During the month, the European equity market continued its momentum (+3.9%), while the US indices denominated in Euro once again lagged behind: the S&P 500 in Euro ended the month at -0.4% and the Nasdaq at -2.9%.
The market in February was marked by two distinct events: the accelerated decline of companies potentially ‘disrupted’ by AI and the sudden outbreak of war in Iran.
Let’s start with the fundamentals: the release by the AI company Anthropic of its “cowork” module, along with other secondary modules, including one specifically for legal assistance, aimed at facilitating the use of AI by knowledge workers, triggered a very strong market reaction. Many stocks potentially considered at risk, such as Publicis or Relx, suddenly dropped sharply. The market reasons that the new AI tools will, if not replace knowledge service providers, at least enable their clients to negotiate significant price reductions on these services. Indeed, if AI becomes an option for insourcing any software or intellectual service, their “pricing power”, which has so strongly underpinned the exceptional stock market performance of the so-called “quality-growth” companies in these sectors between the end of the great financial crisis of 2008 and the year 2025, risks simply evaporating.
The debate is raging in the market: will these threatened companies be able to respond and leverage generative AI by incorporating it into their offerings to further boost productivity and thus the added value of their services? Or, like dinosaurs, are they at risk of disappearing while new “AI native” players rise?
We have indeed heard that it is much more difficult to adapt existing platforms to AI than to start from scratch. If this is the case, entire sectors of the market, particularly software companies known as “SaaS” for Software-as-a-Service, risk suffering the fate of industries like tobacco, paper, or print media in the past: a slow and inevitable decline while waiting to be replaced by entirely new players. In any case, we have decided to exit all positions that seemed potentially threatened until things become clearer. Market operators have already given a nickname to this wave: the “HALO trade” for Heavy Asset, Low Obsolescence.
Then, the month ended with the sudden outbreak of the air bombardment war in Iran. It is too early to assess the situation and see where this will lead the world. However, it is clear that Iran may try to respond by attempting to close the Strait of Hormuz, cutting off 20% of the global LNG supply and 5 to 10% of the oil supply. Such an energy shock could then cause a significant slowdown in global growth. Bombardments of Gulf countries’ airports could also harm the tertiary economies of these countries. However, the flames could die down as quickly as they flared up, and we will have to wait to learn more. At the time of writing, we have not taken any major protective actions on our portfolios.
The Clartan funds delivered respectable performances in February. Valeurs rose by +3.9% while Europe gained +2.9% and Ethos +3.0%. Patrimoine also increased by +1.2%, Flexible by +3.4%, and Multimanagers by +1.5%.
