Speaker 0:
Hello and welcome to his asset TV masterclass on UK equities on Rue Palmer today we're going to be discussing Is it finally time to start talking about the UK? Gonna be looking at withdrawals on liquidity issues in the UK market and with a lot of companies listening abroad. Welcome

Speaker 0:
do to stop the rock. Well, you need to discuss that. We've got Scott McKenzie, Fund manager Marty Global Investors. We got Neal of each global in UK investment director SPM Alexander Jackson Fund management wrath Bones on Fred May and fund manager at Church House Investments.

Speaker 0:
Well, Scotland come to you first, Let's set the scene a little bit. The UK Is it finally now time to start talking about it. Is there shoots of optimism?

Speaker 0:
I think there are two very big issues going on in the UK the moment on our competing investorsattention and those two things are evaluations versus liquidity. I think those are the two real driving factors and where we are today on at the moment, liquidity is winning out. Your UK assets have been performing pretty poorly for a number of years now, notably since the Brexit vote in 2016 that that's carried on

Speaker 0:
on. We see that particular at the smaller end of the market. You know, small, small, mid cap and aim assets are particularly depressed at the moment. On a lot of that's to do with liquidity, you know, so against that evaluation now looks extremely attractive. So I guess to answer your question directly, the if you're interested in valuation, now is a very, very good time, I believe to be to be looking at this asset class. Neil. Welcome to you. Let's stay with valuations. He's seeing a similar thing for a cheap.

Speaker 0:
Yeah, you think all of us on the panel would agree that UK equities are cheap, but equally we could have made that case over the last 2344 years. But ultimately it's important and investment to remember that this, too will will end

Speaker 0:
on DG generally bear markets. We want to turn it that come to an end through either price or time or both on the Scott said. We're at a level whereby valuations are very attractive. I think we're getting to the end of that process whereby the UK has been progressively underweighted or how it's waiting is reduced from both domestic and international investors. I sort of welcome to you love. Negative sentiment in the UK is driven the prices down.

Speaker 0:
Arguably, with inflation coming down will be a very slowly GDP figures being revised in a new government. I could be on the horizon, didn't that rhetoric won't start to change about the UK?

Speaker 1:
I think there's definitely some room to improve that rhetoric in my past, the market. We can certainly find companies that defied the rhetoric that you know, that sort of negative

Speaker 1:
narrative that we have started talking about in the UK It's become really easy to fit that around the flows and the liquidity what we're seeing. But actually, when you think about those factors that weighed on UK equities last year, interest rate hikes, sterling weaknesses, evaluations Ah, lot of those have reversed on.

Speaker 1:
Actually, you could see those giving some support to UK equities. I guess we need a catalyst for that which could be, you know, the UK transitioning power from a centre right government to a centre left government with a you know, smooth transition of power. Theo. Us may look a lot noisier next year in that sense

Speaker 0:
on Fred. Last but not least. Welcome to you. What do you think with all your panellists thoughts there. What's the UK looking like to you? Yeah, thanks for it. Well, I think we all agree that that the UK is looking attractive right now. We might say that we're all okay,

Speaker 0:
UK managers, But But if if you look at it realistically, I mean, where better to look for bargains than a market that has had three straight years of outflows on the seemingly international investors have very much turned their back on.

Speaker 0:
But actually, this is this is the oldest stock market in the world. We've got a rule of law, you know, when When was the last time you heard of a UK government stepping in and taking over business, which, sadly, you can't say of quite a few markets on bond.

Speaker 0:
Yeah, I, I take your point, Scott on on liquidity at the small end of the market. But if you look at where we're focusing with our ah UK Equity Growth Fund towards it was the higher end of the market that these are still deep liquid international markets on. But there are bargains. Arthur

Speaker 0:
Scott, where are those bargains? Where you seeing some Real In what sectors? Yeah, I mean, obviously we we come at a time, Matty for my small company perspective. That's our core business. SO. I appreciate his either work. Fred just said there, you know that there is good liquidity in large cup, less so in small cap. We've done some analysis recently looking at some of the valuations you on a market cap basis on, To put it simply, the further down the market cap you go. The lower evaluations are so those are

Speaker 0:
on illiquidity. Discount now for the very smallest companies on the question is, you know where Where can we find the sweet spot on your for us kind of market capitalizations of north of 200 million to about a billion are for us and our fund a real sweet spot of the moment cause you confer

Speaker 0:
some fantastic businesses with great try. Records are now trading on your multi year lows in terms of the valuation. So that kind of mid market small for us is you know, we hope will be a very happy hunting ground. Now. What about you uns VM team. They're saying similar things. Yeah, well, we can invest up and down the market cart spectrum, and we're finding opportunities right up and down the curve, as it were on. There's certainly no shortage of ideas to deploy Capital Capital into.

