A Defence of Data and Domain Expertise

Nick Train, Portfolio Manager

Positioned for Growth

What right do I have to make such an assertion? The strong track record of Finsbury Growth & Income Trust for the first 20 years of the 21st century was partly built on investments in IRN BRU (AG Barr) and Dove soap (Unilever). (Both are profitable brands and growing nicely. Unilever has outperformed NASDAQ on a total return basis in sterling since the start of the 21st century. Assets with durable brands and steady growth should never be dismissed, particularly during a period of tech disruption). We have substantial, long-standing holdings in data, platform and software businesses that we've owned for decades. Back in 2023, we chose not only to retain our holdings in world-class data and software companies like RELX, London Stock Exchange Group (LSEG), Experian and Sage, but to add to them and to initiate positions in Rightmove, Autotrader and Clarksons. The last of which is the world's number one shipbroker, whose decades of accumulated maritime data is a significant and underappreciated asset in the AI era. All of the share prices above have come under pressure since last summer, even though the majority have seen their growth continue and even accelerate. Share prices have instead been driven by the ratings of these businesses falling, as investors predict that their business models will ultimately be disintermediated by AI. This indiscriminate sell-off across data and software stocks reflects, we believe, a fundamental underestimation of the opportunities AI presents.

Proprietary Data

Our conviction rests on the strategic importance of proprietary data. David Schwimmer, CEO of LSEG, describes the AI phenomenon as made of three interconnected parts: “compute”, or the processing power needed to run the AI models; the large language models (LLMs); and the data. The first two have attracted the bulk of investor attention, but the third may prove the most defensible. Owners of truly proprietary data can piggyback off the billions being invested in compute and models to derive new, more valuable insights from their own data. LSEG has recently signed partnerships with Anthropic and OpenAI. As Schwimmer puts it: “people could look up stuff on the internet before ChatGPT, but that didn't disintermediate LSEG's data business.” The same applies to Experian, the world's biggest credit bureau. Its data is confidential, private and heavily regulated, simply not accessible to LLMs on the public internet. Or, consider Rightmove’s recently announced launch of its own conversational search tool using Gemini models. What gives ChatGPT the right to take away Rightmove's franchise when Rightmove has all the inventory, c.89% of the interaction with that inventory, and is generating 69 billion data signals a year? Sage is often perceived as most vulnerable to AI disruption, but it is seeing rapid adoption of in-house developed AI-tools, as it embeds AI directly into its platform. Their millions of small and mid-sized business customers generate daily exactly the kind of domain-specific transaction data that may prove highly valuable in the AI era. If they really are becoming AI-powered platform businesses, their market capitalisations are surely far too low.

The Opportunity

As the market sees it, the best-case scenario is that the businesses are able to weather the threat of AI, or that their share prices recover to the levels they were before AI disruption risk gripped markets. Yet when you talk to these companies, they see AI as a significant opportunity to increase the scale of their businesses which has so far been backed by recent results. That is why, looking at, say, LSEG at c.£96, we are not asking whether the shares can recover to their c.£120 highs of mid-2025. We are asking whether the business can deliver on its exceptional growth opportunity and push beyond those highs. To conclude, it is our contention that the sell-off in UK-listed data owners could offer a once-in-a-decade opportunity to access exceptional growth assets at fundamentally the wrong price.

Important Information

This is a marketing communication issued by Frostrow Capital LLP, who are authorised and regulated by the Financial Conduct Authority. The views expressed are those of the author and may change. This should not be taken as investment advice or a recommendation to buy or sell any investment. Past performance may not be a reliable guide to future performance. For further information, visit www.finsburygt.com.