A software sell-off

Chris Wyllie, our Chief Investment Officer was interviewed recently by Julian Bovill at Citywire. Chris was asked for his thoughts on this year’s ‘software sell-off’  and what it may mean for markets.

The article appeared in Citywire on 9.2.26.

The chief investment officer (CIO) of Connor Broadley has said last week’s tech sell-off showed a ‘shift in narrative’ with ‘cracks’ appearing at software companies with sky high valuations. Chris Wyllie, who runs the investment proposition of the London advice firm with £750m of assets under advice, said he believes we are now in ‘the latter stages of this cycle’ and that the market is changing from the previous AI-fuelled optimism.

‘The new phenomenon with the software stocks is the thing with polarity,’ he said. ‘Software stocks were considered AI winners because you were going to get productivity gains through the implementation of AI.

‘But that has now switched entirely, where the thought became that they [the software firms] were going to get disintermediated entirely by the likes of Claude and Anthropic and suddenly there has been that shift in the narrative.’

Last week saw big falls for software-as-a-service (SAAS) and data analytics companies, driven by the launch of AI company Anthropic’s service Claude which could do legal tasks.

‘This is the problem with high valuations. You can live with them for a while, but as soon as cracks begin to appear in the story, very quickly it manifests,’ Wyllie said.

At Connor Broadley the firm uses a four-metric traffic light system which underpins its investment approach.

Under its ‘growth’ metric, which looks at the global economy, it currently is at ‘green’, which means ‘buy’. But on its sentiment outlook, this was downgraded from amber-red to red in January.

‘Our traffic light is green for growth as fears over a lack of global growth have been assuaged, but this is in keeping with complacency and when no more growth is reached markets tend to top out,’ he said.

‘At the moment we think this is still a healthy market, actually globally it is a very broad, healthy bull market. There is very high participation across markets,’ he said.

‘But we are also aware that markets peak with high correlation, and with high correlation it suggests that everything is beginning to fall into place. We are not calling the top of the market, but we are aware that we are in the later stages of this cycle.’