Speaker 0:
We've looked at things like Rs Group, the Electoral Components Store, Footsie Footsie company. It's down 20% this year. Good cash conversion, strong balance sheet on. It's been business being weighed down by the European PM eyes. 50% of the market is UK and in Europe on this, perhaps a reasonable expectation of those pyramids might might improve from here. And it could very well be be a takeover target as well.

Speaker 0:
That's sort of what companies are looking good. What ones have got some strong balance sheets at the

Speaker 1:
moment?

Speaker 1:
Yeah, that's a really good point. As lead indicators point downwards and interest rate rises actually start to hurt corporate profitability through increased interest costs, I think that balance sheets strength will become or, um or important. We have a strong quality bias in the fund. Almost half of our company's actually have net cash on the balance sheet. That definitely improves in that in that kind of mid cap space, eh? So we've been looking at that a lot.

Speaker 1:
There are some really interesting business is actually in the large cap space. You know, JD Sport has a billion pounds of cash from Van Cherie trading at a You know, a very low valuation for a retailer that is, you know, it's a global brand. It's a business with a huge global footprint. It's not just about selling trainers in the UK anymore, Tiu at all, but it gets lumped in with this sort of distress retail

Speaker 1:
group on guy. Think that's a really interesting hunting ground, finding stocks that have been, you know, erroneously marked down amongst their peers in, you know, in a tough sector. Maybe. Where actually they've got their only vegetable

Speaker 0:
is extraordinary. JD Sports, five years ago they didn't They didn't sell anything in the US and US, I think correct me If I'm wrong about at their last statement, JD Sports actually sold Maurine the US and they did in the UK, so I mean what a transformation over five

Speaker 0:
has. But yet the act evaluation has has gone gone the opposite direction Say you're you're you're looking at the lead distributor of Nike in the world, not just in the UK, and we're lucky enough to have it listed here in London do aside 100 points. There's other companies like that have been marked down because of the sector that they're in. Yeah, that's a happy hunting, Yeah, of top down people looking at saying It's the UK consumer. No thanks on actually, yeah, our org UK consumer isn't isn't is awful

Speaker 0:
Azaz. The market is pricing at whether it is an example of JD Sports corruption much more international but is being marked down or good old Gregg's holding we've had for 20 years. That's very much UK focused, although they're actually dipping a toe into Frantz. But but but yet they're hitting record numbers on DNA market keeps keep, keeps hitting the share price. So what better opportunity

Speaker 0:
on Scott from the small cap side of things? What examples have you got? TV will be saying What we're finding now is that a zay said I'm only goal of some very high quality business, that we can now invest in a really sensible valuations for the first time in many years. So

Speaker 0:
some of The recent examples of companies that we've introduced to our fund would include a G Bell investment platform. You know, that's a very high quality company with a great track record on like many such businesses, the shares of suffered quite a bit in the last 18 months. So that's one of our new holdings. We've also invested in train Line, which you know is a household name and a fairly dominant,

Speaker 0:
you know, platform business and what it does here here in the UK and increasingly in Europe as well. They're quite strong business in Europe, you know. So these are, you know, really strong growth businesses that are trading at, you know, much, much lower valuations Then we would have thought possible a couple of years ago, So there are plenty of things we could be looking at that are really high quality businesses from near. Does that ring true? Few strong outlaws for you in the portfolio

Speaker 0:
A. Said L. A law and we're finding release opportunities across the board. I think a little bit Maura and Smith cap, than we are large. But there are opportunities and large. It's important to remember that Smith Cap always leads and anticipates a recession,

Speaker 0:
the underperform going into recession. Then, once essentially rightist recession is recognised, the outperform very strongly. On the other other side, for instance, I think UK retail started outperforming the broader market back in the summer of 2000, a really before the financial crisis hit, Wait for everything to turn positives and generally of messing the best opportunities.

Speaker 0:
Sort of. What about banks on Doyle companies as well? Because they've been good dividend payers and the outlooks looking quite good for the balance sheets have really improved after a couple years of building up again.

Speaker 1:
I actually don't know any banks in the portfolio, and I don't own any oil and gas companies with a quality growth bias process. It's been hard to find the companies that

Speaker 1:
consume that process. You know, we are quite strict on how we apply the process. We're always looking, though, where you know we would run the companies through through the process all the time. It's not a you know. We will never buy this sector by any stretch, but we haven't found those companies were, you know, oil services businesses, which you know, have sort of cut the link, the direct link with the oil price. So we feel like we can.

Speaker 1:
We can have a bit more predictive power go. What's going on inside Those businesses on banks were way would prefer, you know, specialty financials, alternative fund managers like Intermediate Capital, for example, or maybe even some insurance companies, which again have become very, very cheap, you know, with valuations sort of implying a dividend cut in some of those insurers. S Oh, that's where we would prefer to play.

