Speaker 0:
Hello and welcome to this global equity master Class or asset? TV. I'm Rory Palmer today. We've got a lot to get through. We're gonna be discussing the Lazard value Done differently. Approach. We'll look at the role of financials in global equity portfolios and we're looking at Are we in a new technology paradigm? This masterclass is in association with

Speaker 0:
Lazard Asset Management, joining me here in the studio to discuss that we have Will Hobbs, chief investment officer at Barclays Wealth. We have Sam Davey, group head of farm research at Ravens Group, be portfolio manager, Lazard Asset Management and, of course, Gavin Core global head of manager selection and due diligence services at Morningstar.

Speaker 0:
Well, welcome to you, Uh, give the audience a sense of where you're coming at this from and and a bit of splash about global equity. It's this big area. It's a huge area. Yeah, So I come, as you said, I'm I'm I'm lucky enough to be chief investment officer, um, at the kind of UK wealth management operations within Barclays. Um, so I'm on the hook for

Speaker 0:
all of the implemented outcomes. Uh, for all of our many treasured clients across that range. So unitized multi asset class funds and discretionary portfolio management as well. So we've got a great team of sort of equity specialist fixed income specialists and more besides, kind of looking at all of that. Um, I actually started my career as an equity analyst for what it's worth. So trying to make sense of

Speaker 0:
individual equity prices, So I'm very interested in this subject. I've moved in the equity world a lot before I got to my current role. Uh, so, yes, looking forward to the discussion. So welcome to you and again for the audience to give a sense

Speaker 1:
of where Hi. Um, my name is Samantha. Do and I work for Ravens Croft, Investment Management, Um, which is based in the Channel Islands. Um, in Guernsey.

Speaker 1:
Um, we, um, operate or we we run a number of multi manager products, of which I'm the head of the Ravenscroft Group for for, like, manage due diligence and monitoring. And, um, we look at the world through a global thematic lens. Um, and global equities have always formed, um, a a large core of what we actually do. Um, I should confess that I do own the Lazard fund or we do.

Speaker 1:
Um, and we've been investors in it since 2017. So we've known Bertran for quite a long time. And, um, yes, very much looking forward to today,

Speaker 0:
Bert. A glowing reference there. Good morning. I'm Bert. I join Lazard in 2004, and I'm part of the team that runs the global equity franchise strategy. Um, and in a nutshell, you know, we speakers. So what we see, and we'll come back to that. But, um, you know, high quality forecast all businesses,

Speaker 0:
but we have a very strict federation overlay when we build a portfolio and do things that the federation is a risk as well as an opportunity. And Gavin, unfortunately, last but not least, uh, welcome to the panel again for the audience. Where are you coming at this from? So my name is Gavin Core, and I head up morning stars research and investment consultancy business globally. Um, we we help clients with the selection of mandates funds to invest in, or we help them with the oversight of the funds they may be exposed to. But we also run multi asset model portfolios and discretionary portfolios

Speaker 0:
um, I like will. I have to confess that I was a fund manager before as well, running both European and global equities. So I'm particularly interested in this. And I'm sure we'll have some, uh, either interesting discussion on investment styles and how one does it. Excellent and will back to you here. Just sending this

Speaker 0:
for us. It was a difficult Q three for for quite a few sell offs. Where do you foresee it going now? What? What do you see in the next? The worst. The worst question you can. Yes. So I was always told early on in my career that the greater the confidence you hear someone predict the future and the less you should trust them.

Speaker 0:
Um, and I think that's probably more true than ever at the moment, I, I You know, right now, everyone's sort of trying to fashion the world economy and its outlook into a kind of, you know, into a coherent narrative. They're really struggling, to be honest, because a lot of the incoming data has defied many of those models that have helped us explain the world before. Um, the world economy continues to be resilient, even though kind of central bank has all but stuck a brick wall in the path of it. Um

Speaker 0:
uh, and that is seeing some quite interesting moves in markets. And what you've seen in the last few weeks and you've all been aware of is that, um you know, the rates market has been moving to not just price out a recession to a degree, but also to incorporate, uh, let's say, kind of more fiscal digest from the US and other governments into the future. So there's a bit more worries about lending to governments for longer periods. That means that

Speaker 0:
you know, the discount rate with which you value equities is changing quite dramatically. And that that over time well, you know, if that stays the case, then you should see more changes. Um, in terms of which parts of the market are attractive versus others now, you know, so far this year, you know, it's all been down to the magnificent seven, hasn't it? Pretty much if you look at equity market returns and elsewhere, you know where you know you can argue that some of that a I craze has made

Speaker 0:
certain parts of the market a little bit toppy elsewhere. The reverse is also true. So, I I still think it's a very attractive place to invest. As long as you're willing to kind of embrace the chaos to a degree Because, yes,

Speaker 0:
and and some embracing the cases, how important is ignoring that macro noise sometimes focusing on those

Speaker 1:
fundamentals. Yeah. So I think, um,

Speaker 1:
you have to be very cognizant of the world in which we're trying to invest. And our CIO Kevin would say, Never have we had a pandemic followed by a war followed by an energy crisis followed by inflation and trying to model that in today's world is exceptionally difficult. Um, and I think even the market, the Fed doesn't really know how to handle all of this. Um,

Speaker 1:
so we've taken the stance whereby we're looking at How can you navigate what is best for your clients. So we call it the changing World. You know, we've gone from a zero interest rate environment to to, you know, roughly 5%. You know that that is going to have an impact on what we see and how we produce the best outcome for for our clients in that type of environment, but it's really tricky.

