The Evenlode Global Opportunities fund underperformed its benchmark, the MSCI World Index, as small caps, higher leverage, and cyclical companies outperformed the broader index in August. The greatest detractor to fund performance was its overweight to information services companies. These businesses had been assumed beneficiaries of the Artificial Intelligence (AI) boom, which contributed to their significant outperformance over the past year. However, in recent weeks, the market appears to have adopted a counter view; specifically, that AI may lower barriers to entry and increase disruption. Neither narrative underpins our bottom-up investment theses for the companies, which are consistent long-term compounders of capital, but we bear a responsibility to investigate any risks diligently.

One case study has been Wolters Kluwer’s UpToDate platform, a service that provides critical clinical decision support to physicians. Over the last year, we have seen the emergence of “AI-native” competitors, such as DynaMed, Micromedex, and OpenEvidence. We undertook several expert calls to investigate the potential impact on Wolters. We concluded that these products are more competitive with existing free products like Medspace, which similarly offer non-curated access to free resources like Pubmed. These products are more likely to be precursors than substitutes. Numerous studies indicate that clinicians have a large unmet need for point-of-care advice. Uptodate’s curated content will remain invaluable for the high complexity cases, and that it can continue to coexist with free solutions. In our opinion, the assumption that AI has upended longstanding barriers to entry around proprietary data and human curation in highly regulated industries is incorrect, and that instead AI will widen distribution of valuable data assets.

In August, the fund initiated a new position in Hasbro, the American toymaker. Hasbro was made famous by board games, such as Monopoly, Cluedo and Twister, but has recently pivoted towards fantasy games through their Wizards of the Coast segment. This provides 75% of group profits and includes the crown jewel of the portfolio, Magic: The Gathering (MTG). This is a card game based on the “Wizard’s duel” format, where players build unique decks using cards drawn from different packs and, to remain competitive, regularly purchase new packs. Physical cards are inexpensive to produce which gives the company the gross margin to invest in content and ‘lore’: MTG has delivered low double-digit revenue growth over the past 15 years with EBITDA margins above 45%. As Hasbro steps away from legacy toys and reallocates capital towards its most valuable intellectual property, it’s becoming a structurally higher-quality business, with increased returns on invested capital. It is a great example of a high-quality business in an underappreciated segment of the market.