Speaker 0:
What about your friend? You have an opinion on? Those? Two were in the same camp a Zach's honouring that way. Don't hold those businesses. And I are, I'd add kind of reasoning for us in that we're looking for businesses with good predictability in terms of their revenue and their cash flow on by their very nature on oil business, let's say their profit is the oil price multiplied by how much oil they pumped on. D.

Speaker 0:
Yeah, and hand on heart. I can't tell you where the oil prices going on. I'm sceptical that many people can, so that's that's That's the reason why why we don't own them. It's It is not for any any deeper reason than that, Yeah, in on bank, we also don't and these specialty financials I'd mention experience at the moment is looking really cheap. That's very high quality business SO that that they're they're essentially a credit bureau

Speaker 0:
SO. If if you need data on on individuals, let's say in the US, which you would use either that's that's in insurance underwriting or even less your health care provider and someone comes in the door. They can't give the retail that they give the rial time data on their likelihood that that person's actually actually going to pay up. So it's it's it's must have services

Speaker 0:
on that sold off because of worries about credit on demolished market in the US But what the market's not saying it is. Hang on, actually, in tough times. That's when having this credit data xylem or important, because you need to be doubly sure that these people are going to pay you back so that this is kind of counter cyclical element to business like experience, which which the market isn't looking at. And if you look at the cash flow yield that a business like that can give you

Speaker 0:
plus 5 to 10% organic growth. If if you're taking a 5 10 year view, then then then now is absolutely the time to keep adding to a position like that. It sounds much in this point before Fred, but about cos we find that seeing a different rate where you see in particular vulnerabilities, yes. So it's It's something that I think we should dwell on a little bit with this conversation that

Speaker 0:
that were only just scratching the service, that that the lag effect either at the consumer or the the corporate level of higher rates we're only just starting to come through. If if you think about a a medium quality business just hypothetically, that needed to raise money and covert, they probably raised three year money that they raise money at some 5% they're probably raising at north of 10% now. So not many businesses can actually generate a return on Equity North Attempt sent in the first place

Speaker 0:
on Dure History's told us if you're raising debt north of 10% theocracy and he goes one way, it's the debt holders. They're taking all the value there.

Speaker 0:
I was sort of what you

Speaker 1:
think? Absolutely. Yeah, we're coming through the portfolio to see which companies we think might be, you know, the most vulnerable to that, a ZAY said. We've got lots of businesses with net cash, which is great. We're interested in looking at the term structure of the balance sheet as well. You know, with the yield curve in the shape that it is. Actually, that's really important, not just the level of rates

Speaker 1:
on again. That speaks to why we own these, You know, high quality businesses, companies that can't if they're not generating enough cash flow, todo even cover their interest costs. That's going to be really, really tough on bank. Those are the ones the companies that are really you know, they're really suffering at the moment. There's perhaps, you know, bids on that side.

Speaker 0:
I was so was once the panel and the few yourself here just about M and a activity in the UK. What do you say? We say we'll pick up what's giving you hope. I have not seen a pick up just yet. I'll be there have been Mork takeover room or swelling around many stocks, and whether that's just purely a function of investment bankers being back for their back from our summer holidays, and they're starting to leak storeys to the press, sir, I don't know,

Speaker 0:
but logically, you would expect emanate to pick up. Given where evaluations in the UK UK market are. It'll probably need, however, more certainty over finance and costs, even some private equity. They may do some deals where by the electoral fund, the deal and look to refinance that are at a later, later date. We're not going to play a lot of capital, this particular particular juncture. So

Speaker 0:
like a lot of what we're talking about today, and I'd expect to pick up, I think the UK is cheap. You need that that Catholics valuation alone. It's just like the Kindle, and you need that spark. Whether that's a change of change of government, whether it's starts to reinvigorate UK, UK Capital markets, we'll never know exactly what it's going to be until it happens. But given positioning in the UK market once it starts to move, it couldn't be very quickly

Speaker 0:
what you think, Scott. Yeah, I brought like the one you should said there. I mean, correct me if I'm wrong. I don't think they have been any takeovers in the future 100 or the MidCap This year we had a couple in our funding. The smaller end on that typically been companies have gone to private equity on what we're finding. Speaking to a lot of our businesses is that they are increasingly disillusioned with the way the stock market treats them on. Therefore, you're going private, as you know, on agreeable option for some of them on the

Speaker 0:
The danger with that is that you end up losing good companies in the portfolio too early, perhaps less advantageous price than you would like. So while it's nice to have the odd takeover, it's no necessarily overall health for the market, you know, because it shrinks by by definition. But I do think you're going back to what we just said there. Once we get some clarity on the cost of debt and funding, we'll see, you know, fairly significant pick up at some point. I think

Speaker 0:
let's go back to liquidity causes upon you you mentioned earlier with big withdrawals in funds as well. Yeah, I mean speed across the board, I think. I think Fred alluded to earlier, You know that we've had for atleast three years, probably even longer. Actually, UK charities have been an outflow in general. On dure, you see, Nana in our world, in the small cat world, it's particularly pronounced because you have, you know, the biggest liquidity issues at the small end of the market, and a number of the major funds have seen outflows.

