Opportunities to invest in technological change in the UK

Over recent years, we have talked a lot about share buybacks and their role in boosting the attractions of the UK stockmarket. But we also want to stress that the UK market has much more to offer – in other words, there is Life Beyond Buybacks.

We spend the vast majority of our time investigating and understanding change in industries and arguably no factor has been more of a catalyst for change than technological innovation. But where a decade ago we were concerned by the competitive challenges for UK plc, now we are intrigued by the possibilities.

Simply put, companies have had to face up to the threat of disruption, invest in their digital core and turn technological change from a threat to an opportunity – or be disrupted.

In particular, we would like to highlight an emerging cohort of UK-listed businesses that are leveraging technology to create enhanced value from their data and IP. We hold a number of these companies as we regard them as a valuable source of wealth creation.

Using data to create barriers to entry

We have been less interested in providers of technology as a tool – given the low barriers to entry – and are much more engaged in the search for companies that can leverage common technology to transform the value they are offering their customers while also augmenting their own competitive advantages.

Our view is that companies with specialist datasets are well-placed to use developments in AI and The Cloud to enhance their customer-value proposition in a manner that is unique to them. At the core of this, is ownership of one-of-a-kind proprietary data on which to train models. We view these as ‘tech-like’ companies. Among our holdings, they include companies such as RelX, LSEG, Pearson, Sage, Informa and Tesco.

All these companies are using ever-cheaper, ever-more-powerful technology, including Gen-AI, to offer enhanced customer value while also deploying it to lower their own costs, which is supportive of enduring and enhanced profits. The strength of their brands, customer relationships, domain expertise and their data mean that they can retain high barriers to entry, no matter what sector they are in.

At the heart of any successful digital growth story sits a high-performing digital core – organised data and technology platforms that can scale analytics to produce insight. Hoping to transform through AI without this is akin to buying a flat screen TV for a rundown cottage with no electricity connection; you’ll be left staring at an expensive blank screen. While there is a range in quality of architecture, we know from one-on-one discussions going back many years that in each of these cases there has been awareness of the need to commit capital to support the digital core.

While for years investors have been looking to the US for technology investments, they were hiding in plain sight in the UK, across a range of sectors and at more attractive valuations. For example:

RELX

We have owned shares in RELX for over twelve years and have learned a huge amount from witnessing their digital transformation at first hand, providing us with patterns to seek out in other companies. RELX is much more ‘discovered’ than when we first invested, but each time we meet with management we are still struck by the range of future growth options available to them.

The opportunity set has been created by an underappreciated performance culture. RELX is one of the few companies we can see – and we have looked hard – that is deploying Gen-AI at scale to transform the customer value proposition in the here and now.

‘AI won’t disrupt lawyers, but it will disrupt lawyers who don’t use AI’ has been a mantra of CEO Erik Engstrom in our meetings for many, many years. RELX's legal division has seen growth increase from 2% five years ago to 7% over the past year, led by Gen-AI products that are embedded in lawyers’ workflows¹.

We are also optimistic – for the world, as well as shareholders – on the potential for scientific research and discovery from harnessing AI and this bodes well for RELX's Scientific, Technical & Medical division.

Pearson

We believe learning-specialist Pearson is another of a relatively small group of companies where AI is a clear and demonstrable opportunity to enhance user experience and create a significantly expanded revenue stream. In a digitised world, trusted accreditation looks set to become increasingly important. 'Credly', Pearson’s digital credential platform, issued its 100 millionth unique ‘badge’ in early 2025². In addition, Pearson is offering personal tutoring through Gen-AI, a paradigm shift in the way we learn.

We expect to see Pearson’s revenue growth continue to improve, with the low marginal cost of digital revenue leading to high incremental return on capital and high and improved cash conversion. We believe we are observing several common patterns between Pearson today and the early stages of some of our successful investments in digital transformations like RELX, LSEG and Wolters Kluwer, though there is a long road yet to travel.

Tesco

Finally, let’s talk about Tesco. A familiar name to all. As the supermarket with the largest market share in the UK, we see it as the holder of one of the best data sets anywhere. Tesco Clubcard has been operating for 30 years and holds a unique and valuable set of data. The company has also been investing in improving its digital core in a way that is differentiated relative to its immediate peer group and while Tesco will remain resolutely focused more on ‘bites’ than ‘bytes’, the business has potential to create value for stakeholders over time through the application of technology to its unique data.

New growth drivers but the same investment process

Over 25% of the Artemis Income Fund is invested in these ‘tech-like’ companies³. Please do not take this to mean that we are changing the way we invest. We are not and our mantra is still resolute: ‘free cashflow first, dividend second’. This is about competitive advantage, profitability and durability of growth – the same process that we have always worked to. We are not investing in entirely new business models. These are companies we have followed for years which we think are modernising in a way that is underappreciated, in an already underappreciated market.