Speaker 0:
Yeah, I be with this this changing world that Sam just touched on that will do it differently. It value on differently. Yes, I, I think you know, for us I would echo Sam. You know, the the the call of humility is is very, very loud today. And I think we we should all embrace it. And, uh, but very being very open minded to the changes and how profound those changes might be. You know, when you have something like a I there might be, uh, implications that are, you know, far broader than on seven companies, right?

Speaker 0:
Um but what that brings is opportunities, because the market will be very erratic. And, you know, all type of strategy really does well when you have a dispersion of performance because it means that you'll have really good companies that will be oversold on short term focus. And as as long as we keep the target in the long run and think about how we create value over a 3 to 5 year period, we can really exploit this, um, volatility.

Speaker 0:
And Gavin, what are you seeing when you look at the world and global equities.

Speaker 0:
So I'm aware of the danger of violently agreeing with panellists. But, um, it is a very obviously a very uncertain world, and very few people, if any, can predict what's going to happen and certainly predict with any degree of confidence. Um, so what we can, however, focus on is some of the facts, and we can focus on certain elements of valuation. And I think what we can see across many different asset classes, but certainly within equities, certain parts of the market that are offering, uh, attractive entry points if one has a time horizon

Speaker 0:
over perhaps 18 months or two years, I think people are going to be very well rewarded for investing in certain asset classes. I'm sure we'll get into the details of where, uh, but the problem with it is to Sam's point, with all of this noise around, if if we get a plague of Locusts next, it won't surprise us. We've had everything thrown at us. Therefore, it's no surprise that it's uncertain and it's volatile. But I think the the onus is on us. And as as investment advisors and researchers to to try and encourage clients to think more media more long term,

Speaker 0:
uh, to stay invested. That's the critical point at these points in times. And I think there's some very interesting and exciting, um uh, areas to invest now both close to home and and further a field, which I'm sure we'll talk about. Well, do you Do you agree with that? I think close to home and further a field evaluation is looking quite attractive at the moment.

Speaker 0:
Well, it's an interesting question. I mean, I think, um, you know, I would agree with Gavin very much that in this kind of environment, as long as you're kind of embracing that chaos, the rewards to research should be great. High quality research should be greater to a degree. Um,

Speaker 0:
you know, in this uncertain world, you know, there could be more alpha if you can get it, get it right. I guess. Um, there could be more inefficiency out there to exploit the way that and again, the guys have alluded. Um, all alluded to a similar thing, which is that, you know, right now, the market is focusing on that idea that in a gold rush, you buy the picks and trouble. So,

Speaker 0:
you know, you've got these big companies in the US who are kind of dominating a lot of the A I story, and therefore that seems to be the most obvious way to benefit, uh, from all the excitement. That's, um, that's that's going around, However, if you look through history and I'm a really tragic, boring study of kind of history, of so society, uh, technological change and everything that comes with it,

Speaker 0:
it's almost never that it's kind of limited to that very small initial group. You know, big breakthrough, general purpose technologies. The rewards. The biggest rewards are often felt a way away from, uh, the initial breakthrough. So you need to be quite imaginative in sector terms. I think about you know, what could be the ultimate beneficiaries and humble as well, because what past technological changes

Speaker 0:
teaches you over and over again is that there's more unexpected than expected outcomes. Um, and that's why you kind of go diversified, in a sense. But can I add to what will said if you think back to, say, the, uh, late nineties and early noughties, where we had obviously another um, period of technological change with mobile telephony and the Internet. And what have you,

Speaker 0:
um, some of those companies that were so dominant, whether it's Nokia Erickson, Alcatel Marconi in the UK. I mean, some of these companies are no longer around. Um, leaving aside, the fact the ones that do have survived have destroyed a considerable amount of value from that peak.

Speaker 0:
So it is. I think it's very difficult for anybody rationally to to predict which which of those magnificent seven are going to be the survivors and the winners. But to your point, Will. And I'm sure Bertha will talk about this. There are companies around the edges of that that are valued as either losers or not beneficiaries. That may well be so. And Google. I mean, what Google was founded in 98. So it didn't even participate in the tech boom to that degree. But that was the ultimate winner. I mean, so far,

Speaker 0:
anyway, in terms of that technological paradigm. So you need to be very careful about how you bet on this. And But when you look at those magnificent seven, what do you see? What do you see? The market. Yeah, I think you know all the points you've highlighted bring back to big uncertainty, right? And so what we do is you know, we tried Cog of the two big mistakes we can make as investors first is to get the forecast wrong.

Speaker 0:
And the second is to pay the wrong multiple of these forecasts. So we're really trying to, you know, put the chances in our favour. So in terms of accepting to restrict ourselves to a universe of more forecast companies,

Speaker 0:
because once you have this, you know, if you have companies that where you have the ability to predict the future with a lower margin of error,

Speaker 0:
then you can be much more assertive on valuation. It's really hard for, you know, any of those companies where the scope of credible forecasts looking down five years is so wide. How do you value your business like this? Or you can just say OK, I'm jumping on the bandwagon, but so that's what we do. You know, we really want those businesses where you have this forecast to be to attribute, because then you can just say OK,

Speaker 0:
small range of forecast. It is worth X, and then you observe the share price and you see the opportunity. So it's for us. It's it's really important. Which means that we may miss out on some of those ballooning companies. But hopefully, from a risk standpoint, it brings, you know, uh, a lot of, um, avoidance of, you know, really bad outcomes. So what do you think?