Speaker 0:
That's, Ah, very big contributing factor, you know, to the very low valuations that we see in our universe on Do you know the questions Well, that other end you and that the cells haven't really been domestic by and largest fans, I can tell you know, the actual foreign ownership of the UK stock market's gone up quite a bit as a percentage over the last 10 years. I think it's now 55. 60% is non UK.

Speaker 0:
On the cells have been UK. Pension funds have been UK New unit trust holders. What wealth managers, you know, it's it's a domestic sellers that have really been the problem for us on. Do you know people talk about catalysts? The Catholics in many ways, is for people to stop selling. You know that in itself would actually help? Quite a bit. I think, is that surprising? That domestic cell is being will the foreign ownership?

Speaker 0:
I don't think I don't think it is given everything that's been been at play in the sense that you for consolidation in the in the wealth sector, more, more broadly,

Speaker 0:
there's more regulation that play the US before in very strongly. If your wealth manager and you're retaining your home bias in the US markets outperforming, you've got very awkward conversation to have your end with your client, particularly that's been compounded by the weakness,

Speaker 0:
the weakness in Stirling SOB. It's not surprising at all what

Speaker 1:
I'm noticing. Some gentle improvement in perception around the UK from the US from across the pond. Global investors tell me that it was never about the fundamentals of the companies that they confined here.

Speaker 1:
Maybe we'll touch on the lack of tech and you know that does feed into it a little bit. But they said it was never about the fundamentals of the companies they confined good businesses to buy here. It was always about that political risk, the instability that kind of lurch to populism, that really you know made them nervous. I think that Scott, your point around liquidity and Manet was really interesting. There's been quite a lot of activity in the health care sector this year. SO Deco pharmaceuticals kind of 50 to 50. Business has been pushed into the 5100 thanks to the bid

Speaker 1:
on. Then, er go mad on a couple of other businesses as well have been, have been bid for which we own in the fund, which is, you know, as you say, it could be sort of nice sometimes to have these bids. Hopefully, you get a great premium. But actually, sometimes the premium hasn't possibly been high enough because, with, you know, consistent outflows in the UK for managers are potentially more willing to accept a price that maybe we wouldn't have accepted before

Speaker 1:
because they are, you know, forced to hand back the money. So I think you're also not getting that capital recycled in the same way. Perhaps that we used Tiu. We've actually had inflows this summer

Speaker 1:
for the first time in in a while, you know, we've sort of had steady, you know, we were talking earlier, sort of steady, you know, inflows offsetting outflows. But actually, we've had net influenced this summer. Funds of funds, some sort of a phase progressive. I phase, I guess, really searching for value on now, recognising that you could buy UK growth. You know, that quality part of the UK on,

Speaker 1:
you know, sort of win with no valuation premium that you used to have to pay. So actually thinking you could get growth for a value price, eh? So it's been really interesting to see that there's,

Speaker 1:
you know, there is some money coming back.

Speaker 0:
What do you think? And deck reform suits cosas Well, you mentioned. Think Yes. Oh yeah way also, shareholders and decorate.

Speaker 0:
I mean, first, we've got to applaud the thieves, international investors who actually being enterprising and, for example, take picking up Decorah honour go mad at silly, cheap valuations for exceptional businesses, which, which were mid and small cap pond. Had they had they stayed on the UK market's. It could be

Speaker 0:
cornerstones of many UK portfolios for years to come, and it it's it's a matter of, you know how, How much fight does the UK investor do these management teams have? We actually spoke to the management teams of both Mad on Decker and made our dissatisfaction known at the price that they were selling the business, that we said, You know, you came here.

Speaker 0:
We've been speaking to you for a decade, and you've always told us about the investment you're putting into the long term. And here you are, selling your business of offer after one profit warning in in in the case of Decorah at what we see is is a significant discount.

Speaker 0:
So the international best day there was actually slightly friendly fire from Some were also shareholders in the business that acquired Decorah so way we managed to keep an interest in it. But the business that acquired Deck Rickel investor Abie, who's Scandinavian. They say they've got a 10 20 year investment horizon on the UK market. Just just not doing that, that they're worrying. Aziz, you're alluding to. It's very tough having to beat to climb,

Speaker 0:
saying, You know, here's your six months performance and you know we actually don't don't take that lightly if if if a client's portfolios down over a period, But but but it's about actually saying it fundamentally, has something changed with this with this business. It's the same company that that that we invested in Andre.

