London Stock Exchange Group’s (LSEG) evolution from a traditional exchange business to a higher-quality information services company has hit the skids in 2025, due to concerns that its products are vulnerable to artificial intelligence (AI).

Investors are worried that the recurring revenues from the group’s workflows and data and feeds businesses – which together account for about 45 per cent of the total – could disintegrate if automation, disintermediation and a flurry of new AI-powered competitors deprive the company of market share and pricing power. The shares have derated by about 18 per cent this year as a result.

But some analysts feel that additional disclosure from the company at its recent third-quarter (Q3) trading statement and an investor day this week could allay fears and shore up the investment case for one of the UK’s most exciting businesses. So, are the fears that have driven down the share price justified?

Data educators

The first area of concern is LSEG’s data and feeds unit, much of which originates from the Refinitiv business it acquired for $27bn (then £22bn) in 2021. This arm provides market data, analytics and news to financial professionals, and accounts for just over a fifth of revenues. LSEG is the market leader here, says Citi analyst Andrew Lowe, with a 16 per cent market share, ahead of the likes of Bloomberg and S&P (US:SPGI). The risk is that AI-enabled technology widely commoditises the most valuable component of this business, the data, depriving the company of its moat and disintermediating it.

The nature of the data should provide some reassurance. Publicly available products – the type that AI products can most easily access and utilise – account for just 10 per cent of data and feeds revenues (and 2 per cent of the wider group), according to a recent company disclosure. The remainder is proprietary to LSEG. Think M&A league tables, Reuters news updates, ESG ratings, and, most importantly, live pricing for bonds and shares. It also includes historical pricing and order book data that goes as far back as 1996, more than a decade beyond Bloomberg, whose data only goes back to 2008.

Such data is often deeply embedded in financial institutions’ infrastructure, argues Lowe, making it difficult to switch providers and reducing price sensitivity.

“A couple of years ago, one of our competitors was basically giving their real-time product away for free for two years or so. We did see a couple of cancellations associated with that . . . then those customers came back,” chief executive David Schwimmer said on LSEG’s half-year earnings call in July.

The company also told analysts this week that usage of its historical pricing data has doubled in the past year, suggesting increased demand from the likes of large language models (LLMs).

Data quality is also important. LLMs want to be trained on the ‘cleanest’ possible data to ensure high-quality output and avoid what Schwimmer described on the company’s Q3 call as “garbage in, garbage out”.

“We have the highest-quality and broadest dataset that allows us to do the necessary training. It is scrubbed data,” he said.

But what if LLM providers gain access to this data – by fair means or foul – train themselves accordingly, and launch products to rival LSEG’s without compensating the company accordingly? LSEG already has partnerships with Microsoft, Databricks, Rogo and, as of 27 October, Anthropic.

Schwimmer doesn’t believe this will happen. “We can control and monitor the access to our data,” he said. “We’re not at risk of a customer downloading all of our data, training their models on our data and then not needing us anymore.” So while the risk of data leakage cannot entirely be eliminated, this should provide some reassurance.

The recent venture with Anthropic exemplifies this. Under the terms of the agreement, users of Anthropic’s LLM, Claude, will be able to access LSEG’s data and use it to automate financial analysis. However, those users must hold the necessary LSEG licences to do so. This should prevent the company losing revenues, and may even prove a growth opportunity.

Ebbing workflows

While the data and feeds business provides the raw information for finance professionals to use, the workflows business provides the interfaces and applications through which those professionals interact with that information, whether for research, financial modelling or reading the news.

Workspace, LSEG’s terminal product, is the workflows business’s flagship offering. It has about 350,000 users, the company recently disclosed, and, estimates Lowe, a market share of just under 10 per cent of a $27bn (£20.5bn) total addressable market. (Bloomberg is, unsurprisingly, the market leader, with an estimated share of 36 per cent.)

The risk is that the finance professionals switch to cheaper AI-enabled interfaces such as AlphaSense. Realistically, the bankers, wealth managers and asset managers who account for 30 per cent of workflows’ revenues (and 7 per cent of group revenues) could do so.

But that leaves trading, which accounts for the remaining 70 per cent of workflows’ revenues. This includes both brokers using Workspace to make trades and the underlying plumbing through which trades are routed and executed. While Bloomberg is the market leader for trading equities, LSEG is thought to dominate fixed income.

