Perceived AI losers such as RELX, LSEG and Sage still have exciting upside, despite the “incoherent, but powerful concerns” that these businesses will be disrupted by technological advancement, according to Finsbury Growth and Income Portfolio manager Nick Train.
In February, the trust delivered a 3.1% total return on an NAV basis, but underperformed the FTSE All Share index, which rose 6.5%.
In the fund’s recent monthly factsheet, the manager pointed out that despite sell-offs earlier this year, all three companies posted encouraging recent results that showed “no evidence of disruption.”
LSEG and RELX have both bounced over the past month, rising by more than 14% and 17% respectively.
“For LSEG [and other important holdings in your trust] the situation is finely poised. If AI can disrupt LSEG’s business, there is a risk of further loss in value; the shares are still 26% below their 2025 peaks.
“But if [as we believe] the franchise is robust and AI turns out to be a tailwind for the company, then its high recurring revenue and high operating margin business model likely will prove attractive to and rewarding for investors,” Train said.
See also: Nick Train’s Finsbury trust troubles continue
However, “shareholders must be alert to the possibility we are wrong”, Train conceded. For example, unlike fellow AI losers LSEG and RELX, Sage did not bounce back in February. Despite revenue growth of 10% in Q1, the share price fell by roughly 14% in a single month, according to Train.
“We are told by the bears that businesses like Sage have no terminal value, because AI will replicate everything they do far more cheaply,” he said. “While we understand the proposition, the counter is that Sage is evidently integrating AI heavily into its own products and, in the process, turning itself into an AI platform.”
However, he argued that despite concern around these companies, they maintain some of the most predictable recurring and subscription revenue streams on the market, which is “particularly valuable in times of macroeconomic uncertainty”.
He also highlighted the deal between Schroders and Nuveen, which “came as a surprise to us”.
See also: Nuveen’s £10bn acquisition of Schroders is a ‘structural shift for the industry’
Nuveen is “not exactly a household name in the UK”, but it is understandable why the shareholders in Schroders may have found a cash offer that is “not too far below” the all-time high, attractive.
While Schroders has been under pressure in recent years, Train maintains investment in the company, believing that, as a prominent blue-chip wealth manager, the assets are still very attractive.
“Assets of the calibre of Schroders and Cazenove are not often in play,” he noted.
“Our position on the shares today is – we are interested to see what, if anything, happens next.”
He also drew attention to Unilever, which had risen by double digits in February. “Doubtless the rally in its shares had as much to do with investors seeking shelter from geopolitics and from AI disintermediation as with the actual results,” Train noted.
He added it made for a particularly appealing “anti-NASDAQ” play because it is relatively unimpeded by technology.
“After all, as I never tire of reminding investors, Unilever has actually outperformed NASDAQ so far in the 21st century on a total return basis, and delivered just over a 10% CAGR.”
