Speaker 0:
Hello. Welcome to this asset TV mascots. They were gonna be looking at equity income in particular. We're gonna be looking at the underlying health of dividends. Are the UK compares to the global sphere on with the excitement around, eh? I reckon income investors really play this gold rush steam. Well, joining me here to talk about this, we have Sam with a row portfolio manager, JP. Morgan Asset Management. Douglas Scott, co portfolio manager. A gone global equity income fund on Richard Night. Portfolio manager aliens, Global investors.

Speaker 0:
Could you give us a bit of sense of how the JPM approach works? Because you invest across the years spectrums All right? Yeah, sure, Absolutely. So I run the JP Morgan Global Equity Income Fund on You're exactly right. We tackle the category by investing fully across the dividend yield spectrum all the way from stocks yielding 1% all the way up to those yielding 6 7%. Where the onus is mawr on on dividends, sustainability versus growth.

Speaker 0:
We put most of our capital, though in the kind of middle cohorts of dividend yield on dividend growth, thes sort of compound a type stocks that can really deliver outside risk adjusted returns through the cycle. On the outcome of that is, you get a relatively corps type style exposure. There's still a bit defensive. So typically, we're giving clients roughly sort of 100% market upside. So good market participation,

Speaker 0:
but protecting them in the tougher months with about 80% market downside. Capture Doug. Welcome to you. Give us a sense of the egg on quality income approach. How's that work? Would you say it's a quality income approach? We only hold stocks if they pay a dividend. We have a screening process to filter down six stages for based around dividend

Speaker 0:
one based around balance sheet, which is very key within all this on one based around returns. Balance sheets key. Because if you have a company that's over leveraged and falling returns, the chances are that dividend will not be sustainable and we try and focus animal but called sweet spot. So we're not looking to hold high dividend. You'll stops. We're not looking for value cos we're looking for companies that can pay and grow the day

Speaker 0:
if it ends on Yes, we look at com pounders, but we also look at things like hoarders. Companies have a lot of cash sitting and cannot that return. We buy back more equity overtime. Very concentrated portfolio. 45 stocks Relatively defensive Peter's Always lesson. One of the moments that 0.9 times. See concentrated, high active share on a good, solid long term track record

Speaker 0:
on Richard. Last but not least, welcome to you the value driven approach. How does that work

Speaker 1:
for you? Thanks for a lovely to be here. So I'm the co manager of the UK District, the income Fund Italians on the lead manager of the UK Opportunities Fund

Speaker 1:
on assist on the Merchants Trust to clothe enclosed ended investment trust. What links all these products together is our value driven approach. So, really, that's got three pillars valuation. We believe everything in the portfolio is mispriced. We're trying to generate edge, really from behavioural factors in the market, the market being too fearful or too greedy. We're leaning into that fear, leaning away from that greed,

Speaker 1:
opportunistic as well. We don't like to get stuck in value sectors or value stocks. We like to move around between opportunities is a right time to hold various stocks and sectors on a wrong time as well as we like to try and be nimble on opportunistic and then, lastly risk and especially thinking about downside risk. What really kind of can't come?

Speaker 1:
Cropper for value strategies is generally a valley trap, getting stuck in a value trap, whether it's a slow decline or a balance sheet problem. So we're very, very cold instant of those risks and think about long term themes to make sure we're on the right side of them of thinking about defensiveness when it comes to balance. She's because that's our value driven approach, which we apply both in an income universe and in a non income universe in the UK

Speaker 0:
Staying with that mispricing just for a second. Where've you seen most of that? Has it been happening?

Speaker 1:
Well, goodness, it's in the UK for sure, which is my entire opportunity set, so I'm a little bit of wash with ideas at the moment. I think that the whole market is very mispriced relative to its own history,

Speaker 1:
relative to other markets. Almost any metric you care to look at even when adjusting for sectors. Three UK looks extraordinarily miss price, but what I think is more interesting than even that is that

Speaker 1:
the aggregate valuation of the market conceals a great deal of dispersion on that dispersion. Really, we might call it the value value growth gap we might call it to simply measured evaluation dispersion. Essentially, there is a large, small crowd of very loved stocks and a large crowd, a very hated ones.

Speaker 1:
That, to us, seems to be awfully inefficient. There are lots of things that that should be somewhere in the middle, and they're not there either form off their perch and they're very much reviled or they're in our in our view to door did. And there's too much optimism built into their in their long term forecast, and that really applies across the secretary. I'm sure we're going to talk about sectors later, but we find those kind of opportunities in the UK really across the sexual piece.

Speaker 0:
Yeah, Doug, let's stay with sectors. Where have you seen particular opportunities across this way?