Speaker 1:
So, um, we spend a lot of time looking at valuations because as an asset, allocator, we have to make decisions between, um either equities or or fixed income. Um, and I think some parts of the market have got slightly untethered, Let's call it and have got maybe slightly rich because of of the hype attached to certain sectors. Um,

Speaker 1:
but there is definitely opportunities. We take every single fund that we own. Um, as virtual will know, we ask all our managers to be open, honest and transparent, and that includes sending us their portfolios. And then we put them through and we value them, and we send all the PS back so that we can then assess how cheaper, expensive relative to history and and indices they are. And then we can make asset allocation decisions based on that. I think

Speaker 1:
what we are seeing that in certain spaces. Uh, we we then put like, standard deviations across, and we think maybe plus and minus one is is quite noisy. But as soon as you start heading towards, you know, plus or minus two standard deviations to the mean, it's a really good signal. Um, especially on the downside, I think, uh, a colleague of mine, Bob Tannahill,

Speaker 1:
um did a did a great kind of, like review and spreadsheet work about I think we've got 100% success rate. If you go through two standard deviations cheap, then you can add to your position as long as your thesis obviously is not broken.

Speaker 1:
Um, yeah, discuss. But you know, ordinarily, valuations play a key in in what we do. And I know it's very, you know, central to what Bertran does. And it's It's what we like about Bertran. He has a very robust, you know, investment process, which, um, is very good.

Speaker 0:
And well, I hate to have you on this panel and not tap you for your economic history and your history of these valuations. You're opening up,

Speaker 0:
Gavin, go over with the the nineties companies. The telecom companies But is there any other? Can you point to any other examples in history of where these similar valuations have maybe gone away from their true value? So there's a really interesting and, I should say, interesting in inverted commas, mainly only to a select group of people who are quite sad. Um, the, uh, the Yale professor of finance called WKB right, did a paper a study of in the past, um, and looked through,

Speaker 0:
I think, what it was 100 years of history across about 50 different indices as much as it is possible. Um and

Speaker 0:
he argued in that. And I think this is kind of intuitive to a certain extent, and and this is a a sort of wary point about valuations on the upside is that quite a lot of time you find, I think, on average, a doubling of an index was followed by further gains rather than more often than a halving of that index. And the point was

Speaker 0:
that more often than not, step changes in valuations or returns in a particular index, they actually represent genuine changes in step changes in the underlying technology and our ability to adopt it and the market can take a while to catch up. And what at real time can appear to the hard nosed investor is something bubble like Expos is actually just a change in reality. So quite often you've got to be quite wary of sort of looking at something and just saying That's just crazy. I don't understand it. People are overvaluing that.

Speaker 0:
That's not to say bubbles don't exist. We've got two of the biggest ones in our rearview relatively recent rearview mirror. So but just that you want to be a little bit, uh, wary. I think in terms of sort of big changes, if you want to think about something with sort of negatives and positives that you can just think about more broadly, think about rail and telegraph and how that transformed the investment opportunities and market sizes, um, in North America and then ultimately Europe.

Speaker 0:
But then those who would look for the sort of, you know, there was lots of fortunes made and lost during that era. But then, if you look at sort of some of the negative externalities as well people talk about, you know in Europe, it made the gathering of large armies much easier. Um, people talk about suddenly state size became important because of rail. Uh, because large states could match the large armies in particular points. And that gave them a, you know, a scale advantage,

Speaker 0:
which some people, you know, obviously led to some pretty bad outcomes. So these are kind of some of the complexities of technology in terms of how you can think about it and how it how it evolves. Gavin, I'm conscious. Um, this is going to turn into a magnificent seven panel, and we are going to cover some technology paradigm stuff later on. But given how much of the S and P 500 is dominated by a lot of these big stocks, does it look quite weak when you look at US equities as a part of a global sphere? Does US does that show a bit of weakness in

Speaker 0:
index? Well, I think what you have to do is to understand the contribution to return from that magnificent seven in the returns of the S and P and a significant portion of that I think it's 70% of returns this year from those seven stocks. Well, you know, that's there for, um, uh, clouding the real picture of what's happening within the underlying market. So So there are swathes of the US market that do not have that valuation anomaly. Um, as and the same applies to other equity asset classes.

Speaker 0:
And I think if I can weave this back into what we were just talking about, investing is like a trifecta bet in and which is in horse racing parlance, you've got to get the right theme.

Speaker 0:
You have to get the right time, and you have to get the right manager.

Speaker 0:
Um, and it's interesting how some of the managers out there who are chasing a particular theme, um, may sell a story but can end up getting you in very much at the wrong time. So, for example, there's a great example of this. It's coming to the UK or Europe right now, a innovation.

Speaker 0:
Uh, there's a, uh, a bit an investment model that was focused more on the theme rather than the valuation. It's it it was. Obviously it got very exciting with all the fang stocks, drove a lot of investment flows and has resulted in an in a significant destruction of value for the average investor invested in it.

