Fundie vs AI - round 2: who wins the income battle?

Yesterday, I shared an update on the results of the growth edition of Fundie vs AI: round 2. That wire is accessible below. 

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Fundie vs AI round 2: who wins the growth battle?

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Today, we're looking at the results of the income edition, featuring ClearBridge Investment's Reece Birtles vs ChatGPT. 

The parameters for the experiment, and the stock picks and the reasoning for them are outlined in the original wire below. 

Equities

Fundie vs AI - 10 ASX income generators

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The results

The AI portfolio

As can be seen from the table below, the AI-generated portfolio delivered the following;

• A total return of 25.13%
• A dividend yield of 6.91%

The human portfolio

As can be seen from the table below, Reece Birtles' human-generated portfolio delivered the following:

• A total return of 15.76% (vs. 25.13% for AI)
• A dividend yield of 14.63% (vs. 6.91% for AI)

A split decision (kind of)

Whilst the AI delivered a higher overall return, Birtles' portfolio delivered far superior income, which was the primary purpose of the exercise. So I'm giving this one to the humans. 

Furthermore, Birtles made a point at the start of the experiment that he and his team focus on stocks with franking credits, and the returns would have been even greater if they were taken into account.

The aftermath

I asked ChatGPT, the AI that picked the stocks a year ago, whether it would make the same choices given the current market environment. Here is the prompt we fed into it and the results it generated.

Prompt:

A year ago, I asked you to list five ASX income stocks you would hold for 12 months. These were your picks:

• APA Group (ASX: APA)
• Aurizon Holdings (ASX: AZJ)
• Commonwealth Bank (ASX: CBA)
• Coles Group (ASX: COL)
• Deterra (ASX: DRR)

Given the market changes, would you still hold these same stocks? Let me know if you've chosen to remove any, and which ASX stocks you would pick instead.

Reply:

A year ago, the portfolio was built for an environment where investors were still seeking defensive yield while interest rates remained elevated. Today, the backdrop has shifted. The market is increasingly rewarding businesses that can both pay income and grow that income, while some of the highest-yielding names are facing more structural challenges.

Keep: 

• Commonwealth Bank (ASX: CBA): Expensive, but still Australia's premier income stock. The dividend is exceptionally reliable and capital strength remains outstanding.
• Coles Group (ASX: COL): Defensive earnings, consistent dividend growth and strong cash generation. A high-quality compounder rather than a high yielder.
• APA Group (ASX: APA): Regulated cash flows remain attractive, although higher financing costs and modest growth mean it's no longer a standout.

Replace: 

• Aurizon Holdings (ASX: AZJ): Coal exposure, limited growth and increasing regulatory uncertainty make me less enthusiastic than I was 12 months ago.
• Deterra (ASX: DRR): Excellent business model, but too reliant on iron ore royalties for what I want from a diversified income portfolio.

The replacements

Telstra Group (ASX: TLS)

Telstra has quietly become one of Australia's best dividend stories. Its dividend is now backed by stronger free cash flow than at any point in the past decade, mobile pricing remains rational, and the company has genuine long-term growth drivers through increasing data usage and digital infrastructure. Rather than simply paying a high dividend, Telstra is becoming a growing dividend business.