Speaker 0:
I think it's it's a real shame that you can. Investors who who abating these thieves take every through, are happy to let let that happen. I like such a lot of people said across the pond when you spoken to be the main There is,

Speaker 1:
Yeah, sort of a confusion, I guess, as to why the discount persists in the UK. Why we still see that You know, you've got the US trading on what's come back a little bit in the last couple of weeks, but, you know, 18, 19 times in for the SNP

Speaker 1:
versus even, you know, quality UK to 50 50 to 50 on under 11 times. So that that is a very chunky discount. A So I guess, confusion

Speaker 1:
not knowing who's going to move first. What, that you know what that spark will be. A zoo say we won't know it until we see it in the review mirror. Probably it could be a 5100 bid on guy. Think we need a little bit of foma back in the UK market? We need to remind ourselves why people own these thes cos the possibility of making

Speaker 1:
you know very significant returns in UK small makeup companies.

Speaker 0:
We think bit of phone worth coming out for the UK market. Yeah, I think history tells us that Want any that investments? Inherently psychical asset classes come in and out of favour, little rhyme nor reason

Speaker 0:
on when it when it turns. And it's a little bit like a pendulum. The markets over shooting both both their actions. Okay, Often they come back almost under their own weight. And when it comes back, that fear of missing out kicks in. I mean, it's not perfect example. We think back to the European experience. 2012 from Dragon stood up and said he'd do whatever it take that gave the green light for global investors to allocate back into into Europe. Okay, you know, it's a much larger part portion of the global. The global index was understand ourselves,

Speaker 0:
seeing more interest coming out of the out of the US, potentially looking and UK assets common language rule law, except that's an easy step for them to get, particularly time And when US politics maybe more disruptive over the next 12 to 15 18 months, so we don't we don't know what that Catholics there's, but it could be coming. Scott, I want to come back to you with what you were saying earlier about companies going private. You know, when they spoken to you what they said, What being the main gripes with the UK mark,

Speaker 0:
it goes back to the point of evaluation. Really, You're, I think, someone said earlier, You know that a lot of companies are delivering the numbers. They feel that they're doing a great job on the share price goes south on a daily and weekly basis. On that, that has implications for companies because they what do they tell their staff and they present? The results in the share price is down

Speaker 0:
15% from no apparent reason. You're so there's ah kind of real life implication here. Here is well on a lot of the fertility. Smaller companies say there's no why we bothering being listed on a more on the London Stock Exchange, you know, so that I think the disillusioned, by the way the markets treat them

Speaker 0:
on goes back to this great dislocation between price and value. Your price is inherently very very volatile value moves less so in the real world. You know, I think cos at the end of a they're operating in the real world and they find it hard to understand what's going on at the moment.

Speaker 0:
Yeah, Cos listing away from the UK Can you blame them? No, not not really to be, to be candid, I think I think there's a number of different things that play for some of the larger companies. So we will see. Our H is the largest Holding in the portfolio is quite clear. Valuation discrepancy

Speaker 0:
between where ch is trading in the UK as it stands today, given the 85 7 businesses, and it's going to be in the in the US. What multiple little tract in the in the US market is big enough. They won't get lost in the noise for smaller cap companies moving over to the to the US and you

Speaker 0:
just get lost in the lost in the noise. I think there is, however, a broader picture to address you, and that is we need to get that equity culture back in there in the in the UK When I started my investment career, back in the mid In the mid nineties, the UK was 12 13% of the the index. Now

Speaker 0:
that's a function of other markets. Perhaps not being asked has developed. We went through that whole privatisation agenda. Three UK public was invested in the stock market. What we've seen since then is a sort of series of policy errors, small on relative, inconsequential in their own right, but cumulatively have led to the current situation whereby you're the UK population

Speaker 0:
and does not think about investing directly directly and equity. It's Alexander Cos. Listing abroad in New York's and find themselves crowded out. That's when you had a similar experience with

Speaker 1:
Yes, definitely. I think I agree with you. There are reasons good reasons for some companies, you know where. Perhaps them that you know the majority of their operations and profit now come from the States on. Hopefully you will see a

Speaker 1:
evaluation, you know, discount closing for particularly CRH Ash Head, for example, though, is a UK Fitzy 100 list of business predominantly operating out of the US has ah hire multiple with its London listing than its US counterparts. So it's not I don't thinkit's easy to say that these companies can realist in the US and you know, hope to close that multiple gap.

Speaker 1:
I think that executive pay is a big factor in this. We, you know, we have to be a little bit honest about that as well. And then, you know, I also see those smaller companies. AB Cam is a health care business that was aimless. Did we? Probably some of us have been in and out of that over the years. They moved todo realist on the NASDAQ, claiming that those investors would understand the business better would rate it better

Speaker 1:
on, Do you know? Sadly, it's just tailed away and has now been bid for at almost no premium price by a you know, a US predator. There's a move afoot to bring it back to realistic. Back in the UK, I don't think listing location is the primary determinant of valuation.