Speaker 0:
We've been quite consistent and are approaching. The turnover in the fund is very low. It's running, it's 11%. So we tend T, run our winners and keep our positions and only sell if you think there's a rest really to dividend or the storey has changed. SO. We've tended to be a long tech, but what I would calm or the picks and shovels tech not the kind of high growth future financials within banks and maybe talk about more about that later on.

Speaker 0:
In terms of balance, sheet repair has have happened. Regulatory risk still there but has decreased Esso their inability to pay and growed evidence. And obviously that will depend a bit more on the right environment

Speaker 0:
to these, the two to sort of areas. But it's a very concentrated portfolio, and we do not end to change positions very, very often at all. And it's very much a run your winners strategy. So two of our biggest positions and the fund actually travelled over time but kept kept the positions, kept the conviction,

Speaker 0:
Um, see, run your winners on mark pedant you're calling. He called it a dividend deluge at the moment. Do you think that's a fair, fair assessment? Deluge is a strong world. Deluge means onwards and outwards. But yes, I mean globally, we're going to see a rise in dividends this year

Speaker 0:
on. Do you know we obviously the blip and self cove it within that one of the key things than the global markets. The payout ratio is actually lower so that that the dividends are better supported, if you like, than they've ever been before on there are Thing is that companies and talked is generally not seeing every company, and there will be areas of the market where things come a cropper. But these generally have robust balance sheets. We've not seen the wave

Speaker 0:
distressed capital raisings in this of softer economic patch, so stronger bar on sheets, lower payout ratios, more of an ability to give cash back to to shareholders. And cos if the decent returns and decent business model can continue to grow the returns and grow the dividends over time. Can I spend a little bit on that? Because I fully agree with or what dumb asses saying there. So just think

Speaker 0:
about this in numbers times. So during the pandemic, global dividends, Mr World, the absolute numbers fell about 12%. Since then, we've had an explosion higher and global learnings, power and dividends have been playing catch up ever since. So global payout ratios, typically Aaron, the sort of 42 43% range. Today we're about 35 36.

Speaker 0:
So in other words, there's about 20% catch up the dividends to make before they reach the current level of global earnings power. So that's a lot to have sort of in your back pocket.

Speaker 0:
You know, if if if global earnings power wobbles is, you know, potentially we're seeing today cos need not necessarily respond to that would lower pay outs. And we're seeing lots of companies actually, that they're facing a tough time in this environment. You know, there's, ah US consumer electronics company called called Best Buy. It is probably going to see earnings down 20% this year. Is it copes with the sort of hangover from the Cove ID Consumer electronic spoon. They're still happy raising their dividend 5 6%

Speaker 0:
on that sort of being replicated all across the market cos a cashed up. They don't really know what to do with all this cash, and they're kind of rewarding shareholders. The Janis Henderson Global Dividend Index came out pretty recently, rose to record $568.1 billion in Q two, up 4.9% on a headline basis, and underlying growth accelerated to 6.3% year on year. Does those numbers Really? Yeah, that that that that that stacks up from Yeah, yeah, totally.

Speaker 1:
Can I come in there? And I agree with Sam through the dividends can be kind of on Ankara and a kind of a plank of stability for a portfolio on offer resilience during tough times. But I also think it's important, and this is what we do in our income strategies to remain flexible

Speaker 1:
about dividend payers on don't focus too much on yield. So we see it is a universe constraint as an attractive universe that can provide that resilience in tough times. But nonetheless we don't base of buy or sell decision or calculate our valuation are upside are intrinsic value on the basis of dividend yield, because

Speaker 1:
dividends can comme prove quite volatile at times, and the sword you're in code radio and Shell cut its dividend by 6 6%. That would have been absolutely the wrong time to sell out of that stock. And indeed, we use that opportunity to buy Maura Maura because our assessment of long term fundamental value of the company was not very much in Pierre Impaired, despite what was going on in the world over the long term view of looking at supply and demand for what they're producing.

Speaker 1:
But, of course, the dividend was telling you that the company was far less valuable. It lets a lot of lead to lots of people selling of the stock when actually that was the right time to be buying on those kind of positions. And I think you could point to banks as well. Forced to cut their dividends during the pandemic. Actually offered really interesting absolute upside from evaluation point of view. They were They deserve to be and remain in the dividend universe. So it was. It was in our in our income universe, But focusing too much on your yield might have led you to do the wrong thing in that time period.

Speaker 0:
Well, let's stay with the banks, say, because the UK big drive of the difference was the bank's SOU. Can you seen this from covert and threw out there looking quite healthy? Neither got strong balance sheets across the board. HSBC. I think it's one of the big ones, too.

