The businesses people expect AI to hurt most may end up gaining the most from it. Our portfolio is positioned for precisely that outcome.
James Mackreides, Portfolio Manager
Positioned for Growth
What gives me the right to make that claim? Part of Finsbury Growth & Income Trust's strong record during the first 20 years of the 21st century came from investments in IRN BRU (AG Barr) and Dove soap (Unilever). Both remain profitable brands with healthy growth. Measured by total return in sterling, Unilever has outperformed NASDAQ since the beginning of the 21st century. Companies with durable brands and dependable growth should not be written off simply because technology is disrupting parts of the market. We have also held major positions in data, platform and software companies for decades. In 2023, we kept our investments in leading businesses such as RELX, London Stock Exchange Group (LSEG), Experian and Sage, while adding to those holdings and opening new positions in Rightmove, Autotrader and Clarksons. The final company is the world's leading shipbroker, with decades of maritime data that could prove especially valuable in the AI era - though that asset remains widely overlooked. Every share price listed above has fallen under pressure since last summer, despite continued growth at most of the businesses, in some cases at a faster pace. The declines appear to reflect shrinking valuation multiples: investors are betting that AI will eventually cut out the middlemen on which these companies rely. In our view, that broad sell-off in data and software stocks underestimates what AI could make possible.
Proprietary Data
Our view starts with a simple point: proprietary data has strategic value. David Schwimmer, CEO of LSEG, breaks the AI boom into three linked parts - "compute," meaning the processing power required to run models; large language models (LLMs); and data. Investors have focused mostly on the first two. Data, though, may be harder to copy. Companies that control genuinely proprietary information can build on the billions spent on computing power and model development, then use their own data to produce insights with greater value. LSEG has recently signed partnerships with Anthropic and OpenAI. Schwimmer makes the distinction clearly: "people could look up stuff on the internet before ChatGPT, but that didn't disintermediate LSEG's data business." Experian, the world's biggest credit bureau, fits the same pattern. Its information is confidential, private and tightly regulated, so LLMs cannot simply access it through the public internet. Consider Rightmove's recently announced conversational search tool, built with Gemini models. Why should ChatGPT take Rightmove's franchise when Rightmove controls all the listings, captures roughly 89% of the interaction with them, and produces 69 billion data signals each year?
Sage may look especially exposed to AI disruption, yet its internally developed AI tools are being adopted quickly as the company builds AI into its platform. Its millions of small and mid-sized business customers generate precisely the sort of transaction data that could become highly valuable in the AI era. If those companies are turning into AI-powered platform businesses, their market capitalisations appear far too low.
The Opportunity
The market's best-case view is that these businesses will withstand the AI threat, or that their shares will eventually return to the levels reached before disruption fears took hold. Company management sees something rather different: AI could greatly expand the scale of their businesses, and recent results have begun to support that view. Take LSEG, trading at about 96. The question is not simply whether its shares can recover the roughly 120 reached in mid-2025. It is whether the business can deliver on its exceptional growth prospects and move beyond that high. We believe the sell-off in UK-listed data owners may therefore offer a once-in-a-decade chance to buy exceptional growth assets at fundamentally misplaced prices.
Important Information
Frostrow Capital LLP issued this marketing communication. The firm is authorised and regulated by the Financial Conduct Authority. The author's views may change and do not constitute investment advice or a recommendation to buy or sell any investment. Past performance may not reliably indicate future results. Further information is available at www.finsburygt.com.
Frostrow
Leave a comment on: A Defence of Data and Domain Expertise