Speaker 0:
What do you think? Executive pays and there's there's more under the surface. Yeah, definitely on D. Just,

Speaker 0:
you know, let's say you've you've built up Oxford based

Speaker 0:
Yeah, hi hi tech business in in the biotech space, let's say, with roughly 100 million market cap in your you you're looking to hypo you going to appear on the A market, which is just halved in value, where you personally are going to be paid less or you going to look overseas on DATs. What's happening? And I don't think we can forget a man called Mr Woodford

Speaker 0:
on the damage that he did tiu that sector of the market on Do you could still see a cup of those businesses listed and what a what a tough time it has been for those for those entrepreneurs trying to, you know, ultimately develop exciting businesses on our shores on da

Speaker 0:
Yeah, a zoo. We've all been saying it would be brilliant if some, if something could change and and and perhaps where it's less regulation, perhaps there's there's There's been talk about some reforms to the icer system. Try trying to find a natural buyer for UK equities again

Speaker 0:
on but should be UK individuals. It shouldn't be that most Isis are satin cash. People should be engaged and interested to actually be be investing in these in these businesses around us. It's under the state with the icer point there. Do you think about that

Speaker 1:
the great British Aisa this'll isn't about telling said anymore. We need todo. We need to think about not mandating asset allocation that smells to me like the next Miss selling scandal. I would be extremely nervous to see something like that.

Speaker 1:
But four UK Aisa holders to be incentivised through tax breaks to, you know, maybe an additional 5 to £10,000 that could be invested in UK companies. I see that in France they have a similar scheme where you can invest up to €15,000 a zoo long as you invested in European small and mid sized companies. It's actually bit more specific than just geographic.

Speaker 1:
You could get the tax breaks if you hold it for you. Hold the company for more than five years

Speaker 0:
now. What do you think? Reform the system, I thought. I think we have to make the whole taxation of investment a lot, A lot, a lot simpler, and Scott will know a lot better than than me. But I don't even understand the VCT a arrangement

Speaker 0:
on. Then you've got Isis. On top of that, I mean simple things, like bringing back the dividend tax credit put it higher, higher level. That sort of thing to me, seems to be a sensible route to go down. I agree with outs and the last thing you want to do. You suffer so mandated asset allocation or industrial policy,

Speaker 0:
but perhaps even one of most simple things to do. Beat for the UK government's pensions, you're usually saw the UK MPs pension scheme to actually have a UK and demanded they have 0% waiting to UK equities for so for. Always talk of by British. Let's back ourselves. It's not, do I?

Speaker 0:
I do. I do what I say. What do you think? Less simplicity. Is it? Is it far too complex at the moment? Yeah, I mean that there's a number of things you can look at to address this mean Jeremy Hunt was talking. And imagine how speech recently about pension funds, particularly local authority pension funds here in the UK and these are quite substantial entities on. I think they have tentatively agreed Tiu allocated

Speaker 0:
sentiment amount money to UK private businesses. You can extend the tax treatment. We get a name to a broader section of companies and UK stock market. I think that would potentially help the things. And I says, Yeah, I personally think it's kind of ludicrous that you can get a tax break on the government to buy shares and Tesla. I think that's a bit odd, really personally, on these. Airil think that something is very easily fixable. It cost the government nothing

Speaker 0:
to change that. You know there's no tax drift or anything and listed companies, and another point on the taxes you're listed comes up pretty important for corporation tax. And for the taxation base of this country. Companies go private. You take Morrison's supermarket, for example. It paid a lot of tax when it was quoted company. It doesn't pay much tax now under private equity. Yes. Oh, there's lots of good reasons to be listed, and we have to find ways of incentivizing people to kind of believe in UK assets again

Speaker 0:
on. So it's stopping the rock with companies going abroad, Is that whether it's incense, it's really, really come to play well, the thing about listing a zoo, other people said in the panel, is a bit of a double edged sword. I mean,

Speaker 0:
certainly the smaller businesses that talk about going to a nice that I think that's not sensible. Someone mentioned a moment ago. You just becoming a liquid company in an enormous market and you'll go below the radar screen. And US investors think 5 billion is a small cap, you know. So if you're £500 million UK company listening and that's that you'll get lost, you really well,

Speaker 0:
SO. I don't think necessarily moving your domicile will help. We have to just make the UK more attractive for companies to listen in the first place on Neil more attractive. Does that come in the form of less regulation?

Speaker 0:
I think that I think that that's part of that about it's that broader. Let's bring back and equity culture to the to the UK Let's get the private investor investing directly back in to and into UK stocks a little bit less regulation. We would help. But I think race to the bottom in terms of overall corporate governance is not That is not the way forward. Yeah, I think there's a million things that could be brought to bear. What do you think?

Speaker 1:
Yeah, I agree. You don't want to reduce the

Speaker 1:
Theo edge that the UK has always had with such strong corporate governance. That's why we, you know, have have been able to compete in the past with the US. But some simplification, definitely. And some recognition of how important small, medium sized businesses are to the growth through the tax take to employment in the UK. Where I think in the US this much more understanding of that small medium businesses, that culture, that entrepreneurship is lorded and heralded much more in the States. Then we do it here.

