Pete Davies: Where are the Risks and Rewards Over the Next Decade? | #24

We're in a world where most of the risk is in the public sector, not the private sector. And that's really weird, A, because it hasn't happened for 40-50 years. I think this decade, the opposite is true. You will get rewarded a lot for not doing the same thing as the index. Why is it that I look at your portfolio and you've got 24% in three banks of the overall portfolio? Why is it that you feel comfortable earning large positions in banks versus tech? I'm also interested in about last year. Within our portfolio, banks with the least volatile, whereas tech had lots of volatility. When you want an asset to have a lower risk premium, the fact it's getting less volatile is normally a good side, very good side. If you assume the world isn't going to reward the same style throughout every decade, which I wouldn't. Because it boxes you into a corner. We've tried very hard to avoid getting boxed in. What should a truly active fund manager do to be justifying their fees? So you've identified a whole stack of differentiated tech, but they're the picks and shovel companies. Our content should be that objects can get way more intelligent this decade, but it doesn't matter whether in video make it to our money. The brain getting more intelligent is only going to be relevant to 40s or use that intelligence. Welcome to algae's investment podcast. Today, my guest is Peter Davis, who along with Jonathan Regis is joint head of their global developed market strategy at Lansdown. They run a highly differentiated global C-Cav. It's seriously caught my eye this fund about 18 months ago. And this episode we're going to look back on how the team got on in 2025 and then focus most of our time on their thematic strategy and the outlook for investors in 2026. So Pete, thank you very much for joining me. So my first question is a big question this one. What are the big macro trends right now? So I think I'd started a decade level, which is I think the big trend and then we can come on to some of the more technical ones, so the structural trends. And I think the starting point is this decade is very different from last decade and we'll come back perhaps to whether all portfolios reflect that. I would say the three dominant differences from this decade to the last one, a one, the bit of economic, I always look for which bit of economic growth can be stronger in a decade. You know, 20 years ago is China industrializing last decade, the consumer internet. This decade, my basic view is Western Capix is going to have to be very high. You know, you can lots and lots of drivers of that. My basic view is the super normal growth in the world, this decade is people building stuff, physical stuff, physical stuff in the West, which hasn't happened for 30, 40 years and we'll come on to some of the beneficiaries and reasons for that in the sec. I think the second point would be where is the risk in the world? And I think what's totally different this decade to any point in certainly my career is we're in a world where most of the risk is in the public sector, not the private sector and where bonds are the risk. If there's going to be a big problem, it's going to probably be government bonds. And that's really weird, because it hasn't happened for 40, 50 years and B, because investment theory starts with bonds being the risk-free asset and yet if there is a sort of structural problem, it's probably the governments in some form become insolven. So very few of us have a way of thinking about those sort of things. And then the third one, which is the political side, so we've got where the growth is going to come from, we've got where the economic risk is. I think in political terms, the dominant thing this decade is globalisation, the de-globalisation and again, the reverse of what we've all got used to for the last 20 or 30 years and something I'm sure will come back to it industry names is if this is a decade of de-globalisation after a long period of globalisation, probably the things that did poorly out of globalisation might start doing well and the things that did well out of globalisation might struggle a bit. And the aggregate of which I think gets you to a really interesting point is that the distinct feature of this decade, I'm sure it's generally true, but certainly this decade is it's probably going to be the complete opposite of the last of most of our investing careers. Well that's really interesting, that brings you on to my second point, which is why say few fund managers change their portfolios? I mean there are so many fund managers I know that yeah literally they they haven't known banks for 15 years. No I agree. I think I mean I can't really answer for every other fund manager, I think we're unusual in the sense that we structurally assume we are going to change our portfolios, you know we've always said that our analysis is three to five years but we should expect our analysis to reveal very different opportunities in different decades and therefore it doesn't surprise us that we have to change portfolios or even change products to accommodate that. I think a lot of the fund management industry by contrast talks to a process which is kind of output based rather than input based and says we are looking for a particular kind of share which often you know quality growth whatever you call it income, you know and I think therefore once you start doing that and say there's only one kind of share we want to invest in, it becomes very hard to change your portfolios for different decades because your style you get accused of style drift, you get a cue I mean RV would be style is a very dangerous part of fund management if you assume the world isn't going to reward the same style throughout every decade which I wouldn't because it boxes you into a corner. Yeah and you get that boxing in I mean we've tried very hard to avoid getting boxing in either at the style level or the position level you know you know we and often we've in a partly because we've probably made that mistake once or twice you know if you start assuming that you're associated with a particular share or a particular style it just becomes very hard to take an unbiased decision and the reality is the world changes so I guess what I'm getting to is I'm not sure what we're seeing at the moment is particularly unusual I don't think fund managers do that very often and you know it's hard the flip side for us as it becomes a lot harder to explain you know less people are prepared to look at the individual positions you know because we're going to have a different type of position in different eras it's often hard for people to understand exactly what we're trying to do they want to cling on to some sort of hook that doesn't really exist and it enables them to hang their hat on that you know the hook. What is the gold price telling us right now because it just keeps on going up? Yeah I think I think the really interesting thing about 25 at a macro level was not just the gold price it was the fact that the gold price and you know tech for one to a better term both did very well yes because at some level you might assume that tech is associated with optimism about the future and gold about pessimism about the future and I think behind that lies quite an important point about this decade coming back to my bond point which is probably there are two outcomes possible this decade there's either a ton of private sector investment generates productivity growth etc potentially good returns or bad returns but generates sustainable growth similar to the 1990s and through doing that alleviate some of the problems in the in the public sector in the same way the 90s saw deficits fall I think if that doesn't happen the reality is the frailty so the public sector are very hard to resist and something you know unusually difficult happens based around risk in the public in the public sector I think those two which are actually very extreme outcomes ones very good ones very bad are actually you know I can't put into numbers but compared to a normal distribution skew one of those two things almost definitely is going to happen now I think the middle ground is incredibly unlikely this decade I think compared to most people I would probably say the good scenario is much more probable than the people who only talk about gold but I think it's important to view the gold prices being gold and tech at the same time and talking to what I think is right about this decade which is it's either going to be very good or very bad yeah rather than assuming it's very bad which I think is sometimes when you know people talk about when people look at the gold price it draws them into conclusions that something must happen rather than if you if you had to have a diversifier outside of your fund strategy would you own gold or government bonds well within our fund we both own some gold shares and they do yeah and I mean but I think it's assets rather than gold I think I might we'll come back to the body what is a real asset is another question we'll have a debate on yeah but but and and of course yeah I think in the scenario I find it very hard to imagine a negative scenario on a long term view that isn't to do with the public sector and therefore to me bonds are very poor investment dangerous I would say if I'm looking for this year I think you know one of the reasons I'm relatively optimistic going into this year is if you know where the risk is and you don't think that risk is particularly plausible in the imminent time you know take advantage of it I mean what I've said to people throughout I've we've had in the UK a few times is what I've always said about this decade to people is if if you accept the bonds are the risk and not the opportunity at the point and they have been various points as there's been a skew in bonds that makes you want to buy them that's telling you to buy it that's that's probably a very good timing indicator but you should probably apply that through buying equities you know in the UK we've had it two or three times in the last four or five years yeah where a lot of my friends have gone out and bought some bonds and and it's been timing wise exactly the right thing to do but but you know I just I just can't see our bonds there's a very good answer do do politics affect markets in any shape or form definitely I'm they definitely do I think also markets affect politics as well I mean I think actually you know one of the challenges particularly in countries like the UK that perhaps are not you know exogenous political systems to the global world is often the things that happened to politicians are way beyond their control and much more inference by global economic factors. And so it said they do and I think it's one of the hardest things