cards for gamers, seemed like a losing move compared to Intel, which made the CPUs in almost every computer. Even Apple (AAPL) had switched to Intel processors.
In other words, the “obvious” investment in the future did not play out, while the closely related, but not directly plausible—or “oblique,” if you will—story did play out.
… But It’s Anything But Today
Fast-forward to today and we’re looking at another trend in the process of rewriting tech—and many aspects of society as a whole: AI.
Here too, NVIDIA is the major player, with its chips powering the AI trend, much like Intel’s chips powered the rise of tech more generally in the 2010s.
Thanks first to its gains from powering the tech sector and then to its AI dominance, NVIDIA has grown to become the second-largest stock in the S&P 500. The numbers are staggering: Over the last 10 years, NVIDIA went from being 0.063% of the S&P 500 to 5.8% now.
And as I write this, following the tariff selloff, investors are starting to turn back to the story of US economic growth driven by, you guessed it, technology such as AI.
And so NVIDIA is starting to recover, but its ceiling is much lower than it was in the past. It’s already risen some 25,000%+ in the last 10 years, and another 25,000%+ gain over the next decade is simply not in the cards.
Where does that leave us? Obviously, we want to invest in AI’s ongoing growth, but we don’t want to get into a crowded trade.
Enter AIO: A Top “Oblique” AI Dividend Pick
That brings me to a closed-end fund (CEF) called the Virtus Artificial Intelligence & Technology Opportunities Fund (AIO), which we once held in my CEF Insider service. CEFs are, of course, wildly underappreciated, so to say AIO is “oblique” compared to NVIDIA might be the king of understatements!
Nonetheless, this 8%-yielding fund (more on the payout in a moment) does hold NVIDIA, so we get some exposure to the company’s ongoing growth (which will continue, even if it doesn’t hit those 25,000% gains of the past). We’re getting the other “usual suspects” in AI, too, including Meta Platforms (META).
But the real key to AIO’s “oblique” appeal is that it also holds firms that benefit by using AI in their day-to-day businesses, like drug maker Eli Lilly & Co. (LLY), insurer Progressive Corp. (PGR) and heavy-equipment maker Deere & Co. (DE). Firms like these are key to profitable AI investing because it’s likely to be the users of this tech—not the providers—that reap the biggest profits from it.
While it’s best known for its chatbot, AI leader OpenAI also has many enterprise clients, including John Deere.
In short, Deere uses AI to make its products more efficient, such as its herbicide spray, which uses fewer chemicals than competitors’ offerings. That results in healthier, cheaper products, said Justin Rose, Deere’s president of lifecycle solutions, supply management and customer success, in his recent conversation with OpenAI. (If you’re into farming, the entire interview is worth reading.)
Of course, these are far from obvious cases of AI integration, so they’re not priced into stocks like Deere yet, and that is exactly why AIO is holding them. Same goes for Progressive using AI to lower its marketing costs and Eli Lilly using AI to discover new drugs. AIO is collecting these “hidden” AI plays for investors to hold for the long haul.
Finally, there’s that 8% dividend, which has held steady since AIO’s launch. Investors have picked up a couple of nice special dividends, too.
This, by the way, is yet another benefit of “oblique” CEFs: high (and often monthly paid) dividends you have zero hope of getting from a mainstream tech name like NVIDIA.
Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Steady 8.6% Dividends.”
Disclosure: none
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