Speaker 0:
But you think it's a culture thing that I need to bring back that equity culture. Yeah, yeah, I think our spritz were very good at doing ourselves down on Dad, actually, a bit of pride in in our in stock market on DS. That's like That's use small cap, a name, a market there. There are some real gems on there are we've We've got a smaller companies. Funding are our biggest position in that fund. Is chemical judges scientific

Speaker 0:
sub sub a billion market cap that that this business is compounded at north of 20% Since listing what what judges do, It's it. It's a holding company that the investing entrepreneurs who are running very niche scientific instrument businesses. So let's say you want a Bunsen burner the size of your house. There are there, they'll make it. And so they

Speaker 0:
they buy up these these leading British companies that that generally come out of our universities on. They put them as part of the wider network of judges, so they give them the capital capital on they share best practise. Allowing these companies to genuinely get go global, which which as a small entrepreneur run business typically is, is a real challenge. So

Speaker 0:
that's I mean, that's just one example with judges of the business that that that we simply found while while doing doing a screen of of the UK market, met with the management team and have met with them every year since. And and they're there. There are plenty of companies like that which can raise, raise capital, raise equity in the UK and on go on to great things. So we need to be better communicating.

Speaker 1:
There's lots by number,

Speaker 1:
but the great weight of UK equities is is very skewed into the top, you know, to the footsie where actually,

Speaker 1:
I don't know that British people feel particularly proud of Shell, BP and HSBC being the largest constituents in our headline index. Certainly there's a generational shift, perhaps in there as well. So I would like to see you know, some of those

Speaker 1:
gems you know, hopefully being re rated being able todo raise more money, acquire on DSS, sit in our headline index, improving that sector balance. You know, in the US a huge amount of the their index is made up of sort of tech mawr, more new economy, businesses, if you like. Whereas in the UK with so heavily overweight oils, tobacco utilities on, you know, clients who I talk to

Speaker 1:
increasingly don't want those in their portfolio on a on A you know, 5 to 10 years view, perhaps

Speaker 1:
it would be great if we could, you know, shift that balance a little bit, gets, um, or, you know, tech companies. I think there's one to business in the in the 5100 moment. You really have to go much further down the market cap scale to find those. And it's really important that people that people

Speaker 0:
do, you know that sector and balance she was just I'd be less concerned with the sector and balance for sex. I'm generally wary of trying to allocate capital to particular sectors or whatever. I think there's a good point made

Speaker 0:
in terms of the large cap. First, is everything everything else? I think it's difficult to argue that large cap companies in the UK arm a cure Lee hamstrung by a higher cost of capital, where you could easily say that for those Smith cap businesses, and perhaps drawing the distinction between large and Smith and tailing your tax incentives to focus on those stocks outside the 5100 with the objective of bringing in more of these growth businesses these winners in a 5 to 10 years of you being variety of sectors.

Speaker 0:
And it's probably the best way to go forward the senses point Scott. What do you think? That splitting the Smith in the large cap for taxes? Yeah, you know. Yeah, I would say this one. I broadly agree with that. That analysis, you know that. You know, it's not the fishermen, and it is what it is on. You know, we know those companies that by and large, a pretty dull group of companies, but you're to get the economy going. It goes back to the UK is an economy. How do we generate growth? How do we generate better productivity? And the answer is you have to incentivise the ecosystem

Speaker 0:
for businesses to get bigger, you know, and to the point how there's a company get into the virtual 100. It starts pretty small, and eventually if it compounds over the years, it becomes a large business. And I don't think we're very good at that in general on. But what tends to happen is companies get taken over too early and they leave the index before they even get near the foot. C 100. So you know all these things we have to incentivise growth investment in this country. I think that's a real existential issue that we face.

Speaker 0:
Fred. Coming back to your growth is low. Productivity is low in the UK with what Scott just said that you think that will go a long way or you think there's more of a cultural thing that's holding the UK back.

Speaker 0:
What is that? That the UK necessarily is is any worse than than than our European or American cousins? Yeah, I, I think it's encouraging people to be to get to be on Trin area up entrepreneurial

Speaker 0:
The bond market to comeback Tiu Eyes is extremely beaten up the moment on dth E aggressive actions of just down the road there are friends of the Bank of England has have really spooked that market. So

Speaker 0:
if if you are a company looking to raise capital at the moment, it's in, unless you're a big, well known institution, is going to be really tough. So so when When, when it comes to actual genuine growth, new ideas, new businesses being funded, that's that's a real hurdle right now. But Andre is the optimism

Speaker 0:
way have seen the whole bond curve flatten now so that that the market is now pricing in higher rates for foot for an extended period of time.