for us as a team to accommodate is working out, especially because politics has tended towards tail events. So certainly some of the hardest parts of my career have been driven by very unlikely political things actually happening. And obviously, examples of Brexit and things that that will be would be good inflection points on markets then did. But, going back looking forward to 2026, we've got the midterm elections coming up in the States. And will there have any bay on equity markets? Do equity markets like midterm elections? That's a good question. I've certainly seen, I mean my view for 2026 in general at a macro level. And I'm not sure how important this macro will be for our returns given the good punnies and themes. It may probably more about timing rather than ultimate returns. Yes. If I look at where what I would say is the biggest differential for me for us relative to others that's both bottom up in the portfolio and top down makes sense, it's probably us feeling like there are a lot of drivers of why economic growth should be quite strong this year, at a point where most people are quite pessimistic of economic growth. I think to me the midterm elections are a big part of assuming why that might be persistent and that you've got to assume that the aim of the government or the US for the next nine to 12 months will be, you know, cheaper house, less inflation, less energy prices, you know, cheaper good stock markets and cheaper things. So I think it's probably more that the midterm, I doubt the midterms, maybe I'm wrong, but I'm not sure I could necessarily say it, tell you I'm going to trade something massively differently on because of the midterms, because of things, but I think the framework that but your macro your macro view for 2026, it sounds like it's pretty positive. It is on growth. I mean, I'm not sure that necessarily, you know, it's very hard and it's very positive on, you know, I think this is a year where quite a few of our companies, some of which actually haven't necessarily done as well as other parts of the portfolio, you know, if they don't, the likely trading environment for them, if it doesn't get better this year, something like U.K. housing, for instance, is in any number of reasons why, you know, our view of good companies in a structural long-term growth market, where there's massive under supply, political desire for more houses, you know, lots of good things, theoretically going on last two years in particular has probably been almost the only source of the housing's probably the only source where the company, the outturns, so the company's having been quite as good as we might have hoped for. I think in an environment where inflation's falling, interest rates are falling, you know, if you don't, the good news for us, I hope is that this is the perfect conditions for them to do well. The bad news is that, you know, the alternate argument, namely the structural growth won't come through. If it doesn't come through this, you haven't really got an excuse for it. Yes. So I think, but I think the reasons, you know, if you said why it's so likely to be a decent growth period, you've got politics as we talked about unlikely debate, even debating what you want to happen, pretty unlikely you're going to get a big physical constraint going on. Yes. The capex drivers we've talked about for many, many years, you know, there's a myriad of them AI being the leading one, but, you know, massive reasons for capex to happen. And the thing that's constrained economic growth, not just in the U.K. by the way, this actually our biggest disappointment has been US housing, rather than UK housing, in terms of where we've had to downgrade our numbers a bit. But basically interest rates being a bit higher, and Bonyl's being a bit higher, partly because of fears around persistent inflation, you know, that should alleviate this year, given that there seems very little either labor inflation or or fossil fuel inflation likely. So you should have a pretty benign situation from that perspective. And from a policy perspective, you've got a new, you know, if you accept the premise of US is probably the foundation of global policy, you've got US monetary policy with a new Fed German who's likely to run policy looser than the prior one, and a fiscal situation where you've got, as you say, an incumbent an election imminent. So I think all of those points are a pretty strong growth pattern. And interestingly, if you do get that without inflation, the idea people might extrapolate it beginning to think about the scenario we're talking about a longer dated growth period driven by private sector cap ex, you know, has the capacity to make people think it might be persistent as well. You know, it's yeah, you don't see the op, you don't immediately see the constraint to it. It's not like people are going to suddenly start spending money on any of those things. So, so in a nutshell, it looks to me as though in the short term, there's the more tailwinds and then the headwinds for for equities to to have a reasonable backdrop. But who knows what's going to happen, but it looks it looks pretty. Yeah, I mean, I've what we tried to do is have a think about what might go wrong in our cause very important. And if you said what could go wrong, I think and exclude, exclude, but accept the idea of unknown unknowns, you know, as we see with geopolitics of the name that can always there's always something. I think if I if you said one of the predictable unknowns, sorry, the predictable risks, it would be the cap ex sentiment towards the cap ex hours, you know, the most, you know, an obvious risk would be people get skeptical of the returns on AI cap ex and suddenly you go from here to here, that could happen. I think the one that subtler that I don't think is that plausible, but maybe wrong on is the the idea that what you're already seeing, which is bits of inflate normally inflation is either fossil fuels or labor and neither of those looks particularly plausible, you know, which we've, you know, obviously it's dangerous to say the latter when we're going through the stuff with Iran, but you know, it generally feels like there's plenty of labor around in most markets and and fossil fuels supplies seem at pretty high levels. And so what you're seeing, though, is very pronounced price inflation in some knee share is particularly those around AI. So undoubtedly, US electricity prices are going up probably more than is comfortable politically, potentially in some form and inflation impulse, you know, copper prices, D-around prices, you can you can see pockets of inflation. And when you see growth, obviously your main question is at what point does that become too much growth? Our instincts would be the scale of those two things just isn't high enough, but we may be wrong on that. You know, the D-around price is give or take $100 on a mobile on a the cost of an iPhone if you put it through, so it's not immaterial, but ultimately I think problematic inflation tends to be either labor, tightness or fossil fuel tightness is the assumption we're making. So that unfair advantage that the US has had over the last five years is probably getting to diminish relative to the UK and your business because we're beginning to get it and along our storage of. Yeah, and the LNG capacity next year, this is the year where you should begin, you know, as you say, European gas prices should be coming down a lot, even not assuming any return of Russian gas to that given replacement by renewables and increased LNG supply. And the effect of on electricity prices in the US of AI is going to be a really interesting phenomena, I think, from less to be honest from an economic perspective, but if you asked for, I mean, if you asked for where some risks may emerge, the idea of political risk around that electricity price rise, impacting sort of either policy or sentiment, you know, that definitely would be something I would keep an eye on a year goes on. And do you think that the AI genie that's escaped from the bottle is actually in surprise to a lot of people in a force mankind to think much harder and invest much more money in nuclear energy because it's the anyway we can actually create enough energy? Always that is that a misperception of mine? I definitely think, and it's interesting, I should have made this point, one of the fascinating things about the inflation theory of that sort of pockets of inflation I described is actually the output will be more capex, you know, whether it's DRAM, copper or energy, you know, what's so interesting and why we feel so confident about the capex theory and aggregate is the response to the problems is even more capex. And I think you're right, and definitely I think the broadening of the capex is a good way to think about AI. I think we would, you know, we owned, for instance, Prismi and we owned in the portfolio to benefit from more cabling, etc. more electricity stuff. I mean, to be honest, I think we're hopeful that, you know, that whether it's nuclear power stations or anything else, the, I mean, our view, we own a lot of steel, cement, building materials. I mean, to be honest, I think we feel that given what's going on on the supply side of those things and the presumption that there is never any incremental demand for any of them actually the easiest way to play the stuff thing, whether it's nuclear power stations, gas ones, whatever, is in the end it feels very hard to imagine people not using a ton more building materials. And then that's not priced in a tool, that demand inflection isn't priced at all. That's what we're going to come into the second because the question I get into ask you a bit later on is, you know, is are the companies that produce this stuff cheap or expensive? We'll save that one for. But to your question around, I guess what I'm trying to come onto is undoubtedly there'll be a need for more electricity and undoubtedly there will breed more capers. Whether that creates a supply-demand mismatch that's investable today compared two years ago when we were buying Prismian is less. obvious to me because it's more well known and whether it's nuclear or renewables or whatever is, you know, there's lots of work you're doing always. I'm not sure we've necessarily got a clear idea or it's probably the right way to free. Okay, I like that. Okay, now we're going to focus on the fund. Let's have a little look back at 2025. But before we do that, I want to imagine that you're talking to my 92 of mother and you're explaining to her in a thumbnail sketch how you and your team that you work with run the money. Well, I think there are two things that make us different from most people. And then there's a set of views that we can talk about. So the first thing I'd say to your mum would be these are the things that