Speaker 0:
So the same, you know, the same will apply to the magnificent seven. I'm sure some of them will be survivors. And obviously some of them are fantastic companies generating huge amounts of cash. Who can use that cash to to be participant in the future? But there will be some failures in there. Um, so I think it's beholden upon us to look below the

Speaker 0:
to see where that value may be. And there are lots of good valuation opportunities, not just in equities, but in other asset classes. But I guess that synopsis there is exactly what you're trying to avoid in the LA approach. No, exactly. I think you know, one of the pitfalls as a value manager is the value trap, you know, and and that, you know, we do believe variation is important, but picking the right companies and and the value trap tends to occur when you you simply, um, underestimated the risk of disruption. You know, when

Speaker 0:
you know the trap door is opening under your feet and you don't really realise because you have a disruption and and that's the whole purpose of what we call economic franchises and and the forecast ability. And in our analysis, it's very important that we remain open minded. And every time we review a company, the first question is, you know, should it still be in this universe, Has the world changed so much that there will be, um, you know, weak and barriers to entry, or there will be straight out substitution.

Speaker 0:
Um, you know, let's say you you you sell, um, auto parts. Well, you know how What is the proportion of what you sell nonexistent in an electric vehicle? You know, if you sell spark plugs, well, they're going right.

Speaker 0:
So the this type of example is is really, really important to avoid this, you know, the the value trap and and the second one, the point on the valuation is to us is essential. You know, you can buy the best company. You ever actually pay too much, you will lose money. And what we saw, um, through the dot com bubble is you know, even a company such as Microsoft, you know, exceptional businesses did lose investors money.

Speaker 0:
It did really well operationally. And yet investors lost a lot of their capital

Speaker 0:
So you're invested in the Lazard strategy. Where does it sit for you? Because just describe as value managers. But is that how you see it? No,

Speaker 1:
I don't see him as a value manager. I see him as a growth at a different time. Um, because he's not, You know, the way that

Speaker 1:
Bertran looks at the world or the process does is that it's not invested in deep value cyclicals or financials, which I think most people would assume is more value biassed. He looks for those unloved companies that may need a catalyst to help turn turn that around. So from my point of view, when I first started, well, when we first started looking, um

Speaker 1:
at Lazard's was back in 2017. Because we have a quality growth bias, and we were very cognizant of the fact that should, you know, those full we needed something to really help out. Um, and we looked at something like 400 funds, and some were very deep and very cyclical, which is something that we just don't tend to do as an investment house. Some

Speaker 1:
had the magnificent seven because on a 20 to 30 year view, they were cheap. Um, and but it was really only Bertrand's fund that ticked all the boxes that we wanted in order to, um you know, for specifically what we were looking for. And I must say, um, you know, we've been very pleased every time there's been some form of rotation out of quality growth,

Speaker 1:
you know, he's stepped up, and he's managed to, uh, to help out quite a lot. In fact, over the last three years, he's he's been our best performing global equity manager. Well done.

Speaker 0:
Uh, well, going back to evaluation. So where's looking quite good at the moment. Are you looking at, say, financials, that a lot of people are overweight at the moment? Is that an area that you're following quite closely and are looking quite good? Yeah. So, I mean, I think it just just sort of following on from that conversation that, um So we've got parts of our, um, product range and the, you know, in the private wealth business that are quality growth focused as well.

Speaker 0:
Um, for the bit that I'm responsible for, we tend to be style neutral. Um, and so part of that is always keeping a foot in some of the dustier corners of the stock market, you know, And that means to a certain extent, you know, some of the sectors that just weren't popular over the last few years Banks, energy and some of the others,

Speaker 0:
Um, and the the the point. There is not so much about valuation, although there are very attractive parts in that is, you know, my personal investment or our kind of collective investment philosophy. And I very much agree with this is

Speaker 0:
the idea that you've always got to imagine the future that doesn't extend in a straight line from the recent past. You know, in a way like our modelling process is all about mathematically imagining hundreds of thousands of different futures. And that is part of the sort of style neutral piece is that you've got to be aware that,

Speaker 0:
you know, styles wax and wane quite unpredictably. Um, there's all sorts of things, you know. For instance, if you look at, you know, the magnificent seven, to what extent has the regulatory backdrop contributed to that dominance? You know, the fact that you know, uh, competition authorities see competition through the prism of price or have done in the past, And will that change in the future? And what does that mean for the makeup of the index relative to other stars that could evolve quite unpredictably. And so to a certain extent, what we're trying to generate is all weather returns to whatever extent that is possible,

Speaker 0:
uh, for our, um, our clients and we feel the best way to do that is by, like I said, not just having growth, but also value. Um, you know, proper value kind of company. Find managers in there. Yeah. So let's let's stay with style. I think How important is it when you're building up for the managers, stick to their knitting and they don't drift

Speaker 1:
into 100% important. You know, if we've bought, um well, Bertran to do a specific job within the portfolio. So if he went out and put his portfolio fully

Speaker 1:
into the magnificent seven or started buying energy, uh, we'd be straight on the phone and, um, knocking on his door. Um, and asking why? You know, we understand that fund managers over time have to adapt. Um, but most of the time, we expect them to do exactly what they do because we've got so many moving parts and levers within a multi asset, you know, product that you have to make sure that they're doing what they're, you know, what they're meant to be doing. We spend a lot of time,

Speaker 1:
um, monitoring all the underlying holdings or funds as well as, um, all the literally the entire portfolio so that we know exactly at any one point where we are positioned, you know, the way that we invest our all our managers tend to be fundamental bottom up either credit or stock pickers and tend to have

Speaker 1:
turnover. So from us, we we definitely have to do a lot of monitoring to ensure that, you know, we can tweak portfolios if we need to.

