UK Asset Managers Seize Opportunities in Software Stock Sell-Off
Two of Britain's largest asset management firms have significantly bolstered their positions in software companies that have recently faced severe market pressure. This strategic move represents a calculated bet that financial markets are overestimating the disruptive impact of artificial intelligence on these businesses' fundamental models.
Strategic Investments in Undervalued Giants
Aberdeen and Rathbones have both increased their holdings in major data and analytics corporations including Relx, Adobe, and Experian. These investment decisions come as the firms' valuations have experienced dramatic declines, which portfolio managers attribute largely to indiscriminate "basket trading" practices that fail to consider individual companies' economic fundamentals.
Jamie Mills O'Brien, technology equities portfolio manager at Aberdeen, explained the rationale behind these moves to City AM. "We're taking a view that there are areas of the software sector that are far less likely to be disrupted than others," he stated. "In the way the market has priced these companies, we believe there are significant opportunities. When you have a system of record being valued similarly to consumer-facing software businesses, purchasing the one with lower disruption risk represents an intelligent trading strategy."
The AI Rotation Trade Reshapes Valuations
The recent market turbulence follows artificial intelligence juggernaut Anthropic's release of a highly advanced upgrade to its Claude chatbot. This development accelerated an ongoing reevaluation of business models across white-collar industries, creating what market analysts now term the 'AI rotation trade.'
London-listed data firms including Relx, Sage, and Experian have experienced particularly substantial declines in market capitalization. Since the beginning of the year, shares in legal and medical analytics provider Relx have fallen approximately 38 percent, while consumer credit firm Experian's stock has declined more than 20 percent.
Alan Dobbie, manager of the Rathbone Income Fund, utilized this market correction to expand his position in Relx and establish a new holding in Experian. Both companies now trade at valuations relative to earnings that are roughly half their peaks from mid-last year.
"We believe the market's concerns are misplaced for these specific stocks," Dobbie told City AM. "Neither of these companies are fundamentally software companies in the traditional sense—they are trusted, verifiable content providers. That essential characteristic hasn't changed, and it represents their significant economic moat, with much of their information being proprietary."
Wealth Management Sector Also Affected
The software sell-off has extended beyond traditional technology companies to impact wealth managers and financial services providers. Rapid advances in AI products' coding capabilities and the emergence of so-called AI agents that can recommend complex products and services have led this rotation to affect price comparison websites and wealth management firms.
Shares in St James's Place have plunged 19 percent since the beginning of the month as investors speculate that fewer households will rely on wealth managers' advice for savings management. Meanwhile, price comparison giant Moneysupermarket has become a casualty of speculation that customers will increasingly use AI to compare and purchase insurance deals.
Proprietary Data as Competitive Advantage
Dobbie emphasized that Relx and Experian's extensive banks of proprietary software data should help insulate them from the disruption that other companies may face from continued artificial intelligence advancements.
In a closely-watched trading update last week, Relx chief executive Erik Engstrom argued that AI evolution would "remain a key driver of customer value and growth" at the business for "many years to come." The company reported revenue that was seven percent higher year-on-year, with operating profit increasing by nine percent. Relx also raised its dividend by seven percent.
O'Brien added further context to the market movements: "I believe much of the significant volatility we've witnessed stems from retail investors, pod shops—a specific type of hedge fund—and basket trading, which explains why the price movements have been so outsized. I think there are substantial opportunities now in the hardest-hit segments of the market."