are, these are the themes that we're investing in today. Do you think they're sensible or not? And if you don't think they're not going to change very much, they'll change a bit. But realistically, her return for the next five four or five years will be are these are these companies and themes the right ones to back. In terms of who we are and how we do things, I think there are two big distinctions. One is a point I made earlier that we expect the world to change and therefore we do different things at different times with the three to five year timeframe. And what we look for is is where things are changing because often especially where those things are accompanied by a degree of complacency around the market that things won't change and today that breeds plenty of opportunities can we've got a world that's changing a lot. And as you rightly said, probably an investment community that hasn't changed a lot. I think the second thing that differentiates us which is more time specific is but I think incredibly powerful today actually is one of the things we did a few years ago was we over 20 years we spent a lot of time working with IPN that you can the universities a lot and I mean it's a different product from what we're describing because it's you know dedicated to unlisted but it's the same team who look at both things. I think our exposure to the university IP and the thinking that's going on within universities and actually to be honest the whole of the unlisted space gives us a sort of perspective that's incredibly differentiated amongst listed investors. I think the sanitary in reverse I think the fact that we do listed investing helps are unlisted but I'd say to her we're probably about the only person who does both of those things albeit in different products to try and get our research to be different from other people and the common thread is differentiation. And so people who are listening understand what we're talking about. Are you talking about companies that are being born out of the Oxford's the Canvages of this world and their ecosystem specifically? Yeah and you know as people can hear some more work elsewhere on that we've been doing that for 15-20 years and you know if I look back at last year obviously we'll talk about the listed space but one of the quantum companies up as a team one of our biggest successes was you know one of the quantum companies that we'd been backing for many many years turning into a unicorn and and and reflecting the potential of the whole ecosystem. So definitely it's it's two going together in a product is a bad thing but the two going together into a research team I think is a very good really good. Yeah especially at a point where you know for us if you I mean if you take something like AI for instance you know this question around large language models you know we're talking to a ton of academics about people trying to look for alternatives to Nvidia etc etc you know the debate around what's the value of in the end the debate around our large language models economic or not it's pretty hard to add much value listening to the big companies and certainly that's the debate that's at the forefront of many of the venture capitalists in the UK because they're looking for the companies that you've got to be careful on the other side which is obviously the venture capitalists always assume a disaster for the big companies but I think we definitely feel like in areas like that or defense where the industries are changing very rapidly because of quite deep technology it would be very hard to replicate our understanding of the situation for the big listed companies without doing what we're doing. Okay so what did the world index return for stoning investors last year? About 12.58 something like that. Okay so it's a nice return. How many stocks in your portfolio managed to generate a return of more than 50% last year? Quite a few. I mean the fund is older in stoning terms about 35 or 36 or something like that. Percent. Yeah. And so clearly a chunk of the portfolio will have done and the nice thing was that came from a wide range of different positions you know came from across themes. Yeah so we last year we divided the portfolio when we were talking about the portfolio we tended to divide it into four of which one was other and each of the three themes banks building and data plus as we call it had positions generating and the other category also did through some of our holdings in defense and airlines so all bits of the portfolio had it was nice actually I mean it was unusual that it wasn't and I think gives them you know the main comfort one gets is to be honest evaluations and the prospects for these companies but the breadth of the contribution especially at a point where quite a lot of people are worrying about the narrowness of markets you know the fact that our portfolio from very uncorrelated areas managed to find some interesting thing good performance is I think God to be a good sign and even you know and also I think you know so for instance our UK banks did very well but it wasn't a great year for you could a few people to look back on last year as being a great year for the UK yeah and I think highlights the fact that you know for all to talk about thematics or geographic biases you know really the shares that we I think owned and owned had such distinct qualities and valuations that you did have a you do have a did and do have a very big margin of safety albeit not going to go all of them right all the time well it's an incredible return across to across those three themes which we'll talk about more in a second but what about the at the other end of the portfolio I mean how many stocks fell more than 25% and one or two but not not many on it I mean I would say if you said where are the disappointments for last year the the big one was just and and you could say this is offset a bit by banks because you could perhaps argue the rates were a bit higher than people expect to and that probably was good for banks but you know definitely the disappointment for last year was housing wasn't as strong particularly in the US as I say what was interesting was the US was particularly bad in this we had one share that genuinely disappointed us and actually the good news is we are trying to be quite active in the portfolio at the moment and that share we managed to have I think on average about a quarter of the weighting we started the year with before it's really sort of under-performed so although we made a mistake it wasn't as bad as it could have been and I think it goes to a broad point which is we've quite patient with our themes at the moment but actually the way we're running the portfolio is quite impatient to try and you know if we're going to make a mistake it's probably from being two patients and so what we're trying to do day and day out is offset that by being quite active in the portfolio and and and more than we might normally be well that brings on to my next question because being a slightly cynical investor I mean after a turn of 2025 I'll be thinking of myself for sure this portfolio you know has lost some of its freshness I'm just asked answer that question in a simple way as you possibly can does it feel fresh or does it feel stale so we try and quantify this so what we've tried to do and actually I think we give out some quite interesting detail is decompose the return into and we do this very publicly you know your dividend yield your earnings growth and do you think the end valuation will be higher or lower than where you're starting from yeah so I think clients can see what assumptions we're making and interestingly on that basis without actually changing many of the assumptions but adding a few new names and you know few upgrades here and there the expected return this time last year for the next four years was about 25 26% it's now 24 25% I still miles out and and and miles out and I think you could access in an index so I think the basic assumptions still feel and you know we can go through each name as a jarra but so one I think that I think cyclically we still there's a lot we still haven't seen you know if I are building theme for instance is premised off the idea that volume you take house building for instance you know that if we end the decade building for our houses and we started the decade almost every politician in the world you know we've got 30 years to make up you know we've assumed not quite getting back to where we started the decade it could easily be miles better than that given whatever our needs and you know and something like as we'll come on to talk bands stuff like steel and cement you know our strong hope is that demand will be very strong this decade you know in all our assumptions where assume it just isn't very bad so I think we got and it's reasonable to as we talked about the beginning it's assumed for 26 for instance the conditions are in place for that kind of increased demand to be more evident to people so I think we haven't really seen the cyclical conditions that should cause the portfolio to prosper yet the valuations remain very cheap and then I guess the last way I look at it is this is slightly more instinctive but it's nicer you echo it is you know you tend to look in these situations for how consensual your portfolios and I still feel our portfolio looks totally different from most other people and then the last thing I'd say perhaps is you have a day bank you could bank as an example you know the realities we've now got a couple of years of seeing how returns develop with our interest rates as the hedges are mined and quite a lot of the big risks you would have worried about in terms of regulation litigation taxation you know they're not going to disappear but last year we tested most of those risks in different forms and broadly they didn't come through And so I think, you know, what's interesting to me is for certain bits of our portfolio. I think we've got basically half the portfolio, I think, is materially less risky than it was a year ago, because actually you've got a lot more evidence for it. Okay. Something like Banks, the other best example. So, you know, if it and is still on a very low multiple, but the evidence is better. And I think for things like the building area, if what's so exciting is the optionality and them, which may or may it won't come through in all of them, but I think we've got a lot of optionality in bits of the portfolio. And 2026 feels a good year for that kind of optionality to be manifested. And our job actually, I think internally within the team is probably of the sort of 50% where it's you could make a lot of money out of them if X happens. I'm hoping the team would be quite active and insightful as to where that's happening, getting the evidence for it early. And adjust the portfolio to mean that the base returns we're expecting actually turn out to be a bit better and better. So let's just put some numbers on the scorecard here to give listeners a fill for the portfolio. So a very basic level, what is the the price earnings ratio of the fund versus the market? I think it's going to be about two thirds of the market at most. It's about 1230. I mean, each bit slightly different. 