Speaker 1:
Yeah, absolutely. I mean, we don't hold HSBC. It's a very large market weight, but we take a view that, you know, we try and run. The portfolio is in an absolute fashion, so if we don't have a positive investment case, we don't hold something SO that leads to some large single under weights, and we're comfortable with that. We think it's a better use of our our time to concentrate on where we find positive investment cases. We very much like the domestic banks SO We hold Barclays. We hold Lloyd's

Speaker 1:
on, but we hold several challenges as well. Close brothers were not really challenges, but smaller banks Close Brothers OS be on. I think that there are two slightly different conversations to have one on the large large caps which you alluded to, and one on the kind of smaller companies that are more specialised on the large side. What we're seeing is really a Miss Price risk profile. Everyone gets out the GFC playbook on cells of these things whenever there's macroeconomic tension

Speaker 1:
because they're deemed to be very vulnerable and of course they are in a way. But what it mrs is a full cycle of Banshees Retrenchment a very different, different, different regulatory relationship on Greg. Elated demands. Think Avoids, for instance, has got 5 to 6 times more capital per unit of risks. And it had in the in the global financial crisis. And it is just a much more conservatively run organisation, so actually say really strong

Speaker 1:
shareholder returns, both through buybacks and dividends. For those big domestic UK banks, in the inter sort of mid to high teens level that is sustainable through time. That's been diluted in the past by things like regulatory settlements by things like having to ADM or more capital putting at risk. We think that cycle's over, or at least plateau going on. That leads to something which is quite hard to speak about

Speaker 1:
in bank land, which is actual cash generation that comes through to the to the shareholder. We're starting to see it. I think we're going to continue to see it. Ideally, my a sort of good investment case for these stocks is for him to come become financial utilities, essentially a lower cost of equity or high shareholder return a little bit more boring. That's how we like our banks, not very boring very, really the most boring as possible.

Speaker 1:
Then, on the other conversation. Sorry, Hogan Mike for second is to talk about the more MidCap, especially Spanx, that have a reason to Andrew Higher returns on equity. So SP, for instance, kind of 20% underlying return

Speaker 1:
close brothers a little bit lower than that that has very specific, very low risk characteristics on DWI. Think that weather is in a competitive niche there. You've actually got higher quality business on, and you could generate growth every time. A swell as a little bit less of the financial motive. See a little bit more of a sort of good risk adjusted growth and value of

Speaker 0:
you're bullish on banks relation. Banks had agreed with a lot of your thesis, you know, improving regulatory environment, capital positions a lot better on a lot of That's we we've moved through, and we had 15 years where we had no rate environment the banks couldn't make money

Speaker 0:
on. Now we've got rates up on the markets, worrying that, you know it's all going to end in tears. There won't be the Goldilocks scenario. You know, rising bad debts, etcetera on impairments and things will head south. I don't necessarily buy into that. I think the banks are now in a position to give cash back to shareholders. I think they've been more prudent in the decisions, and they have capital buffers to sort of protect it

Speaker 0:
on ideal scenario. Yes, interest rates rollover. We still get an element of inflation in the system. We've still got rate structure that allows them to make money. We don't get breaks back to zero or 1%. Maybe have reached it three or 4% on Dunder that environment. You'll continue to see that it turns on you Continue to see the dividends flow back to shareholders were not where I would differ slightly. And I will say this and then we're coming at it. From the UK perspective,

Speaker 0:
I shy away slightly from the UK banks on a global perspective. Just because we've a tougher leg regulatory environment on that is that is all, you know, purely

Speaker 0:
from that point of view, we sat with one large bank who operated in 55 countries and pointed out the questions we were asking them was from the UK mindset on that the allocated capital to other countries and elsewhere. There may be not gonna be investing much in the UK, and the money will be going elsewhere. We've got highest tax as well. So

Speaker 0:
the profile for banks is good, but add more sort of look overseas for gold perspective rather than domestically. Yeah. Sorry. So when you look at the globe market specially banks, does that ring true with the UK that the regulations quite strong and you prefer to go elsewhere? When you look at these,

Speaker 0:
they have a particular strong view on on on relative regulation in the UK I mean, it's it's no easy anywhere. I do kind of think they're a tempered enthusiasm for banks are our process is telling us they're exceptionally cheap. There are sort of post for a great financial crisis, levels of relative profitability. When we look at the sort of 300 or so banks we cover across the world,

Speaker 0:
that enthusiasm is tempered, though by you know, the current set of interest rate environment because there was unusual today is there were no longer celebrating interest rates going up with regards to bank profitability. We passed that sweet spot on with an inverted yield curve. They're having to pay Maura and Mawr to us, his depositors on. They're getting less and less from the people they're lending to. So it's creating this sort of painful liquidity issue

Speaker 0:
on If we see anniversary despite further from here, that's not going to be the friend of banks. So you know, they really sit in a kind of the bank. Profitability really works in a kind of sweet spot of of interest rates were just sitting outside of that today

Speaker 0:
on def that persists. That's going to make that sort of valuation re rating argument just a little bit hard,

Speaker 1:
so much how come back and and say, Well, firstly, I think that that tough regulation, you know, has a flip side, and that's low risk. And I think that we've seen the end of a very long toughening cycle in regulation. Least I think we have.

