UK asset managers pile into cut-price software stocks after rout
Two of Britain’s largest asset managers have bolstered their positions in under-fire software companies in a bet that markets are overestimating the harm that artificial intelligence will have on their business model.
Aberdeen and Rathbones have both added to holdings data giants like Relx, Adobe and Experian, arguing that the firms’ cratering valuations are largely the result of crude “basket trading” that fails to take account of each firm’s economic fundamentals.
“We’re taking a view that there are areas of the software piece that are far less likely to be disrupted than others and, in the way the market has priced these things, we think there are opportunities,” Jamie Mills O’Brien, technology equities portfolio manager at Aberdeen, told Morning Wire. “If you’ve got a system of record that’s being priced in the same way as a consumer-facing software business is being priced, buying the one that is less likely to be disrupted seems like a good trade.”
Data and analyticis companies, wealth managers and audit firms have seen billions of pounds wiped off their valuations in recent weeks, after artificial intelligence juggernaut Anthropic released a highly advanced upgrade to its Claude chatbot. The model’s launch accelerated an already underway reevaluation of white-collar industries’ business models, in what has come to be called the ‘AI rotation trade’.
London-listed data firms like Relx, Sage and Experian have all suffered especially large drops in their market capitalisation. Since the start of the year, shares in legal and medical analytics provider Relx have fallen some 38 per cent since the start of the year, while consumer credit firm Experian’s have fallen more than a fifth.
But Alan Dobbie, manager of the Rathbone Income Fund, used the sell-off to add to his position in Relx and take out a new holding in Experian, both of whose valuations relative to earnings are now half those of peaks struck half-way through last year.
“We feel the market’s worries are misplaced for these specific stock,” he told Morning Wire. “Neither of these companies are really software companies – they are trusted, verifiable content providers.”
He added: “That hasn’t changed, and that is where their big economic moat is, with much of that information being proprietary to them.”
Software sell-off extends to wealth managers
Rapid advances in AI products’ ability to code and the dawn of so-called AI agents that will recommend complex products and services has led the rotation to extend to price comparison websites and wealth managers.
Shares in St James’s Place have plunged 19 per cent since the start of the month, as investors bet that fewer households would rely on the advice of wealth managers to manage their savings. Meanwhile price comparison giant Moneysupermarket has been a casualty of speculation that customers will use AI to compare and purchase insurance deals.
Dobbie added that Relx and Experian’s banks of proprietary software data should also help keep them immune from the disruption that other companies may face from continued advances in artificial intelligence.
And in a closely-watched trading update last week, Relx boss Erik Engstrom argued that the evolution of AI promised to “remain a key driver of customer value and growth” at the business for “many years to come”. The company posted revenue that was seven per cent higher year on year, while operating profit and increased by nine per cent. It also hiked its dividend by seven per cent.
O’brien added: I think a lot of the big movements we’ve seen are down to retail investors, pod shops [a type of hedge fund] and basket trading, which is why the moves are so outsized. I think there’s quite a lot of opportunities now in the hard hit parts of the market.”