Speaker 0:
And but how do you keep your discipline? Because it must be very tempting to veer into areas that will give you better returns but maybe go against your Yes. So So the process is crucial for this, and you need a team that really embraces the process. So we not

Speaker 0:
our team, you know, this strategy, um, just reached its 10th anniversary and the team's been stable throughout, So I work with, You know, my fellow manager, since, uh, 2005 at Lazard, and and so we have a strong conviction that this is the right way to invest. And we are obviously investors ourselves in our funds.

Speaker 0:
And these are our babies, right? So, um and so what's important is really to follow the process. I think to Sam's point, you know, to be very clear with our investors of what it is we do for them. You know, we are not a Swiss army, like we do not pretend we can do everything but the the process will hopefully give you a very, very consistent outcome. So for us, if you think about what we will do for, um investors and and why it is valued differently,

Speaker 0:
Um, we think that there is this opportunity or this ability to find, you know, these cheaper companies. But you won't have this. Um, I would say silver bullet, uh, effect of a value fund, which will be helpful, You know, once every blue moon, uh, our our process really, um, is about idiosyncratic value and and refuelling, Um, this kind of reservoir evaluation. And to highlight the way we build a portfolio with value ranked companies. So think about

Speaker 0:
identifying a universe around 220 companies globally. So a very select club and then through fundamental research,

Speaker 0:
ascribing an intrinsic value, looking at three years to this business, building up up sites and, you know, really ranking those companies in terms of upsides. And as market prices behave differently, you'll have this opportunity set kind of refuelling or changes on a constant basis and sometimes quite violently, which means that you have to redeploy your portfolio. So, for example, last year was a really good example for us.

Speaker 0:
Uh, we were not only a first half story, we did really well defended capital in the first half. But if you look at the portfolio midsummer, it was very different from the start of Jan. You know, most of our utilities very defensive businesses were gone.

Speaker 0:
They had done their job very well. And the likes of SAP or no Bremer, um, you know, that had fallen very, very heavily went back into the back into the That's quite and Gavin, when you're looking at managers or just said their consistency of outcome is that the most important um well, to state the obvious, you need to know what the manager is setting out to do, which requires research. It requires analytics. It requires data requires experience.

Speaker 0:
Um, and and you know, it's important to say whilst we regard Bertrand's team, uh, highly, Uh, there are many providers out there, um, and it's important to know what position his fund would would would fill within a portfolio. So, for example,

Speaker 0:
um, I think your portfolio has got 25 stocks. That brings with it both stock specific risk, obviously, and it also brings concentration around a particular theme or a particular risk factor. So the all of understanding how that fits in into the portfolio is going to be critically important. But consistency,

Speaker 0:
um, consist. It's consistency of process rather than consistency. Consistency of performance is a very difficult thing to deliver because events can throw you off beam, obviously. But as long as you're doing the same process and you've articulated that clearly, um, and your clients are informed all the way along your journey, I think the other the other point that's important is communicating when things aren't going well, uh, as well as communication.

Speaker 0:
When things are going well, um, and I think that sort of honesty and transparency is also very important. But we touch a little bit on the places where you're underweight, where you're overweight in consumer discretion and health care as well. What are you seeing in those spaces? Yes, Um, I think, um you know, as I mentioned, we are completely benchmark and aware. And if you look at the stocks we own in consumer discretionary and you know, if you think about the index product, it feels like he's the overflow Buckhead. And so we have a range of companies that are,

Speaker 0:
um, you know, ebay, for example, which I wouldn't necessarily qualify as consumer discretionary or H and R Block, which is the largest company helping Americans doing their tax return. Well, as as you know, you know, two certain things in life is, you know, tax and debt. Um, so I wouldn't call it discretionary. Um, what whatsoever? So we need to be really mindful and very much focused on the individual companies, because indeed we are, you know, mindful and aware of the challenges around the consumer.

Speaker 0:
And as far as health care is concerned, and It's been the case when we had large individual sector exposure. We really look at the individual drivers of the companies so that we are, um, not overly exposed to just one thing, you know, corporate IT spending transition to the cloud, for example, when we had large exposures to IT.

Speaker 0:
Um, you know, for health care, we have a range of businesses from medical devices such as Metronic or, um, you know, dialysis treatment. Uh, DeVita. So there will be very different drivers, Um or, um, you know, um, broader service integrated service providers such as CV S Health. So again, so this last position as a group is really the outcome of individual stock picking.

Speaker 0:
I will. I'll bring you in here. So consumer discretion is a lot of the spending. A lot of the savings people had in covid have been depleted. Luxury spending is down in China. Trouble ahead for consumer discretionary. Well, it was depleted until the BE a um, which is extraordinary. So that was the sort of story of the last couple of weeks. Is that suddenly our view of not just the past, but the present has changed entirely because the whole industry.

Speaker 0:
I've been watching this kind of massive store of excess, You know, the savings arsenal of the US consumer and the US consumer as we know, it's customer number one for global PLC. It's the most important slice of single slice of demand out there. So what matters for them matters for all of us. Um, and actually, the revisions, uh, are so substantial, they sort of imply that you could have another few years to go in terms of running it down. Uh, depending on how you kind of interpret some of the details as always with this, you know, the data stuff. You want to be a bit careful.