Speaker 1:
I think that when you look globally and I've seen my expertise is not in global equities, but it does appear to be a little odd that Arbour are. The banks and other jurisdictions already trade on significant premiums for the UK, especially when you consider the returns they could generate sort of mid teens returns and priced but below one strikes me as a little bit better. Normally, you don't really see that very often. Even well, certainly not in the US

Speaker 1:
S. So that's what I'd say about about banks. Well, I think the UK is a particularly interesting place to look at banking right

Speaker 0:
now. They all think I'm just quite key that you're picking the right stocks. I read an article. What name? The two banks, but

Speaker 0:
two of them in Canary WARF. American banks. If you put $10 into one of them 20 years ago, you've got a dollar and $2010 into another one. You've got 70. It's a big, big difference in the turns. So, yeah, you can't always treat one sector that, you know, the of, you know, boats that rise together on this A rising tide doesn't always work. You've got to really focus on in the company and what they're doing

Speaker 1:
on just on the interest rate cycle. I think the interesting thing to point to add in there

Speaker 1:
is that banks have got a big income tailwind from what I call the structural hedge. So essentially you're Lois for instance, got £40 billion. It's only one half percent, and a trunk about every year gets reinvested at the providing swap rate. So you've got 34 years of a hefty tailwind in income that can help, you know, offset

Speaker 1:
some of the difficulties that come with a high rate an environment like a very, very narrow mortgage spread, for instance. And ultimately this comes down to for a number of years. Yet I think shareholder returns are going to be very, very strong. And eventually you get through the interest rate cycle and you get back to agree on MAWR of a sweet spot, which would be a bit lower than we've got today. Sure,

Speaker 0:
well, sort of. Sort of headwinds save Banks looking at sissies had a spike in interest for it's what about a reversal of rates? And what about say, again, HSBC? They got a lot of exposure to the Chinese property market again, you've got to worry about exposures. Also, headwinds Can you see coming up? Yeah, I think you know would put

Speaker 0:
really being for agreement with here with Richard that actually, you know, from from an underwriting standpoint, banks globally, particularly in in in developed markets, probably in a pretty good standpoint, because the simple fact is, as regulation has made it incredibly difficult to make risky loans over the last 15 years on, do you know they were seen especially in the US, a whole new cohort of num bank financial, sort of step into the

Speaker 0:
the place of banks, you know, things like private credit, leverage, loans. You know, that is probably Mawr, the area where some of the sort of land mines might see it on. So from a credit perspective, you look, you know, banks always take losses during recessions. But I think it's unlikely we'll see anything like this scale we've seen in certainly the great financial crisis And maybe prior recessions, too.

Speaker 0:
I'm remiss to move it on, but we have got another agenda to go through. So I want to start an oil stocks here dug in all your view on all stocks in the moment and you look across that glows here. Yeah, we we only own one oil stock. I do think the oil price, which is key with eternal this remains relative for your bust. I mean, oil prices, a manipulated price

Speaker 0:
on, def. I was allowed to manipulated a price. And on the underlying asset, I can tell you it would be higher. Who wouldn't go down that route? Saudis have cut back in terms of production

Speaker 0:
on I think the Saudis now more control than they had in the past. I think that's quite quite key. You've not seen the response within the US We've been through a whole cycle on shell. Too much leverage. Banks lost money, etcetera. She had not seen the rig count in the US pick up to sort compensate for that stuff. Higher price has been to production issues and seeing the

Speaker 0:
US a swell. So you're not seeing the same sort of response coming on. So if you could take a million barrels out of the market on the market is round about 100 million barrels, maybe just over that 102 or whatever. It's quite meaningful. Do think your peckers more control than it had in the past, and they have got a vested interest in keeping prices high, not necessarily

Speaker 0:
too high because don't want to destroy demand, but they're there and could do that. As for sanctions, they don't really work. I mean, Russian oil was going somewhere. It's going to India is going to Turkey is going to China. It might just be going there a different price but no pun intended. It is still flowing. So a manipulated price that is not helped by

Speaker 0:
the SG agenda because you know, investors air wanting to take capital away from that area and see it invested elsewhere. And rightly so. But there is a consequence in doing that because it means we do not have the reserves on the production

Speaker 0:
for the future on we've seen draw down in reserves soon draw down in the USO inventory levels on a bit lower than they've been in the past. You know, Joe Biden has said, you'll get the oil price down. He's probably forgotten. He said he would get the oil price down, how he gets the oil price down. I

Speaker 0:
I don't I don't know, but to me it will remain relatively robust. And if it remains robust, that means Akash horse with these businesses will be robust and the dividends are gonna bust longer term. We need to make the judgement call. How long will that cash flow for That's a very, very difficult question. But the moment

Speaker 0:
and to see I could see the oil price sayings of higher for longer. Who? Richard. Why do you think similar to banks of every prioritise getting cash back to shareholders as well? What do you look at when you see those all starts?