1213 times will be a good number to use versus the market on 2021, 21 times. I'm guessing slightly, but that order of magnitude is right. It's pretty large. Does the fund have a dividend yield? Yeah, dividend yield for memories about 3.7. I guess it's quite significant. I mean, the most interesting thing to be honest is because it goes to a broader point is the business, the portfolio is quite asset intensive, actually. I mean, the two common threads I would say thematically is we're quite long assets and we're quite pro-sitical, albeit industrial, technical, rather than thing. Almost the most and sure enough, because of our price to book of the fund is probably half of the market or something like that. Again, that is significant. Yeah, but what's really interesting is the price to sales is also much lower than the markets. So probably again, about half, which is fascinating, because normally you'd expect if you were very asset-intensive, you only have a high margin, yeah, and less sales. Which goes to the fact that I think for quite a lot of, and I think this generically true is not only your assets being cheaply valued relative to their replacement cost, but actually a lot of industries are seeing assets not yet generate the returns required in the profitability. And so I hope what you're going to get and think what you're going to get in some of the lies deal, for instance, is that lovely combination of higher returns on the current asset base, because unless you get higher returns, nobody's going to build any new ones, and a higher valuation on those things at the same time. But it's very rare. I've never seen it to have both the price to sales and the price to book discount. You wouldn't get it. So for instance, if you are any relative tech shares, you'd have very high price to book and very high price to sales, you know, it's sort of interesting. And really onto another year, what's the free cash flow yield of the fund? It's quite hard to tell because I'm not sure exactly how the banks get tree free cash flow. I would say they're very free cash flowed generate. But if you strip out the banks, it's probably easier to talk through each individual position, I'd say, in some elements like TSMC would be on quite a low free cash flow yield, because they're reinvesting it. I think almost all of our lower multiple stocks would be on double digit free cash flow yields as with the banks. So it's probably the fund and we'll come on to it in a sec. The mix of the fund, different parts of the fund, some of the library aerospace, for instance, now will be on quite a low free cash flow yield because they're putting money into grow their business. So I'm not sure I'd necessarily want to generalize, I'd probably better to look at the individual bits and it goes to a broader point, which is, yes, we've got a bar towards asset intensive companies, we've got a bar slightly towards the multiple companies, but given our stylist to find really interesting investments, some of which will be because they're growing very quickly, you know, looking at aggregate parts with the exception of the asset, it's commonality, I wouldn't necessarily look at sort of averages of valuation. Okay. I think that's a fair call. And of course one thing we haven't touched on yet, which is to remind listeners, how many stocks the fund has got in it? And I don't know idea what number stocks the benchmark world index has these days. Lots, I mean, we tend to run about 40 stocks as our norm where 40 stocks. Yeah. I mean, that's, I've never seen it below 13, if it gets about 50, we tend to think we're being a bit undisciplined. That's more a function of how many things we can receive as well. As much as anything else. And the active share of the portfolio, 90 something other than that? 90s. So basically, that's really saying that 90% of the portfolio is not reflected in the index at percentage weighting. I mean, of course, better mathematicians than me would start saying, well, factors may be common. And if you're going to run a 40 stock portfolio, I don't think it's, I mean, the key number probably is that within the tech side of things, we don't have very much exposure, if it, you know, got maybe one percent exposure to the people who are spending a lot of money on AR. We've got a lot of exposure to the things they're buying, but we have relatively little exposure to the people who are spending. Yeah. And actually, in the case of Nvidia itself, we don't have any exposure to that either. So, you know, the obvious point is, and I think it's been one of the things that's been, I'm not sure when I started got paid for this yet, but from a risk perspective, I feel like we've done a good job of accessing the change in economic conditions without taking a load of risk on stuff that is very hard to know, namely, where are the returns going to come from some of these things? Well, just talking about risk, I'm going to be jumping around here a little bit, but you've got three big investment themes you've mentioned who does now. Data plus, building, stuff and banks. So, why is it that I look at your portfolio, and you've got 24% in three banks, so the overall portfolio, four banks. Those waitings are so much bigger than a lot of your tech holdings. Why is it that you feel count were aiming large positions in banks versus tech that must be a risk management decision? We've got big waiting in TSMC. I'll tell you something, I'll tell you something, certainly equivalent to a larger spank weight, not far off a larger spank weight. Yeah, so I don't think it's, I don't think it's, and there we, that in turn, perhaps has a constraint just given the binary risk of elements that I want. Are banks more of a, are banks more of a, well, the most interesting thing to me is, you know, the way, you know, the way we allocate capital is, you know, there, there will be a limit to what we'd have in any theme, and, you know, banks got towards the top end of that beginning of last year, then our bit more normal at 24/25 compared to 30 were probably our max in anything. Yeah. 24, they're now 24/25, which seems sensible given that they're very good investments, I think, but so I think it's the rest of the ball. I think at the beginning of last year, everything we were showing was them being such crazily, there was a step function between them and the other investments, even though we thought the other investments were very good. And obviously maximum weighting still, but, you know, at largely turned out to be the case last year. Yeah, the thing that's fascinating though, given that, you know, our Vion banks in the UK and Ireland is they're basically going back to normal. There's nothing particularly complicated or innovative. It's that banking's normally quite a good business. After crises, it looks like a very bad business. And often as an investor, you get the opportunity that people who are used to banks being terrible, take a long time to spot them going back to normal and forget what they can look like. So, so I think banks going back to normal and being a bit boring is kind of what we want them to be at the end of it because the risk premium will come down multiple of that. And what was so interesting about last year was obviously the shares did very well as the time we were able to take shares. But within our portfolio, banks with the least volatile, they realized the lowest volatility of the portfolio, whereas tech, you know, had lots of volatility and it did good returns. And a, that fascinates me in that normally we, when you see assets be less volatile, when you want an asset to have a lower risk premium, the fact is getting less volatile is normally a good sign, very good sign. And something we track across is often been a clue to re-rating of shares in the past for us. And, and be, you know, you're not alone in saying you got such a lot in banks and not enough in tech, you know, at some level. I didn't say that I haven't said that. Sorry, sorry, sorry. But actually, weirdly, in all fashion terms of volatility, you know, certainly last year anyway, we had less, you could argue the opposite that actually if banks would, I think they're about third as volatile as our tech names. And so, you know, if you said, your weighting should be volatility adjusted, you would have, you would have been, you might have sent it. You would have been very popular with your data analytics team. Yeah. So let's just touch on data plus. What percentage of the portfolio would be sort of prescribed as data plus, it's a bit fluid, but give or take 20, 20, 20, 20, 20, I mean, I would say the three major themes that you've talked about, 25 is each. Okay. It's a good way to think about it. And then you've got very little exposure to the max 7. Why do you have so little exposure to the max 7? I mean, I think our thesis on tech is it's going, you know, and we had a lot of exposure to some of those companies a decade ago. I think a decade ago we felt, you know, well, having last decade was a bunch of non-capital intensive, highly monopolistic businesses went from 25% penetration to 100% penetration, which was quite predictable and economically was a fantastic situation because the returns on capital were sensational. I think what we feel is happening now is people are spending a ton of capital on a price that may be very large, probably is the same price they're all aiming for, where the returns on that, you know, and we're going to keep looking for them. There'll be a point at which hopefully the price is obvious in which case we may well, you know, the team is not, we're not bearish on a tool, it's just very hard. So I think it's basically a shift from, you're shifting a set of companies from being non-capital intensive monopolistic, very capital intensive competitive businesses and yet the multiple of earnings you're paying is kind of two or three times what it was a decade ago. And so our bias is just to buy the things that is trying to avoid risk, is trying to get exposure with avoiding risk. So for instance, to give you an example, where we got there wrong, you know, we had a lot, so we've had to SMT pretty much throughout and saying, look, we don't know what people are going to, but for instance, we've missed in video, probably forgot DRM last year, which is probably an error in the case of in video, you know, we, we intellectually didn't get ourselves to the position that became evident over the last few