Trading customers should be stickier than, say, wealth managers, as their needs are more complex, not least their requirement for live pricing. These demands should also make them higher-revenue and higher-margin customers, although company disclosure is limited.

As trading becomes increasingly automated, there is a risk that the number of trading customers decreases. But automated trading systems also rely on LSEG’s data and feeds, so this business should in turn benefit.

Lowe estimates that the more AI-vulnerable portion of workflows revenues accounts for less than 5 per cent of group earnings before interest, tax, depreciation and amortisation (Ebitda). So even in a worst-case scenario where these revenues go to nil, the bottom-line impact is unwelcome but not catastrophic. Analyst expectations are already somewhat subdued for the workflows business, which they expect to increase revenues at 4-5 per cent in future – a slower rate than the wider group’s 6-7 per cent.

Still set for growth

Shares in electronic bond trading platform Tradeweb (US:TW), in which LSEG owns a $13bn, 51 per cent stake, have fallen by a quarter since August, as monthly volumes data has increasingly pointed to slowing revenue growth.

While Tradeweb’s sales are unlikely to grow at 2024’s phenomenal 30 per cent rate going forward, analysts still model double-digit growth. The company benefits from the structural shift to electronic trading.

LSEG’s shares trade at 20 times analysts’ 2026 earnings estimates. Analysts expect the company to continue growing earnings per share at an 11-12 per cent annual rate, broadly in line with 2024 and 2025 levels. An improving Ebitda margin helps offset a slight slowdown in revenue growth.

This valuation screens as relatively attractive. It trades at a slight discount to US exchange peers Nasdaq (US:NDAQ) and CME (US:CME) (but a slight premium to Intercontinental Exchange (US:ICE)), despite arguably having a more diversified revenue base. It trades at a more severe discount to information services peers MSCI (US:MSCI) and S&P. In this sector, only FactSet (US:FDS) trades at a material discount to LSEG, which is unsurprising given that its own platform is vulnerable to AI and it lacks LSEG’s data moats.

For income-minded investors, LSEG yields a 2 per cent dividend. This is unremarkable per se, but the company is also repurchasing large quantities of stock. It announced a £1bn buyback alongside its Q3 trading statement, to go with £1.5bn of shares repurchased earlier in 2025. Analysts are modelling £1.4bn-1.5bn of annual buybacks in 2026 and 2027, each equivalent to 3 per cent of market cap. The company’s shares may be jittery in the coming months, but as the market gets comfortable with its AI moat, in the medium term they are undoubtedly attractive.

The  Japanese market is on another hot streak. In October, the Nikkei 225 raced past the 50,000 mark for the first time, and in the year to date it is up 26 per cent in sterling terms.

Sentiment is buoyant after Sanae Takaichi became the country’s first female prime minister, elected on a pro-growth policy platform. Takaichi is expected to continue pushing ahead with corporate governance reforms. 

As we have discussed previously, there are a number of funds that could help you take advantage of the Japanese rally. However, for investors looking to make the most of the continued push for corporate governance reform, focusing on small and mid-cap companies is a sensible strategy.

AVI Japan Opportunity Trust (AJOT) is a standout option in this subsector and has enjoyed a long period of outperformance. 

A wealth of opportunities

Corporate governance reforms in Japan gathered momentum in the mid-2010s, following the introduction of a stewardship code in 2014 and a corporate governance code in 2015.

In the intervening years, larger companies have generally embraced these initiatives. However, this has not always been the case in the small-cap arena. “Small Japanese companies have been slower to respond, and this provides a fertile backdrop for activists such as AJOT. Many Japanese small caps still trade close to, or below, book value,” says Mick Gilligan, head of managed portfolio services at Killik & Co. 

AVI Japan Opportunity seeks out overcapitalised small-cap companies that have good margins and strong growth prospects. It then actively works with the management teams of these companies to improve their market valuation. As a closed-end fund, AVI Japan has the added benefit of being able to build up stakes in illiquid stocks that investors would be unlikely to access if they opted instead for an open-ended fund.

The trust is trading at a narrower discount than the average Japanese smaller companies fund, at -1.3 per cent compared to the -6.8 per cent average, according to the Association of Investment Companies. Investors benefit from its discount control mechanism whereby it has committed to buying back shares should its discount exceed 5 per cent. 