Speaker 1:
Absolutely. The capital allocation has materially improved and they are focused on shareholder returns. I think

Speaker 1:
a swell as managing the energy transition. We are very favourable on the sector. We own about a market weight which in the UK is a very high weight and because we always like to have a least one eye on the absolute positions in the portfolio rather than just relative to the benchmark, that means we are expressing what I would consider strong conviction we own BP were on Shell. We own a number of interesting smaller companies in the NP space. I think that there there are really two,

Speaker 1:
two slightly different conversations to have really taken again large stocks versus the smaller stocks in the small stocks case. This is a sector that tends to trade on big swings in sentiment, big swings in commodity prices and actually that the means that some interesting individual business models are left behind were on an MP called energy and which is single handedly moving the Israeli economy from coal fire power stations. Todo gas generation

Speaker 1:
SO a goody SG storey. But also what's very interesting about it is that it has 75% of its production linked to fixed priced escalating contracts. So essentially it has a much more utility like Forecastable. Siri's of cash flows over a long period of time. And yet, of course, the stock tends to me

Speaker 1:
around with the gas price or with the commodity price and that office. Very interesting opportunities to kind of build positions when people are negative on those commodities and then missing the individual aspects of business cases on the large commodity side, on a sort of large kind of integrated players bps, the shells we try and take her. We don't don't take too much of a sort of point estimate view on what they'll price of the gas price is going to be. That has proven to be virtually impossible to forecast over the short term,

Speaker 1:
but over the long term, we like to think about a sort of long term capital cycle theory is the way we think about it, which means, that knows, Warren Buffett said. You know, or maybe it's Charlie Munger. Actually, you want to fish where people are, what other people are not fishing. In other words, investing industries that are not laying down lots and lots of cat Becks that are not over investing themselves on. I think that after the horrendous experience of the last cycle in oil and gas, where despite very high commodity prices,

Speaker 1:
companies could barely make an adequate return because they were spending so much on services on on very, very expensive deep water on exploring all kinds of, you know, exotic parts of the world. I think this time they really have found religion. They've got discipline, they're not. We're not seeing those re counsellors they take up. We're not seeing over exertion of Catholics spending that's going to preserve that

Speaker 1:
turns in the long term, both at the individual company level on but the commodity price level, because we're seeing in the in the NLCS as well. The national oil companies are no over spending and therefore you're likely to have a tighter market for longer. In the very long term, oil demand on gas demand is relatively predictable and relatively steady in a short term. It's incredibly volatile,

Speaker 1:
but supply. We've got pretty good visibility on of loss of supply coming. That's what would weaken our view if we saw a lot more supply. But it takes a long time. It's a long cycle to build

Speaker 0:
some supplies tight, and demand is there. It's strong at the moment, but it's gonna Wayne over the next five years or so. When you look at these companies subsidy factors and steal things,

Speaker 0:
well, there are bigger mission. I used to be an oil and gas analysts. That was my first job. JP Morgan. I was not very good at it. A what'd you think of us as oil and gas? Pretty clearly, I could not forecast the oil price, But you know, I I'm in agreement with gentleman here. I think the sectors cheap, you know, it's it hasn't really responded to the move in the manipulated prices, Douglas points out.

Speaker 0:
We would have, you know, just above ah market sort of allocations. That's about 6% of our of our portfolio. I think he's follow a few rules when you're investing in this sector. We don't like companies that have long term growth ambitions, because who knows what demand is going to be like in 10 years, you know, filling growth for for for something you don't understand.

Speaker 0:
We like companies that very laser focused on bringing down the greenhouse gas intensity of their existing footprint on their several of the majors and adding a really fantastic job doing that, reducing, flaring, that kind of thing. We like companies that are investing in the energy transition, but only in the areas where they have a competitive advantage. You know, they're not spraying money around willy nilly. They're really doing it a focused manner.

Speaker 0:
Andre, finally, you know, we wanted to give us back as much cash as possible because we can take that cash and investing in renewable champions elsewhere. You know, we don't need them to make those investments for us

Speaker 0:
again. I could stay on this for a long time, but I'm conscious that we do have to march on on did want, spend a bit of time on the UK, and I know is global managers that be the music serious But when I called with Richard before we were talking about the UK and the landscape that it's now in. With inflation coming down, GDP figures have been revised on Amore sensible political backdrop as well.