years of they were going to dominate that particular, we weren't 100% sure in our mind it was them. We were pretty sure and remained, we felt we'd knew that with TSMT, it didn't matter whether it was in video, or Qualcomm. Because they just made, they just made the chips. Yeah, Google whatever. And so what would it be? What would it be? What would it be? We have to do now with this current valuation to be a great investor to the next five years. Right, then, you asked to do a great deal. Weirdly. I mean, I think, I think I'll put another way, if you believe, and there's lots of different figures around, but broadly speaking, if you believe the aggregate spend in AI that, that their CEO talks about in about five years time, and you assume that their market share is consistent with where it is today and the profits, you do a few others on some level, it'll be on a single digit multiple, in which case it will be a very good investment. Yeah, okay. I think we would, so I think if the world pans out the way their CEO describes it, then their shareholders will do very well. I think we, you know, A, we think we'll do very well at TSMT as well at the same time, and B, the question of where Nvidia sits relative to some of its peers. For us, it's still a bit hard relative to the question of where TSMT sits relative to its peers. But just to be clear for for this, of course, TSMT actually manufactures the chips, the chips for Nvidia that have the unique knowledge. So you've identified a whole stack of differentiated tech companies as I can understand that are playing this AI revolution, but they're the picks and shovel companies. Is that too, is that too crucial? So I think, I think the picks and shovels probably may even be outside of tech. Some degree, I think, I think they're, you know, because as we say, Prismian within the electrification, there's lots of electrification areas we've benefit from, meet in Prismian, etc. You know, as we talked about, it wouldn't surprise me at all if we weren't talking in the years time about growth and demand for steel being a function over. I think where we're going now a bit is slightly different in that I think it's kind of stuff that AI existing creates more demand for rather than the supply side. So to give you two examples of think one, we've got a very big position in one, I would like to have a very big position in, but we don't at the moment. The one we do have a big position is analog semiconductors, so they make the sensors for objects, you know. And our contention would be that objects can get way more intelligent this decade is just a given for us. So it doesn't matter whether Nvidia makes a ton of money deep seek power them is just, I mean, the brain getting more intelligent is only going to be relevant if bodies also use that intelligence, I think is perhaps the way to put it. And in order for those bodies to get more intelligent, the thing we've seen with cars, we're now seeing with drones and autonomy and sensing, they're going to consume a ton of analog semiconductors to get the data in and benefiting also from the power side of things as well. So I think in that case, now there was the reason we've only just started investing in them aggressively, there was a different set of cycles going on, you know, there's always going to be a bit of a lag between the capacity to do something and it coming through and things and we were getting to know some of the companies make your, you know, work here. So I think that's more case of that. I think, hey, that's to the optionality point. I'm pretty confident that the chance of that's right over five years is quite high. You know, we clearly haven't seen it. You can't point to it yet. You can't see the revenues having gone up. I think the optionality we've got for 26, which is really exciting is I don't think many people are thinking about it, particularly a lot. And I think there's a decent chance it shows up at some stage this year. And that's, so I, but I think that more is being a beneficiary of AI is what's beginning to come in where actually the benefit will be even greater if the ironically, if the returns or the cost of AI to the consumer goes down, the benefit may even be higher. Another one which we haven't quite got to yet is, you know, if we think about which industries are going to be transformed by AI, and there's lots of we're thinking about. And one of the things we're finding is that big companies often in quite boring industries like banks and insurance, the fact they've got access to data and it can use, because one of the interesting things about AI is, you know, the likes of chat GPT are not particularly trying to use your data in the way that Spotify, if you think about the most, that the likes of Spotify created, it was all personalization, values of data and weirdly, not weirdly, but for privacy reasons, if anything, the large language models are going the other way in that. And so permission to use data is going to be quite important. And interestingly, we're already seeing it in things like general insurance with Aviva just being able to point to a profiting improvement from personalized product offerings to consumers. We can see it begin to see it in banks as well. So I think the data getting allowing companies to have a better proposition to their customers and create more value in their formate more profit is beginning to come through. One of the ones we're really interested in is healthcare, where it feels like the data creation, the sort of, I think, flywheel is for, I never quite know what a flywheel is, but the flywheel of the data gets more valuable there for you to create more data. It feels a very logical thing to do, you know, is we're looking at lots of areas like that and sort of is imaging, for instance, some of the healthcare imaging companies, just because people can do more with the data, you have more, you use it more in that sort of thing. So I think I would describe it actually more as we're moving on to the part of AI, which is what's going to get used for and can we find industries or companies that are going to benefit from that increased usage? And slightly on the fair question here, but what is a tech company inside your portfolio? Are you most excited about at the moment? I think TSMC is a bit like the banks actually, if they just keep doing what they're going to do, there's A, they can deliver a varies, they're going to do 20, 25% earnings growth in normal circumstances and they're not starting on a high multiple. And is TSMC expensive or it's on a multiple just above a market multiple? Okay. And, you know, so I think the way within our framework of earnings growth plus through rating, we've seen the multiples flat, but it's going to grow earnings at a level that is more than enough for a good return. My hunch is there's more upside to the multiple than downside if they do those earnings. You know, if you've delivered many years of 20% earnings growth, a market multiple feels a bit churly. Yes. So I think those ones are kind of quite not straightforward, but you don't need anything particularly new to happen and you should do really well out, which I think is true of the banks in the UK, for instance, as long as I keep doing what they're doing, the multiple will catch up. I think something like the analog positions has the capacity to be, to both deliver volume growth materially higher than people expect and constantly earnings, but also get re-appraised in terms of how important they are, which, and those re-appraisals, you know, they tend to be quite exciting when those two things happen at the same time. So I'm probably more excited by one of the things we've been debating about waiting since how do we balance predict, especially when we still think the returns on things like the TSMC and banks are pretty good. How do we balance, you know, predictable, strong returns with the optionality of amazing returns and something like the analog stuff? To which our answer is, you know, inevitably, probably, the portfolio is probably 50/50, I would say, and then the key skill becomes knowing that if you've got optionality across quite a few different positions, the intensity of our work has to be spot which optionality is coming out and be willing to adapt those positions quickly, should it, as it becomes obvious? So those small positions of the portfolio are more like a work venture, they? Yeah, I mean, they're not that small. I mean, you know, the building stuff, for instance, and normally I think we, where, as I think we do feel with the analog companies or with the building companies, even without the optionality we can do 15, you know, high teens returns if they just, so in the building companies generally we felt like we could do 15% just on a sluggish economy, but what's really exciting is what you can do if the economy picks up. And so it's more a case of that's lower than the bank and TSMC returns on a base case, but actually we're quite happy to say, well, the optionality is so great that. You know, so the weightings are actually not that dissimilar. And so we've spoken about the building companies a little bit. We've spoken about tangible fixed assets. On the other side of the coin, are you saying looking at your portfolio, you were also saying that intangible assets, global brands are just too expensive at this point. But strangely, I would say I don't think many equities are too expensive. The only, I could possibly point to a few really extreme things in the US. But actually finding really egregious multiples, even in tech, is not that. I think it's the challenge, and I think this does apply to some of those companies you described, is Antek, is that the risk around, the reason these things got on to quite high multiples they've received to be very predictable, you know, definitely true for the tech companies last decade. And I think my worry is less than multiple and more the earnings risk on these companies. It's more than in a deglobalizing world with brand proliferation, a similar dynamic what we described in tech, namely, I just think it's really hard to predict what's going to happen in some of those things in five years' time. And historically, do you think you and the team are pretty good at projecting earnings growth on a three-year view? Yeah, I think we're, I think what we try to do is ensure that the models understand where we could be wrong, such that something like housing, you know, A, it helps us calibrate the risks and B, you know, you should never, no model, I think, should ever, a model should be a dynamic thing, which is helping you understand how right you are as it goes on, you know, something like on the banks when we were modeling how the hedge is unwound. You know, it's there as a hypothesis. And then when you see it being born out through the earnings, you