European Opportunities (EOT) manager Alexander Darwell has branded the growing fears around artificial intelligence (AI) ‘absurd’ as his fund sinks deeper into the red.

Interim results from the £404m portfolio have added to the underperformance that forced the board to launch a strategic review last week.

In the six months to end of November, the net asset value (NAV) total return – which includes the annual 2p dividend – edged 0.2% lower, with the shares up just 0.9% over the same period. Both figures were far behind the 10.1% return from the MSCI Europe index and the poor showing puts the trust on track to trigger a 25% tender offer later in the year.

It also faces a continuation vote in October, but hopes to explore other options in its strategic review including a merger with another trust with a cash exit option for shareholders. EOT has also received a proposal from River Global, which bought Darwall’s Devon Equity Management last year, to roll the trust into an open-ended fund.

Darwall noted that the six-month period had been ‘challenging’, and underperformance was driven by the ongoing ‘slump’ in the fortunes of Novo Nordisk and Edenred, an underweight to mainstream banks, as well as the ‘perceived negative impact of AI on our data-centric companies’.

This AI sell-off has been acutely felt by UK-listed analytics group Relx. It was the second largest detractor to returns in the six months, falling 23.8%, and since the end of the period to date has lost another 25% of its value.

‘Relx has suffered from the perception that it is a loser from AI,’ said Darwall.

‘The evidence is scant: in fact, the evidence points the other way, with Relx reporting a higher growth rate than formerly estimated, indicating that this higher rate is sustainable.’

He added that Relx’s use of AI ‘should help expand its service offering’, but did reduce his weighting to the company alongside credit rating group Experian.

The fallout from the AI sell-off has also scuppered Deutsche Borse, which was the fifth largest faller with a share price decline of 15.1%.

Darwall said it was ‘not easy to ascertain why’ Deutsche Borse had suffered.

‘The easy but absurd answer is AI,’ he said. ‘If there is a perception that the company will suffer from new entrants using AI to attack Deutsche Borse’s franchise, we think this is a misperception.’

He argued that the company’s success was built on ‘attracting big trading volumes’ on its exchanges, and software providers ‘cannot change that’.

‘Turmoil in financial markets tends to be good for Deutsche Borse and we expect some turmoil in due course, which will help the company,’ said Darwall.

Much of investor focus in 2025 was on the huge AI capital expenditure but in order to ‘fulfil the productivity promise of AI’, gains will have to broaden outside of a handful of stocks, according to Darwall.

The EOT portfolio of ‘special companies which compete and succeed on the world stage’ should ‘flourish’.

The ‘intellectual property intensive’ nature of the businesses means there are ‘specific, forecastable catalysts for profitable growth’.

‘As good investment returns broaden out into the wider market, we look forward with confidence and expect not only that our companies will thrive but that this is reflected in better share prices,’ said Darwall.