Notably, the trust has a fairly concentrated portfolio. Typically it has 15-25 core holdings. Currently, 21 holdings make up 86 per cent of the portfolio. Investors should be aware that this would mean if there were any big losers they would have a “noticeable negative impact on returns,” Gilligan says. However, AVI Japan Opportunity Trust’s managing director Nicola Takada Wood argues that this concentration allows the team to actively engage with their portfolio companies and deliver real change.

Constructive engagement

As an activist investor the trust adopts what it describes as a “constructive engagement strategy” with the companies it invests in. The team seeks out cheap companies, with lots of assets, where there is both scope and (crucially) a desire for outside engagement. 

“We often start by looking at operational performance,” Takada Wood says. “A lot of these companies do have underutilised balance sheets. We ask: ‘What are you going to be doing with all this cash, can you invest more in R&D rather than leaving it there to do nothing?’,” she says. 

However, the focus is not just on the operational elements of the company. Many of the AVI team have management consultancy backgrounds, and they spend considerable time researching the areas where they think a company might be struggling as well as identifying ways that improvements can be made. The team tries to speak to as many people as possible at the company, rather than just the investor relations team, and sometimes even reaches out to ex-employees to identify problem areas.

Takada Wood highlights that the team is also conscious of the fact that many smaller Japanese companies have never had a foreign shareholder. AVI Japan has, therefore, intentionally built their team around Japanese speakers – many of whom are Japanese nationals – to ensure there is no cultural barrier.

This tailored approach pays dividends, argues James Carthew, co-founder and head of investment companies research at QuotedData. “The AVI Japan team, rather than just saying, ‘we’ve got a stake in you’, look at their companies in a ‘bigger picture’ way. They look at all the different ways a company could be run more efficiently, and they go into massive detail and try to talk to the managers,” he says. 

The trust, which was launched in 2018, not long after the country’s governance reforms got under way, may have faced some resistance to this approach initially, Carthew says. However, with corporate culture rapidly evolving in Japan, AVI Japan’s hands-on philosophy can now create real impact. 

A recent example of this is the trust’s intervention into its portfolio company Wacom (JP:6727). The trust controls 13 per cent of the votes in the digital pen manufacturer and this May launched a public campaign with a list of suggested interventions. It also submitted a series of shareholder proposals to Wacom’s annual general meeting. These included proposals to appoint an independent director, to give shareholders the power to determine the dividend, and to use total shareholder return as a metric to determine director compensation, among other suggestions. 

Since then, Wacom’s share price has been moving in the right direction, and the company was one of the trust’s top two contributors in September (the share price rose by 12 per cent). 

Merger opportunity 

AVI Japan is set to merge with Fidelity Japan Trust (FJV) on 28 November, pending final shareholder approval. Earlier this month, AVI Japan shareholders voted in favour of the merger, as did Fidelity Japan Trust shareholders. Once the merger goes ahead, AVI Japan will be the continuing entity.

“We believe the enlarged AVI Japan [will] be well positioned to create lasting value for shareholders through greater scale, influence, and investment opportunity,” says Joe Bauernfreund, chief executive and chief information officer of Asset Value Investors. 

Numis analysts describe it as a “sensible transaction” that will create a trust “of scale”. Just over two thirds of shares in the Fidelity trust have been voted to roll over into AJOT rather than take a cash exit, equivalent to around £110mn of assets. “It is rare to see a cash exit opportunity materially undersubscribed. Clearly, FJV investors not only desired to maintain their Japan exposure, but decided that AJOT was the right vehicle,” says Winterflood’s Shavar Halberstadt.

The benefit of this is that it will allow the trust to take larger stakes in its portfolio companies, and in turn have more power to agitate for change in how companies are run.

An additional perk for investors is that the merger is expected to bring down the cost of the trust’s ongoing charge as the economies of scale should reduce its fixed costs.

Gilligan warns that we “may see some weakness in the discount post-merger” as Fidelity Japan shareholders will only be able to cash out 50 per cent of their holding. The concern here is that it could create a share overhang, even though most shareholders are staying put.

“However, from a net asset value performance perspective, the increase in size is not that dramatic,” Gilligan says. “It should not hamper the manager’s scope to deploy the additional capital,” he adds.

As the merger offers greater scope for AVI Japan to implement an already winning strategy, the possibility of some initial discomfort seems a small price to pay.