get a lot more confident and that that allows you to do it. So, yeah, I think, I think we do very good detailed work. Obviously, we're not always right. But I think it helps us know when we're not right, if you know what I mean. We would always use our own models, by the way. I mean, I don't know what other people you never use third party models. We would, I think there's a value to building a model of a company that is about understanding what the genuine inputs are as opposed to you trust your own numbers. Well, no, I trust, because we've had the examples of this where I trust the fact that when our numbers don't work, that means I've got to find out something that I don't know. They often don't work. But unless you go through the process of coming up with that, you don't really know where to look when things go wrong. And also, I mean, give you an example the other way around. If I can't do that, I think it is, so two businesses, for instance, that I'd never, invest in a bank versus retail banking, for instance, I can do great models of retail banks, because I understand the balance sheets, I roughly understand. It's almost impossible for me outside to do a model of an investment bank. You just genuinely, you just genuinely start with a revenue number. You might say the revenues came in this division, but you've got no visibility from the outside. That to me is an important fact. If I can't do that, I have all, I mean, sometimes it's been right, sometimes it's been wrong. The fact that I know I can't do that for investment banking has always made me reluctant to confidently assert the value proposition of some of those companies. When you've been looking at your retail banks, I remember you always used to say that it's all about deposit growth. Are the UK retail banks still benefiting from positive deposit growth at the moment? Yeah, yeah. In fact, what happened with deposits? I'd say all the value is in deposits. I think it's probably what I would say. Therefore, deposits growing, anyone can lend money to someone. It's not hard lending money to people. It's hard for people. It's hard for people to get. Yeah, exactly. This isn't always true. There will be points in time where you can. The unique thing about banks is their access to deposits at a price that's for a service, but at a price that's lower than most people can secure funding for things. No deposit growth looks pretty healthy at the moment. It went through a period, again, going to war our models. We had over many, many years, deposits have always grown above GDP and they tend to consolidate market shares just because they're economies of scale. So, contrary to what most people think about banks, we do think they are natural grows above GDP. One of the interesting facts, if you think about the challenge particularly in the UK in 22, 22, obviously in Europe, the value of deposits went negative because you had negative interest rates, which obscured it. So we started buying one rates from positive. In the UK, that deposit growth and the US to a degree, but the UK in 22, 3 or whatever it was, I'll get the dates from the deposits. I don't think they have a quite one negative, but they certainly slow down a lot because people were locking in investment products that were outside the deposit, locking in that. When the rates moved a long way, there was some flight of deposits into other vehicles. Going back to, you know, that wasn't in, we knew to model it. We just didn't know quite how to model it in terms of, and you could definitely, people did get a bit scared about what that meant for margins and for volumes. I'm the good thing as you, in the last couple of years, the other thing that's become more comforting from a bank's perspective is, on the scene that go back to normal and deposit growth, you know, go through, but turn. Yeah. And then, what's of course interesting is, loan growth, you know, there's clearly an und-levered private sector out there, particularly the consumer, you know, as a reciprocal of an over-levered public sector. You know, certainly if I was a government, I'd be trying to encourage private sector lending growth as one of the ways in which one generates overall growth and productivity. One of the fascinating things about private sector lending growth is it tends to create deposits, you know, the miracle of fair money is that deposit growth tends to be positively correlated with, or should be positively correlated with lending growth and lending today is at pretty much an all-time low, low situation. So I think we'll see. Let's touch on the businesses that have got attractive tangible assets. Can you give me an example of a company in your portfolio that's got highly attractive tangible assets, but is in your eyes servicily under-appreciated by the market? Yeah, I'll give you two. What's the first one? Well, banks, the other one. Banks deposit. I mean, we've done that. What is interesting is it's not a coincidence. You know, that is the same point, but I think to give you two themes that are going on, so within building we own a lot of metal and a lot of hydro-boke, you know, the steel producers and hydro-boke for the cement company. Yep. And what's interesting, of course, is they are very local. They're not assets. Interestingly, they're local assets typically rather than big mines in the middle of, you know, and what's happening there, which is really interesting, is de-globalization and tariffs is actually protection of local assets. You know, actually, what you're seeing in the EU is just doing it with, you know, you saw the US do it, India's done it before. The people who benefit from tariffs tends to be the local producers. You know, if you go back 150 years in the UK and go back to the tariff versus free trade debates, it was a debate between local producers and consumers. You know, consumers wanted low prices, local producers wanted supply to be constrained. And so what you've got in aerosolites, steel and cement is, you know, whereas for 30 years basically Chinese new supply just got rid of the economics for local producers and other part of the world. To the extent that a range of reasons, including tariffs, is kind of reversing that, it's not surprising to our minds that the benefit is accruing, you know, those assets are getting more valuable. And the facet, I think, is as yet, I personally think that's going to happen at the same time as demand goes up for all the reasons we've talked about, of needing to build all these things. To be fair, we haven't yet seen that going back to what 26th might bring compared to that. If you get local, you know, imports getting less competitive at the same time as demand goes up. And it's not, I mean, we estimate for steel, for instance, so what the EU's just announced will take local capacity utilization of 68% to 80% is literally going from not only low to the highest it's ever been. And you know, if I look at it the other way around and say, okay, that's roughly the equivalent of a 30% demand improvement. You know, if you imagine the economic conditions required to get 30% increase in every steel company would have gone up through a fourfold if that had happened from a demand perspective and yet arguably it's more important if it happens from a supply perspective. So what does that do to your module for me? Well, so what becomes interesting is, you know, various other things going on with the steel industry that are particularly attractive. You know, Michael, to its credit has managed to retain a European steel business despite all those negative things, mainly because they're assets of, you know, one of the nice things you get after a period of really intense challenges for industries is those assets that are left and to be pretty good assets now. And so the cost curve has got a lot steeper in Europe. So what's really interesting is that, and being enhanced by share buybacks because they've been buying back shares throughout the last few, one of the attractions we had for these kind of companies is the balance sheets were so strong that any cash flow just came back and got it. And so Mittels, so I think the way I think about it a bit is the book value becomes irrelevant metric, you know, book values irrelevant to the assets are not needed. And what's so interesting about middle today, a bit like banks were two years ago where you could have made the same argument, is trade on give or take point five times book value, the book values basically doubled in the last five years because of the buybacks. Our point five times book value gets really interesting if you presume that even if you say worst cases are commoditized industry but it is a commoditized industry where you need the assets that gives you some concept to what the valuation might do. Where it gets really exciting I think is obviously if you go through a period where there aren't enough of the assets around returns on book value should be well above us. And if you say what's replacement cost of the assets because these assets were typically built many many years ago if you wanted to replace it would be I mean we've done an estimate but it would be sort of on the Europe I think it's probably true for the whole lot of except for India that it cost you three or four times the book value to replace most of these assets now that's not quite the same as saying today's assets are worth that because you know you get new kit and stuff like that but. But anyway so I think the way we think about is this is assets going from a situation where they were kind of almost unanchored because they just weren't useful to be useful it's like when shares go from being uninvestable from a balance you expect to invest you can make some really crazy return to that situation. I remember that very well and I think we should move on now to the to the portfolio management of the of the team yes you're so from Jonathan as as joint team team heads of T. Yeah and nice very involved Nigel Hickmetz very involved with the use of the portfolio in particular and then we got minister Greg Ellie who help who do various parts of the research process and different products within the team so it's a very and the teams broadly been pretty similar for last I mean Jonathan I've worked together for nearly 25 years long time you know Nigel Melissa and mostly I didn't it it's a very well established team where you kind of know that what you're trying to do across the team is get different perspectives you know engage a debate where different people are good at different things and the skill of the portfolio managers well the skill of anyone is running the team is just make sure you hear from the right person at the right time and listen to them so what are the what are the team make you better at that you couldn't be without them what because we all have our strengths weaknesses