ClearBridge's value playbook as AI fear resets prices
Reece Birtles, head of Australian equities at ClearBridge Investments, is leaning on decades of market cycles to handle today's tension. Investor anxiety about AI replicating software services has pushed fear to levels he last saw during the GFC and COVID selloffs.
That stress is throwing up discounts. Birtles argues the latest drawdown has left durable, cash-backed businesses trading below intrinsic value, even as headlines fixate on software risk.
Where ClearBridge sees mispricing
ClearBridge is finding value in names that have long been seen as "safe," now marked down. Two examples in the portfolio: CSL and Aurizon - both trading at what Birtles views as substantial discounts to history and fundamentals.
ClearBridge initiated a new position in CSL after a sharp price reset. Despite near-term issues, Birtles is constructive on CSL's U.S. plasma business, citing few credible competitors and long build times for new collection capacity - a moat you can't spin up with code.
Positioning and performance
The firm's main value strategy, the ClearBridge Select Opportunities Fund, has outperformed the S&P/ASX 200 Accumulation Index over the past year. The spread came from avoiding high-risk names and leaning into discounted, cash-generating operators - a setup that rhymes more with the tech bubble era than a typical downturn.
Why "boring" assets may win from AI
Birtles is prioritising businesses with physical operations, regulated frameworks, and real unit economics - areas less exposed to AI copy-paste risk. Software companies with uncertain moats get a lower ranking in this playbook.
In his view, AI's biggest upside will accrue to established operators via efficiency gains, not just to pure-software names. Australia's slow growth, resilience, and heavy asset base - often framed as a drag - could become advantages as automation squeezes costs and stabilises margins.
CSL and Aurizon: the thesis in practice
For CSL, the long lead time to add plasma capacity and a limited competitor set support pricing power through the cycle. For Aurizon, essential rail freight infrastructure and contracted cash flows can buffer volatility while operational improvements compound.
The review loop that sharpens edge
Birtles keeps a running audit of past decisions - what worked, what didn't, and why. Two focal points: accounting risk (quality of earnings, cash conversion) and capital deployment (are managers compounding or diluting value?).
That feedback loop feeds position sizing and entry discipline, especially when fear is doing the price discovery.
Practical checklist for finance teams
- Screen for real-asset operators with barriers that take years - not quarters - to replicate.
- Map AI exposure: will AI replace the product, or improve margins? Separate hype from unit economics.
- Audit accounting quality: cash flow vs. earnings, working capital drifts, and capitalised costs.
- Prioritise businesses with pricing power, regulated frameworks, or contracted revenue.
- Use forced selling to build positions in out-of-favour names; let narrative reset, not your thesis.
Bottom line: fear around AI is mispricing select incumbents. ClearBridge is leaning into discounted, asset-heavy, cash-centric businesses and letting compounding do the heavy lifting.
If you're evaluating AI's impact on portfolios, workflows, and risk models, explore AI for Finance for practical approaches that complement this thesis.
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