Speaker 0:
So And the interesting thing I think from the US and developed world consumer, this is an underappreciated point, I think, uh, in the sort of wider macro debate where we've all got used to the idea of just looking for a recession because interest rates have gone up and theory tells us that should come. And so everyone's just been scouring the world for vulnerabilities and cracks and, you know, uh, certain consumer baskets and so on.

Speaker 0:
But actually, uh, inflation adjusted wage growth is now turning year on year positive in the UK Europe and US, which will be a significant positive. I mean, it's something that you know is is a bit underestimated. I think so, yes, in the US, you know, if you look hard enough and squint hard enough in certain households, you're seeing a change in the nature of consumption a little bit. There seems to be a little bit more,

Speaker 0:
let's say care in terms of how people are spending their money relative to a few months ago. Even there are even some some sort of cracks in terms of delinquency in in lower income households. And, yes, China looks very precarious. But I'm always kind of wary of kind of, uh, reflexive dooms, saying, I think because I think generally the lesson during much of my career anyway, I don't know about you guys has been, you know,

Speaker 0:
the global economy, for the most part, needs to be treated as innocent until proven guilty. Now the problem is for, you know, for the community and for all of us, you know, talking heads in a way, the thing that's gonna get you more splash and more air time and more uh, more book sales is kind of nonstop. Uh, stopped clock dooms saying, because we all know that the guys who sort of, you know, even though they've been predicting doom every five minutes

Speaker 0:
since the 19 eighties, when it came to 2007, everyone was like, Oh, my gosh, they've got the third eye. Uh, and their book sales went through the roof. And so the lesson has been learned by the commentariat, which is always be gloomy, and you'll, you'll probably do all right in the long run. Well, I, I would actually disagree with that. I think you probably need to think the reverse and assume that things are most of the time going to get better. Um, and that consumption is a really important continuing driver. And while the labour market remains

Speaker 0:
still pretty steady in the US and elsewhere, that's probably something to think about. I think so. What do you think is a fair reflection

Speaker 1:
there? Yeah, yeah. I mean, we're a massive believer, um, in global thematic investing. And one of those corner sayings is, um, global consumption. I mean, going back to, like, interest rates and the you know and the doomsday.

Speaker 1:
It might be that the rate hikes that we've seen actually are non binding, you know, because lots of people refiled back in 21 22. You know, the Americans have 30 year mortgages. They've looked in at 3%. They're earning 5% on cash. You know, they've got a 2030% wage increase, and actually, you know, the money is is still there. So I think global consumption

Speaker 1:
may may change ever so slightly, but I think it will still be there. We'll still be brushing our teeth, for example. You know, I'm not giving I'm not giving that up, You know what I mean? It's a good habit. So, you know, for us, it's very core to what we do. And, um,

Speaker 1:
yeah, I've I've always been a half glass full kind of girl. I think, um, half glass empty is normally on the other side of the table. It is in fixed income. Yes.

Speaker 0:
Yeah. Do you think innocent are proven guilty for global consumption? Um, well, I don't think I can't add anything necessarily to the global consumption points, um, or dentistry. Um, but what I think is important is is to talk about some despite the gloom and well, taking into account what will said about the gloom that is out there. And it's all pervasive and people are concerned.

Speaker 0:
Um, but the economic news does defy the evidence, or certainly the perceived evidence. And what I would suggest is there are There's some really interesting opportunities, not necessarily from a thematic perspective, because we've talked a little bit about that, but actually from regional areas of investment.

Speaker 0:
Um, and and I mentioned, uh earlier on about the attractions of close to home as well as over abroad on our work, some of the most attractive markets. There's germ. There's China, which we which we know about, um, which has been obviously in the eye of the storm, of not recovering from covid and obviously the the the property, um, debt crisis, etcetera, etcetera.

Speaker 0:
There are opportunities there, but it's There's still so many uncertainties around politics, geopolitics, the underlying structural makeup of that economy. But closer to home,

Speaker 0:
um, whether it's in Europe in Germany, for example, which has been heavily sold off, uh, with very high quality companies or and most interesting in the UK for our audience today. Um, we're we've been used to since 2016 in the Brexit vote of being, um of, of being very negative about ourselves and about our economy and about our stock market. And there isn't a day that goes by without some negativity around either the economy, politics or the structure of the market.

Speaker 0:
But if we look at the the valuation of the UK, um, and and you mentioned revision to some of the data that we've just seen Well, we've just seen some revision to the economic data in the UK. It is not as bad as we think, And I don't want to sound like a, um, some sort of poster boy for the Conservative Party. But things aren't as bad as we. We think we believe in it. Indeed. And, um, so I. I think when we think when we're talking about investing through the uncertainty and holding our nerve and keeping people invested, actually,

Speaker 0:
some of the most interesting opportunities are closer to home with the home bias. And I think it's, um it's it's worthy of our of the audience today to think about that. Uh, where are your investments going? to be and and actually is close to home, offering us the best opportunities in probably still the most unloved, most depressed market. Um, out there, I would suggest, certainly in developed markets, I think also just on that Sorry, just because when the guys were talking about themes and how to sort of, you know, do that and it's a really interesting idea, and I think one of the

Speaker 0:
dangers that I'm sure the guys are good at dealing at. But I think sometimes individual investors struggle with Is that

Speaker 0:
the more popular a theme, the more easily understandable? The more kind of, you know, media worthy it is, the more likely it's been exploited to a degree. And I think that's you know, Gavin, you you you were all mentioning that to to a certain thing. And so, to a certain extent you can look at the opposite. If you're looking for mispricing, sometimes you want to look in the unfashionable areas and God, it couldn't be more unfashionable than the UK at the moment. But you know that that is where you know, a little bit less of the kind of market spotlight is focused, and sometimes you can find.