Speaker 0:
It does that give you a lot of lot of hope. When you look at this market, what do you

Speaker 1:
think? I mean I? I think so. I think the UK is that I am. I'm meant to say that. But I have to kind of keep reminding everyone that I think I'm more excited about the UK now than I have ever have been in my career because we have We're coming todo what really looks like the tail end of an exceptionally chaotic period, both economically and politically

Speaker 1:
on. Do you know the mini budget from last year is really the sort of icing on the cake of what a terrible cake that wasps. We've had so many hits to sentiment and confidence that has led not only business investment to be relatively weak, but also investors globally to sort of just put the UK into a too difficult box.

Speaker 1:
And you know, there has been some justification for that over time. But I now think that's in the rear view mirror way. Have an election coming up normally. That's some cause for concern or volatility. But to be honest, we actually have the two main parties as similar to one another on key elements of policy is you've seen in a very long time. So I really don't think that particulars of risk either a change of government or the same government, is no. He's not particularly risky thing to think about.

Speaker 1:
I think, as you say, there's been this building now narrative negative narrative on the UK being We saw articles about the UK, the sick man of Europe over the course of the summer in spring that GDP got revised. Actually, we're not far off. Other countries were in the middle of the G seven.

Speaker 1:
We're we've got inflation, which on a longer term view follows a very similar path. It's a little higher than the eurozone. So his growth, you know, it's it's you expand those charts out to a sort of 15 20 years and everything looks very, very similar. SO. I think that sentiment has course to change

Speaker 1:
what it needs to recognise what invent global investors needs recognising capital allocators is that because of that negativity, we've had extraordinary outflows from you from UK equities and UK equity focused managers for a number of years now, they've only been intensified this year on DNA. Now sentiment might be starting to turn what that has resulted in those years of outflows and all that negativity

Speaker 1:
is what I mentioned at the start of the of this session, which is an extraordinary valuation gap, both both with the UK in aggregate, and you we can have sectoral discussions about. It deserves to be a bit cheaper because it's got no, not as much Terkel, Maurel and gas

Speaker 1:
or whatever you like. But even when you were just for secretaries, there were so many pairs of companies where I could look in the UK. Pierre, I could look in the US Pierre or European Pierre and the UK one is very much materially cheaper. Even companies which have very little to do with the UK. It's a very international market

Speaker 1:
which are on some sort of discount because of where they list on but the kind of lack of interest in that market over time. So it's a phenomenal place to come and fish where where no one has been for a very long time and there are plenty of fish

Speaker 0:
Dog. Have you been guilty of putting the UK and the two difficult box? Well, I mean, I agree with a lot of what you've said, but have a slightly different view that particularly the political front, that it's punching Judy politics. And yes, we'll get an election year next year. But

Speaker 0:
I think I just puts people off. I mean, politicians in this country and then working from all sides. I've have not helped this this country used to it towards Italy in Greece and sort of thinking we're the laughing stock. And I suspect that people in Europe and elsewhere in the world looking in the UK on probably look at us as most worse than them personally. It just doesn't help, and it hasn't helped. On top of that, you have something that is quite structural, and this may well provide opportunity

Speaker 0:
in the sense that you know you go back to 20 years. About 39% of the UK equities was owned by, you know, pension funds on life companies, and now that's about 4%. It's all I LD I driven investment.

Speaker 0:
It's all bonds on equity money if anything has gone global and within the MSC I, the UK market is less than 4% so it's a relevant within your within your benchmark which is the

Speaker 1:
same size of China, by the way. And yet we talk about that rather more.

Speaker 0:
But But the thing is when when when you talk to spoke to an analyst about this is to

Speaker 0:
and he covers a range of UK on your stocks, but the ones where the most interest in there are three afford of them. One thing they all had in common is majority of the business was in the US.

Speaker 0:
They weren't interested in anything that was, you know, UK centric. They're interested in UK businesses that did a lot of the business overseas. And as we know that you mentioned before the UK as an international market, 75% of the earnings and overseers but we don't have ah Wei don't have anything within that index that is unique. Arm was possibly a bit unique. We don't have anything where you can say

Speaker 0:
you can't get that elsewhere. You can BP shell, you can get these types of companies and other listed markets and when you have a market that struggles for liquidity, which it does, and that's a big issue on one of the reasons that companies have been shifting to Yes, we all talk about the multiple. We'll talk about all the innovation because there were able to pay themselves mawr.

Speaker 0:
We don't actually talk about 23 UK companies that have listed in the US hasn't actually been a particularly successful journey for them. But the key thing and the key reason for business is doing it is liquidity and sheer liquidity. I spoke to one company thinking about moving to the US on I said, Just shares a cheap, Why don't you buy them back? We can't buy them back. Were Captain what weakened by and we can't get them.

