Hyperion Asset Management has significantly reduced its investments in software stocks following a challenging period. The $15 billion money manager, based in Brisbane, experienced notable underperformance in its funds as the technology sector faced a sell-off, driven by concerns that artificial intelligence could replicate software services. Hyperion, which manages investments across various sectors, aims to deliver long-term capital growth by investing in a concentrated portfolio of high-quality businesses. The firm prides itself on a research-driven approach to identify companies with sustainable competitive advantages.
The sell-off impacted Hyperion’s returns, with its Small Growth Companies Fund, Australian Growth Companies Fund, and Global Growth Fund all lagging their respective benchmarks over the past year. In response, Hyperion halved its exposure to traditional software companies in some funds. According to Investment Director Jolon Knight, this move comes amid increased uncertainty in long-term forecasts. The firm reduced its stake in WiseTech Global and Xero within its Australian growth fund, and significantly cut its software exposure in its global fund, reducing holdings in companies like Intuit and ServiceNow.
Hyperion’s decision was influenced by the release of AI tools like Anthropic’s Claude, which performs legal work, prompting a broader reassessment of tech investments. Knight emphasised the need for companies to rapidly innovate and adopt AI to defend against large language models. Hyperion will now focus on software companies with mission-critical systems, a lack of credible competitors, and proprietary data. They have started rotating into more defensive sectors such as healthcare and industrials, adding companies like ALS to their Australian portfolios.
Despite the portfolio changes, Hyperion maintains that its investment process remains unchanged. Knight noted that the price-to-earnings ratios of its holdings have decreased, creating more attractive entry points. BlackRock also commented on the software sell-off, noting it marked a shift in the AI narrative. They said while some software businesses would be able to leverage disruption from AI, clients needed to be selective.