Speaker 0:
That's where some of the interesting opportunities for our performance over the longer term, because that's where mis mis pricings might lie from a global perspective. The UK is an interesting one because it makes obviously what 3% of GDP and it often gets overlooked. But is it because of that negative outlook and negative rhetoric that it gets almost designed to worse than three? I mean, sector makeup hasn't been helpful this last while certainly. And I think for the mid cap space,

Speaker 0:
you know, it's been very difficult. Um, I mean, the UK economy hasn't been, you know, we've not been in the sunlit uplands of an economic boom by any stretch, you know? So I think for those for those few companies that are purely UK constrained, it has been quite hard work. Um, in the aftermath, I mean, not just in the aftermath of Brexit, but it's been a sort of quite a dry 10 15 years in terms of productivity growth in the UK. Even in a global period which has been dry for productivity growth, the UK still stands out a little bit,

Speaker 0:
but yeah, I mean, that shouldn't mean I. I do think quite strongly that, you know, in terms of sector terms and, you know, um you know, just as Gavin was saying, I don't think the UK can be ruled out as part of your globally diversified opportunity set, I would just say that Don't limit yourself to that. The beauty of modern, you know, modern investment markets relative to those of 50 or even further back than that is the access you can get to the world economy through amazing fund managers, you know, So you're you know, you can think about it as

Speaker 0:
you know, just multiplying the power of your brain power. Essentially, because you're able to get hold of, you know, various asset managers as long as they're carefully screened and so on and sort of the due diligence.

Speaker 0:
And they give you concentrated, you know, uh, select exposure to parts of the world where they have specialism. So you're really just again. It's giving you investment superpowers. I think, to a degree, just make sure that you've you you're getting the whole world on your side rather than just one little part of it. I will point out at this stage if you do have any questions for any of our panellists. Please do submit them and I'll do my best at the end to read them out.

Speaker 0:
I, I do want to come back, Sam, to a point. We touched on earlier and we talked about it a bit. But are we in a new technology paradigm and investing thematically as you do? Do you have a sort of set agendas for investing in this new technology world?

Speaker 1:
Um, so we have recently, um, invested into, um an A I fund, which is the Sanlam Global Artificial Intelligence. Chris for has been running this since 2017.

Speaker 1:
Um, and we actually sold down our tech exposure because we didn't want to be so focused towards like the NASDAQ. Let's call it and we knew that A I, um, pervades across all sectors. And so whilst the Sanlam fund has 50% in technology,

Speaker 1:
it will also own health care and industrials and materials and and everything and discretionary So it it pervades through everything. I think you know what we have to be very mindful of is that a I, you know, will will be needed. We're in a world where the workforce is is shrinking. We'll need kind of like help to increase or boost productivity and GDP or growth.

Speaker 1:
Um, and it's something that we're very mindful of. But you have to also be aware that, you know, you have to be able to either generate revenue from it or you have to have efficiencies. You can't just splurge on the A I because it's trendy to do it. There has to be a tangible benefit, and that's why we use, you know, when we go and meet all our farm managers, we've asked them

Speaker 1:
how, um how has a I impacted the business? What are they thinking about? Like Microsoft and their co-pilot, or whatever it happens to be it it's kind of is rolling out, and there's a lot of money to be spent in that in that area. So those people that can either have the data or you know, can offer you solutions. Um, produce, like the high compute that you need,

Speaker 1:
you know, should over, you know, the next decade or so probably, um, make the best of the opportunity. That is a I. I

Speaker 0:
agree, Um, but and understanding earnings in this new world. If it is a new industrial revolution, have we got it wrong? I think No, I think you know, again, we we It's about gradually understanding the actual implications

Speaker 0:
broader sector. So and it really ranges throughout the economy. So if I take an example, you can actually use a I to do image analysis when you have utility companies digging the ground instead of having a supervisor turning up on on the on site, assessing whether the work has been carried out. Uh, on the appropriate, uh, you know, regulation is the pipe deep enough,

Speaker 0:
you know, the way it's been laid by the team on on site. Now, you know a lot of the applications you you find in the assessment, you know, very much like, um, medical inventory so that the range of application, um is is quite interesting. And, um, you know, to some point, productivity improvement can be significant. So we've we've had actually companies that

Speaker 0:
I've used this type of solutions, uh, over the last few years already. Uh, some of them will use external providers. Some of them will, uh, you know, develop their own, uh, their own tools. Um, which is not to be, um, you know, neglected or under underestimated to the point that, you know, not only seven companies will will benefit. Um, and but there will be disruption as well. So, again, back to

Speaker 0:
should the company be in this franchise universe and and have a very, very, um, you know, humble and open mind about, you know, not being a tenure in our universe is is really important. If you're out of the group, you're out. You know, we want an exclusive club. So and given productivity mentioned twice there and no more in the country in the UK do we need a big shot in the arm for productivity?