yeah I mean I would view myself as a component of the team rather than the other way around so it's almost the other way around which is what do I add to the team rather than what they have to me this is probably very little yeah I mean it's more you know when we're having a debate on a share there are probably two things isn't it that when we're debating a share I mean I'm not a great fan of voting on shares you know I've never seen any almost invariably if we vote on something we'll get the wrong answer yeah so the quote the key of any investment debaters to draw out the person who's likely to be right about the particular subject and what you get over a period with the team is two things one is some degree of specialist knowledge and so you know for instance in the banks you know I jump and I probably the rest of the team might think we might have a view if we thought there was something really interesting happening in the hedge that would probably be Jonathan or I spotting that right and some other members of the team different on different things but then you have character traits you know what you want to do on a team is get people who you know say for instance I get most I think Jonathan would say I or the team will probably say if for instance I decided I wanted to sell a few banks I think the team would the very quick reaction from the team can be a good example reaction from the team given my natural comp which I'm definitely not saying by the way I think they're going to be in but the way the team would probably work is if I was just humming and haring about a bank a bit I would Jonathan and the rest of the team would immediately say hold on a minute you've never hummed a nod of these things for the last forever doesn't that mean we should have the waiting yeah and that question so it's a way of you know when you work with people for a long time you know when they're doing say we they read each other yeah exactly and you need a bit of picking stocks or themes well the way we think about it is we pick stocks and allow the themes to materialize and when I look back at something like mining for instance in the 2000s that we were very good at invariably if we were doing something like this we talk about China etc etc but always in the portfolio is we own extra or something that and when we look back on it it was kind of interesting that we made more money the delta between extra mining shares and the mining sector was greater than the mining sector in the market so actually you know I think what we get is to really nice things from doing it like that one is I think of way in which we come up with themes is differentiated you know something like I was just describing with metal that's us working on metal yeah and then going hold on a minute is not what should happen with terrorists that's kind of is that way round the other way round it's not starting with the rest so I think our themes tend to be more differentiated because they're coming out of bottom up what was most people are doing themes are perhaps coming top down and then secondly in terms of implementing themes you know I hope and certainly lots of evidence to this effect the stock selection should you know whether it's mitigate the risk or add to the returns should mean that any thematic exposure we have should come with a premium return for our clients and allow them to access you know competitor a sort of quantitative model should allow them to access those returns with a premium and I got a sniff that you that defense is a bit of a theme for you is that is that right or wrong yeah no so 18 months ago to years ago we sort of two years ago we kind of I'm is interesting post Ukraine we kind of it was all you know I think we had candidate of his energy going to change or his defense going to change and yet at the time I think probably would have taken the view that the effect on energy my last longer and those different things and kind of to the flexibility point as time progressed you know we did as time progress to play more to play more of us you in a very long cycle for defense and I'm we talking about the voice be so we are in other B.A. systems which I think we feel is in a very interesting position not so much for European defense but for you know particularly is like Japan you know I think we'll became obvious to us as we bought and again through getting to know the company better yeah was that the defense team was a lot more elongated and broader than perhaps just Germany's going to buy a few tanks because good new yeah so I think and I think that was a real insight that in our minds what we were saying is the multiple of this chicacus is going to take is 20 years ago it's not one year and so we bought a lot of defense or a lot of pressure space two years ago I think it probably was did phenomenally well for us especially last year is this in the portfolio yeah it's still in the portfolio is it's it's you know it's you know it's doubled since we've owned it so you would expect us to have but and then and then I think one of the challenges with defense going back to the other side of it can be really interesting so within our unlisted space we were one of the first investors in company called Helsing which has become one of the largest sort of new defense companies in Europe and of course with going to the perspective point the fact we're talking to both British aerospace and Helsing I mean defense is definitely going to be an industry where the biggest question for people is not is there going to be demand is is the demand going to be in the same stuff that you built 20 years ago yes that's differently change it feels like it and yet if you look at again to your point about general listed analysis there's very little out there yeah and to be fair the company's light British aerospace are going to do really well out of that because they're intelligent tech heavy companies but I think the calibration for us going forward is going to be which of the defense company is going to win in new defense as much as and I feel very comfortable don't know the answer yet because it's you know well the fact that we understand both the listed and the unlisted I hope make us better of both of them yeah that's a very good example of that actually what should a truly active farm manager do to to be just to find their fees so I suppose the most thing is what does active really mean to you I'm definitely wouldn't prescribe what other people do very much I sort of nor would I say look passive is a hundred percent wrong I think I think what I feel very confident about today is our particular active you know I kind of look at the risk premium and the growth opportunities within our fund yeah today relative to the market so 20 when we first started doing long only it rather than just hedge funds part of the attraction of it was the whole market had an exceptional risk premium you know that we said look we can buy mega cap shares in the US and interestingly we didn't you know with those institutional clouds where you have some debate on these things we just we didn't even talk about we didn't we said we didn't really want to performance fee we just thought the logic for doing this is you're going to make a load of money out of it and yes we'll choose our names within the mega cap area yeah I think this decade the opposite is true I think this decade you know you will get rewarded a lot for not doing the same thing as the index of the deals and and you know you don't move there are periods where the index is very hard it's really hard to perform and those periods where it's very easy to have a form and normally those periods are inversely correlated to how much money goes into you know at the time is the fact that we think we've got a very strong opportunity to differentiate at a point where people are very bearish back to managers is it's a consistent picture a feast and do cash is an investment tool we try not to I mean one of the reasons we didn't I mean I took the view that we just we took the view that the attraction this decade was a bunch of really cheap shares you know that we wanted to get exposure to and actually managing short dated volatility was what we wanted to get away from yeah and and partly because we thought we'd get it wrong most of the time I think consistent with that I think it's very honest I think consistent with that there's got to be a maximum cash that shouldn't be much more than five or six percent against which I also do think you shouldn't always have something you know there are points where we should we are trying to trade the names in a way that creates It's a challenge for the portfolio, and as on the side of a scene, we're gonna be wrong rather than right. And we had this a bit February, I think it was last year, where we ended up getting nervous about enough of our names, that we ended up with 8.9% cash. And the good news about that, I think, is not that we necessarily are happened to be in OK time, to have 8.9% cash, but you know, and treat the probability you reinvest out all of the bottom is it just doesn't have, it never happens. But what was interesting was that we came out, when I look back at it now, the alpha we generated from the new names, just which ones are you gonna buy versus which ones did you sell? I talked to you earlier about having less in the main mistake we made. That was great. That was when that happened. It was we sold a load of it. And when we came to buy back stuff, it was different stuff that we bought back. And I think it was a lot easier to get there through being generally active, being willing to hold a bit of cash at times, and seeing which name you prefer at a point in time, and had we gone through a massive internal debate, saying, "Should we cut this name from me?" It's just really hard to put yourself in that way. It's really tough, that's really tough. That is really tough. And then you've got quite a lot of money in the strategy. As I remember, it was well over $7 billion, but you've got 800 million in the. Yeah, usage, developed markets, use it. Yeah. What is the percentage that you have in the UK, in Europe and in the States? So give or take, it's about $4,420, I think. But fortunately, It's across the chat, the number, is that roughly right? Yeah, that's roughly 40, 40, 20. But in a way, the good news, two things I would say, one, it's not the way, it's definitely not a top down, it's an output not an input. And two, in terms of last year, you know, I think last year was a good guy. We have a lot of exposure to the US economy within that as well. And three, I think last year, you know, one of the nice things about last year, in a way, is, you know, with that. And what was, again, a pretty rubbish economy, you know, wasn't like last year, was a great year for European or UK economies. It's