Speaker 0:
So you know, Ah, lot of companies will maybe look to continue to move towards the US and the UK. I think a stable and sensible political period would be rather rather helpful at some less than folks out of the embassy on. We talked about polls to fishing, but is that just too small report. It's less than 4% on DS of that 4% less than 1% you consider domestically focused. So

Speaker 0:
luckily, we we run on constrained global strategy. Go anywhere on DWI, really looking for the best global opportunities, you know, companies that dominate their industries that have a fantastic trajectory for for for growth and cash generation. There are companies like that in the UK you know, we own relics were desperate Zeneca. But I don't really think about the UK

Speaker 0:
sort of political set up in the context of investing in those companies. Just about, you know, Are they winning in the industries they operated?

Speaker 1:
Richard think coming back in What we need to remember is the price that is being paid for these assets on. I would rather have a similar asset at a lower price than a higher price. Sounds very simple to say, but, you know, we're looking for great companies as well, but we're looking for great companies, a fair price where we're not paying for their quality or for their growth where that cannot be assumed in their valuation. We find so many more of those opportunities in the UK There are so many of these pairings I mentioned. I mean, take shell, for instance, is

Speaker 1:
what about a 60 or 70% discount Torto? Sorry about a 50% discount todo chevron on outside to Exxon on, but doesn't that doesn't seem that justified to me. They're similar companies and you find the US investors taking a very different view of the value of those cash flows from one business to another. And

Speaker 1:
I just think that because of that negative sentiment, you've ended up with a lot of mispricing in the market, and that makes me very happy. Is a portfolio manager because Aiken spot

Speaker 1:
where I where. I think there is a big divergence between intrinsic value and market price, and it should correct in time. Maybe if the negative native sentiment continues, it doesn't correct very quickly. But if it doesn't correct on its own, then you tend to find that other players, whether it's private equity or other companies, come and take those opportunities from you and essentially take outs and you end up with the market getting

Speaker 1:
you D equitized the market a little bit, which is unfortunate when that happens on Mass and I think that all we need is a period of stability. As you say, Doc, and to essentially have no news, no catalysts for a while. Is the right catalyst for the UK like the

Speaker 0:
bank's boring, boring alone at this stage? Say, if you have any questions for our speakers, please do submit them now, and I'll do my best at the end to read them out

Speaker 0:
some. Lastly, let's finish on A I and other mania has dissipated a little bit now, but all the stocks of very interesting but from an income perspective more than don't dividends. So you may like thumb from evaluation of investing point of view, but can't quite so, so I would disagree a little bit on that. I am very excited about it. I think that on video news that when it happened in April was pretty game changing.

Speaker 0:
But unlike some prior tech cycles, where it's been sort of a little bit of a struggle to gain access to this, this growth thematic within an income pair universe, as you think, there's a there's a wealth of opportunities within the income paying universe because this technology is quite democratized. Now there's a lot of sort of open source, like language models out there, available for all to use.

Speaker 0:
And so the benefits are really going to accrue to the picks and such troubles cos the semiconductor companies of which the vast majority due pay healthy dividends. Lots of examples in our portfolio, but also companies that are sort of tangentially related to that infrastructure. Build out, you know, we own of French Electricals company called Lagrone SO. They make pretty simple components switches, transformers, surge protectors, bus bars, etcetera

Speaker 0:
on about 20% of their business comes in data centres on. They've told us that for on each 100 video sort of AI chip that goes into ah server there, that requires roughly four times the amount of components for them. So there's going to be big ramifications across supply chains and then also in cos you know, incumbent businesses that can take advantage of this technology quickly, especially companies that have proprietary data.

Speaker 0:
So I mentioned relics just now. We think that's the business. It's in real prime position to take advantage of this because, you know, they, for example, sell legal services software to law firms globally on. They have an enormous mouth, proprietary data related to prior law cases. So if they can connect a large language model to this data makes it very easy for law firms to sort of quickly look through prior case history and come to a sort of conclusion. So

Speaker 0:
picks and shovels, fast mover adopters, lots of opportunities. They're gonna stay with the picks and shovels. Yeah, I want. Well, I was going to give the same answer. When you look at it from our yeah, point of view purely of AI, it's difficult to know how it will be monetized. It will be monetized to the picks and shovels, but it's just difficult to know. You see Adobe that are incorporating it, but they're not going to charge extra for it. And we've got

Speaker 0:
launch in terms of co pilot from Microsoft. They're going to child is difficult to know whether you will people actually pay longer term of whether it just becomes integrated into the product about let relics, and it's going to improve our own shares and relics is going to improve them. A za business improved the user interface, but I think the key thing is probably for businesses B to B and B to C in terms of productivity gains, which you wouldn't necessarily see directly

Speaker 0:
but been able to employ fewer people. I think the area of the market that will get, you know, hit quite hard to self content and creativity because someone will be There is no artistic creative ability whatsoever. We have been online and created a a man in a kilt with the wind farm in the back as a sort of Scottish renewable sort of odd, you'd be able to do that type of thing, whereas in the past

Speaker 0:
you know you had to move to go to the agency, so difficult to see how it will be mine monetized. And I think the jury's still out on that, but definitely monetized through what would call the picks and shovels, which is the end of tech spectrum. That we've positioned ourselves. And just one point similar to the two speakers of the democratisation of it doesn't mean it's harder than to get a competitive advantage in the space.