Speaker 0:
Well, I think, um, any company that isn't deploying a I is going to fall behind and let's us. I think it's a fair assumption to say that almost every company will be thinking about it and how they can do it. I know our companies, and I'm sure yours are to see both the efficiency gains and how we can do things more productively and how we can innovate in terms of new product launches.

Speaker 0:
Um, what's interesting? Is it it? It was only a few weeks ago, or maybe a few months ago, that around the chat GP T dinner tables that you know was was talked about. Google was perceived to be at risk from, you know, chat GP T being effectively opening up or having a competitor to the the world's dominant search engine. So I think what we're going to see is we're going to see some big companies perhaps

Speaker 0:
being replaced by the companies we've never heard of yet. Um, and and so, yes, there's productivity gains, definitely, which is going to be a positive um, I, I think the labour, the the the cutting of labour force story was overplayed. I think we it's it's more exciting than a negative. Um, but there's going to be some absolute losers that we haven't even thought about and that are currently darlings within many portfolios. I would imagine,

Speaker 0:
uh, we do have a question. Thank you for sending in, uh, from tim. He said, did the panel have concerns on the amount of money in ETF S and in this respect, to pass this becoming the market rather than following the market.

Speaker 0:
Great question. So, um, I I've got a, uh, possibly unpopular view in this in this company. But I, I think passives are really important. Um,

Speaker 0:
you know, if you look at again that story we've been talking about with regards to, you know, you compare the experience of a US investor in the 19 twenties and think about the costs of assembling and maintaining a diversified pool of stocks. I mean, all your returns are eaten up pretty much in terms of trading costs and everything. Now you can get the world, you know, for a matter of basis points, which is really, really a great innovation, and not just for the the rich and famous, you already rich and famous. And it's an innovation that should benefit anyone

Speaker 0:
nonetheless, you know, at all stages, you know, when we talk about efficient markets and all of us will have different views on the degree of market efficiency,

Speaker 0:
you know, whatever your view on market efficiency, in a sense, I, I still think there is always a role for active managers able to, uh, exploit those inefficiencies. And not just that from a From the perspective, I think of a sort of new and emerging and really, really important. Vital uh, you know, role of the industry. It's that role of responsible investing. And quite a lot of that is about advocacy

Speaker 0:
and in order. Certainly, in our view, in order to be, you know, to advocate and actually influence the companies that you own, you need to have plausible deselection threats. So, you know, if you don't change, I will not own you. Um, Now, you know, we believe ourselves, you know, Buckleys to be the best stewards for that company and all that kind of thing, and we want to get them through change. But I think deselection is an important part of that. And you don't do that through passive yet. Um, and so I still think it's a really, really, you know, active to me will always be important.

Speaker 0:
Um, in terms of how we make multi asset class funds and portfolios, the balance between passive and active will wax and wane over time. No doubt about that. Um and you know, it certainly helped with bringing fees down overall. So it's a great innovation in the industry, I think. Can I add ETF? S are a vehicle, and they're a very, very efficient vehicle. What we're seeing is particularly in the US, but it's coming. Here is the growth of active ETF S, and so you can still be an active manager doing what

Speaker 0:
is doing and other great farm managers out there. But it's the vehicle of choice that is going to change. So there's a very strong argument that the mutual fund where the collective vehicles that we currently use will shift over time, as as people are trying to get a lower cost easier to implement, uh, ways to to create their portfolios. But to really think yes, I think you know, on, um, I think for us, it probably is, uh, somehow testing our patients because it can exacerbate some trends.

Speaker 0:
So if I take some examples, you know some good companies we saw that, you know, historically traded on 12, 15 times a B, which were pushed in 2021 to 25 and suddenly you had this inflexion, you know, going to 40 times a bit. So you know it's testing our patients.

Speaker 0:
However, when the pendulum swings, it means that it it just opens up opportunities. So, you know, for us, I think, as as long as we keep our eyes on the long run and we don't, you know, compromise on patients. We will be rewarded. Um, but yes, it it can test the our patients some somehow.

Speaker 0:
So what do you think is dramatic? ETF? Um

Speaker 1:
yeah, we we don't really invest in ETF S. We're definitely fundamental. Bottom up like stock selectors. Um, when When we're choosing investment vehicles? Um, it does mean that sometimes the the flow of money that we see into it is exceptionally difficult. Like even if you run a tech fund, you can't mirror the MS C. I kind of like information technology index right, because the use its rules won't let you

Speaker 1:
so it really does depend what type of exposure you want. We've always been of the opinion that if you buy a generic ETF, you will follow the market. But you'll never outperform it. And what we do with fundamental kind of like stock pickers like Bertran, we go down there winning by not losing. So for our client base, it's all about the journey that we give them and we would hope to make like, drawdowns.

Speaker 1:
Maybe we won't keep up with a strong beta market. But over the long term, we should, you know, outperform. And that's what we really look for.

Speaker 0:
I'd like to keep this going all day, but we are out of time. Um, but thank you very much. All for all of your insights today, thank you. That is all we have Time for. All of this will be available to watch on Asset TV once this live broadcast has ended. Um, all left for me to says thank you very much for your questions. Thank you. To Will Sam be.

Speaker 0:
And Gavin, uh, thanks again for watching, and we'll see you here on us at TV next time.