Speaker 0:
Ondo. Hopefully, that can actually be the foundation of a market recovery on D, a fundamental recovery for the economy that that things aren't getting any worse on Dad. Actually, you never know. With inflation coming down

Speaker 0:
way, we might actually see, see a little bit of a little bit of easing there. So fewer surprises, I think, is there is the message of your native surprises So boring UK. That's where the optimism

Speaker 1:
that curve still looks quite hawkish today. I would agree with you that you know the yoke of still looks

Speaker 1:
Hokage Expecting more rape rises Actually, with the the the slowdown in the UK economy that we're already seeing, Actually, I think that, you know, the Bank of England may be hard pressed todo to keep raising interest rates. The old price is the wild card

Speaker 0:
was share that optimism optimism.

Speaker 0:
I mean, I think's important again to bring it back to so some of the micro level is company type type of stuff. So aside, been talking about UK mid caps on just over 11 times the P of the UK Opportunities portfolios. Nine times in the early nineties, prop corporate profitability came back about 30%. Sure that recessions. Even if that happened, none of the near the market or the portfolios are on expensive territory

Speaker 0:
on. There's some signs that the market's beginning to factor in these these downgrades. So Clodagh, UK. MidCap Chemical Company, we don't own it looks slightly expensive TO me, but it's a good quality business over over. Over time, it had a 20% dungarees.

Speaker 0:
Two days ago, the shares were dying 5%. I think on the day, 6% on the day, on a rally to 3% of next dates. Over the days since the warning, when you've had a stock is down, probably degraded 20%. It's time to 3% over that period is the mark. It's beginning to look through to that sort recovery over the next couple of years.

Speaker 0:
Scott. What do you think? Think the market's prostrating? Yeah, I personally believe at the darkest before the dawn here, you know, and we're seeing it every day. You're Daniel's point that our companies, which are bringing out profit warnings, but I'm no longer collapsing and value. I think that's interesting. It tells you you're reaching evaluation floor and

Speaker 0:
people will sell or fatigue, you know. And I think that's one of the first points points of rehabilitation is for businesses to stop falling in value. And it wouldn't take much, you know, for a more positive sentiment to be, you know, part of the market. SO your I'm a conference here in London at the moment, seeing lots of UK small mid cap companies and

Speaker 0:
also the exception that they're much more Billy Stone. The narrative that you read about it would suggest you most. I'm getting on with life, you know. They're still got growth strategies. They're still actually putting pretty well. So I'm certainly no hearing it from the companies that we meet, that everything is as disastrous as it is portrayed, you know, and we can only hope that we need to just inject some positivity into the whole economic on market argument. For the UK,

Speaker 0:
there is only think darkest before the dawn. That's a fair assessment. I

Speaker 1:
think that's a good assessment. Yet definitely it's a really good time when you see cos stop falling significantly on profits warnings. But I do think it's quite case by case, you know, had a couple more profits warnings from Cos this morning more kind of construction ledge, very short cycle businesses. I would describe him as Crowder, for example. We do own it in the portfolio. It's a very high quality business. They have these fantastic products.

Speaker 1:
I use them all the time. They are, you know, active production beauty ingredients, for example. So the stuff that really works in a moisturizer or something like that

Speaker 1:
on the delivery system for a vaccine For an Emory vaccine, this is a growth business with high quality. It's got really good sustainability, you know, credentials there. There are really sort of a first move. Are in that sense it's got strong balance sheet. It's very case by case active management is incredibly important and laser focus stop picking at the moment in the UK, I'm not sure I would

Speaker 1:
by a tracker to access that turnaround in sentiment in the UK

Speaker 0:
Sorry, I mean, even on those construction businesses that warned this morning, something like for terror is now saying that Britt volumes of back down to 2009 levels UK Brett volumes of 9 40% you're in year. Its balance sheet is still in reasonable shape. A sweet potentially get a new lead.

Speaker 0:
The government is focused on infrastructure is a source of UK growth. Those businesses can recover very quickly, so it is very much of a case by case basis. But there's opportunities across the spectrum from growth businesses who could could recover uniquely some of those more cyclical stocks who are basically priced as if the UK is going to build 100,000 homes for the next 10 years, and that just doesn't work

Speaker 0:
for a constant time. But would you agree with your two panels? Said that that active approach is really useful because of that case by case. Yeah, yeah, there's, there's there's There's never been a better market for for an active manager than than than now to see the UK market have so many months of consecutive outflows. Plus, Theis, this significant moving interest rates has sent volatility mad

Speaker 0:
on, and it's full of volatility that gives these opportunities to be buying great companies. That Scott was said, focus on the company's on bees Companies are still high quality, still growing on do the share prices or offering seeking a few returns. I do hate to hold it there, but we are out of time. Thank you very much. All thanks for your insights. Thank you. All this effort made says thank you very much to my panellists. Thank you for you watching. We'll see you here on us a TV next time