Speaker 1:
Absolutely. I think what the history of

Speaker 1:
large technological innovations shows is it's very difficult to know who is finally going to win out on what type of business is going to win out when one of these faces start or we saw that you know, right back to development, the railways and then later on, with the tech bubble and the development, the Internet clear the Internet was going to be absolutely massive. But the original first movers were not almost almost entirely the end winners.

Speaker 1:
That's especially true when you've got a technology that lowers barriers is you say that that actually democratizes. So that's why we're I broadly agree with picks and shovels. Approach. We've got a company in the in the fund called XP Power 400 Market Cap company. Lovely sort of mid sized business with a global leading market share in power supplies largely into the semiconductor manufacturing equipment sector.

Speaker 1:
These air components, which don't former a large amount of the overall cost, but it's absolutely essential that they work well and extremely consistently, and it makes total sense for the company's making those machines to outsource it. Sexy Powers got a fantastic economic position and good pricing power because of that and very long visibility over its long term resident revenues, even though it can be cyclical because it gets designed into products for for many, many, many years. And that will be power

Speaker 1:
ring, quite literally, the machines that are going to produce the semiconductors that are going to be needed for all of this work. That AI involves all of this. Everyone's Microsoft office now, suddenly doing very complex calculations on inside. You know, it's a Iittle LS

Speaker 1:
S. So for me, it's just simpler to to go that picks and shovels route and you can find examples even in the in the UK, which is not really known to have much tech exposure, I would say just on the agency point we own WPP is for the funds on. I think that during a period where

Speaker 1:
even if barriers are lowering, companies are faced with a great deal more complexity than they had previously. If you've got a big set of AI experts in an agency, I think there's a there's there's reasonable value to be had from from leading companies through that, and there's a company on on P of about eight times so really is. The market is telling you there's a structural question mark over the business, but continues to Jerry or like organic growth.

Speaker 1:
Ondo really hasn't been awful. Lot of AI expertise embedded into it. I was fascinated. See, when I went when my colleagues told me about the cattle market stay, they had

Speaker 0:
stay with marks of That's a big holding in the fund. Yes, I know a big dividend yield 1%. I was sort of a touch less. I mean, it's going up about 34 that since we bought it. But, I mean, if you come back T I on do think that, you know, if you've got distribution you benefit

Speaker 0:
on, do you know an access? So I do think Microsoft is well placed longer term now,

Speaker 0:
the question we keep getting asked us all. So it's going to travel again. Well, no, it's not going to tremble again. But you know, we want to own tech. That is no high growth. There's established business models that you know. It's got very, very strong balance sheet over $100 billion sitting that can pay a dividend. That good evidence, albeit is a load evident. We don't want the kind of future concepts SO you're for

Speaker 0:
because it provides a function within the portfolio because we can't own lots of future Take that may or may not happen. That doesn't paint evidence, so it provides a sort of ballast within the portfolio on a successful one. So far, I don't know about tripling from here, but I would I would make a point that, you know, in our forecast, just because of the mix that happened within Microsoft and the pivot towards higher growth segments within their over annual revenue mix

Speaker 0:
on our four cars. We have the dividend growing faster over the next five years, and it has over the last decade. You know, it's quite powerful tail wind for that for that business, and your yield is low. But if you can compound dividend growth and kind of the low to mid teens, you know that sets you up for pretty nice to return.

Speaker 1:
I mean, I think my sauce is fantastic company. But playing devil's advocate, I'd say one might expect in Aunt's dividend growth if the business was maturing on. Therefore, it's long term growth profile might not be a strong mean. Clearly, we're dealing with the law very, very large numbers with Microsoft,

Speaker 1:
and I think The risk might be that the AI tools they're producing can't easily be monetized forever. Because, you know, one of most popular I tools is is free on one of the best actually rated. So it's that question about where the barriers are coming down permanently, and to a degree that that means that you know, you get sustainable, competitive launches slightly eroded.

Speaker 1:
That distribution of those products is fantastic. So I'm sure that barrier will ST stay strong for a while yet.

Speaker 0:
Well, like most topics today, I hate to cut this off, but I think that is a very good place to leave it. This will be available to watch on asset TV after this. Thank you very much for watching thank you two something to Richard, thanks to Doug. And we'll see you here on us a TV next time.