fine. We can find, as long as we get the pricing right, and we think there is this massive opportunity where you can often buy the same exposure to very different multiple. You know, I actually think weirdly that the two exposures that, for this year, that are going to be most important to us, are being somewhat more prosick with all the most people at an industrial level, rather than a consumer level. And having the asset backing, being much very, it goes across a large chunk of the portfolio, you're in a way, banks are asset backed, you know, in tech, we're kind of barred towards people who create the assets rather than things. So I think those, interestingly, we always get asked about the geography. And it's fine, it's important that there are some exposures to the, if European economic conditions are better, it'll be much better for us. But I think last year proved that it wasn't the sole risk in the portfolio and the other ones, I think, are really quite important. When you're interviewing company management teams, how much of your meeting time, what percentage of that time is spent talking about their future plans outside of the earnings they were porting? - I think, I mean, it's a, most, I don't know, I think, this is definitely me thinking aloud about and trying to generalize across things that perhaps can't, but in general, I would say, before we buy anything, we'll go along to see a company. If we don't own a company, it's usually because, the first meeting is this might be interesting. And so I would say most of the time, we would often with the IR team, actually not necessarily CEO, just say, give us the 30 minute elevate. We think this might be interesting because of X. Tell us whether we're wrong or not. I remember British Air Force being great example. We're pretty much at the end of our meeting. I knew the shares were by. I mean, that was all I needed. I've heard, when I started, and that was in part because there I are. Within that, you're also learning, is it obvious within a company what our value add is? Because if the IR person effortlessly explains the investment story to you, you probably feel like the company knows which way it's going as well, which is definitely the case in British Air Force. Then you would do a ton of work, which would be very forward looking, very, you think. And then, I think what somebody said, we'd had a hundred meetings with Lloyds in the last 10 years. Our meetings there will be, that's a completely unverified figure, but it's going to be roughly right. The meetings now we would have with them will be, is that, we don't need to know. It's interesting, we have different times of meetings. So actually most of the time, the last couple years it's been, certainly a couple years ago, is do we really understand this hedge properly in every quarter we'd have gone through some really micro things where it was, do we understand how this hedge is going to play out? And this thing, now we're actually having some quite interesting conversations, which are, how is AI going to affect your cost space? How are you learning from these things? And so, you know, it varies a lot, but I would say in general, once you've known a company for a long time, you're more just trying to check what's changed since you last spoke to them. - Okay. - Whether that's forward or past, it varies. But definitely when you start, almost all of it should be about, if you don't know, it should be about the future. - And what about the quality of CEOs? Who are the most outstanding CEOs in your portfolio at the moment? Which companies do they work for? - I think, actually, to be honest, if I say the one who most recently, so there are lots of very good CEOs. I think for me, if I perhaps frame it on the most differentiated, I'm listening to them, I learn more about, yeah, I felt if they hadn't been there, the company wouldn't be in that position, okay, which I think is probably the most really what we're talking about. - Yeah, so the late, so, down around a blank, long call, blank I never quite know how to pronounce it. It's definitely when I, having spent an hour with her, I felt like that company is very, very fortunate, and have much, much better investment for what she's done and what she's going to do in conjunction, I'm sure she would say with her team, which are, I'm also the other thing you learn from good CEOs is probably the best guy to a good CEO is often the people they employ, certainly I would hope. And so, and that's interesting for that company as well. - What was the name of the company? - David Viva, she's David Viva, see, see, and David Viva, I think is potentially a really interesting company where an industry that historically has been commoditized because of the use of technology, general insurance, and actually, which in the first wave of technology lost its competitive edge because, you know, the first wave of technology and insurance was compare the market, you know, and any new entry could some, you know, any new entry could access to consumer. I think what you'll find is, they may well be a company whose motor's growing because the second wave of technology involves, you know, incumbency using their data intelligently to create a barrier to entry that other companies can't. - Yes. - And really transform the returns. To your point about assets, turn it from a business that shouldn't have much franchise premium to asset value to one that should have a massive one because the intangible assets are growing. - And, and, and, and, and she's actually, do they make, can they make a real difference to the returns for shareholders? - Yeah, yeah, and certainly to the downside. I'm not way over here. I think, no, listen, I, I, I do, and especially now weirdly, because I think, I think as AI, or, I mean, why we call it data plus is, I don't like just using the term AI, but, you know, even with our business, I see it, that, you know, I think understanding how, there is so much change, I mean, look, it's a bit like what we're saying without a manager, there's so much change going on, the understanding and interpreting that change from the position of any company almost. There'll be very few companies whose, whose market structure isn't radically different this, if we're right. And I think the CEO's job, a CEO's job of interpreting that change and implementing a strategy creatively to do that. - Probably, you know, there, there will definitely be a big margin for error, I think, probably bigger than usual, I think. - So, now I'm going to ask you a curve ball question, which is, and we spent a lot of time today talking about AI. - Yeah. - But how powerful an energy efficient is the human brain versus AI? - Well, it broadly, I'll get the numbers slightly wrong, but it broadly has about 5,000 times the number of connections, which you need to scale geometrically in terms of its capacity, and yet, as runoff uses the power of a light bulb to run itself. - So, it's, so, you know, it's a pretty efficient. - It's incredibly efficient. And the, and the flip side of that, of course, is a frog, has the same number of connections, is a large language model, but couldn't do your homework. So, or if it started doing D-fill PhD thesis, you'd be pretty surprised. So, I, the more we've looked at this, and we have looked at a lot, is to less think of it as, I mean, to be warned by human evolution, and to look really hard at, I mean, same applies to robots versus, you know, hands versus, where robots are in terms of dexterity versus human hands, is you'll come to similar conclusions of all. But, I think the right way for investors to think about this is not try to get to absorbed with some sort of superiority of computers to humans, but to understand what functions are likely to be well disposed to the way computers think, and which ones are likely to, you know, remain difficult for computers to replicate or human beings. Yeah, what is it? I mean more of a match more of a match. I saw it guy. He had a paradox, which is all the things that computers find easy humans find hard and vice versa and You know, for instance my one year old can tell his mother's face from My when my children were one they could tell their mother's face from any other woman You know to to degree a precision that no computer could emulate But a computer can do you know infinite calculations that we'd all even with our mathematical genes would struggle with So How we stocks your portfolio got the potential to double it the next few years? I think um I mean if you accept so We run out as I said earlier the earnings growth et cetera, et cetera And that kind of talks to most of the portfolio I mean that talks to a threshold for the current portfolio of a reasonable estimate of a doubling within four years for most of it yeah um as we said earlier and was shown last year on the one hand Not all of them will do that so the returns and aggregate might be lower than that on the flip side of that though Is they may happen in different order and if we're good at sequencing them you can preserve your long term earnings power without For much longer than that would imply so I think all of them could I think as I said earlier that there are some elements where I'd be surprised if they don't And there's somewhere I think they could do far better than that. Yeah, if if certain things happen and balancing Yeah, and I would say probably about 50 50 is 50% I think almost definitely will unless something goes wrong and 50% I think could do miles better than that if something goes right and You've been a business now for whatever 35 years of you We edit out that in a better 30 - 32. Okay. Okay 32 Do you still find the challenge of managing risk and reward for investors? Estimulating as you ever ever did. Oh, I mean, I mean, but also I think I'm one of the virtues of it changes I'm going back to my the very first point we made about change a that the individual challenge we have on any one day It's completely unique and one we've never seen before and you know whether we're debating AI or debating You know free server 30 at 20 ideas ago, you know that the challenge it's the analytic challenge has a different content to it and then the second bit which I Really enjoy is you know the personal challenge of adapting oneself to one's own career has has you know brings with it You know we talked earlier about being more active in the portfolio to me partly is me just on the one hand thinking You know knowing myself well enough and knowing us well enough to go on the one hand. I want to Be more patient than other people because I think the opportunities there and I'm accurate in that on the other hand I've got to be really careful not to get stubborn about these things because I know myself a bit and you know, it's not like You know, I'm probably not gonna panic given where I am in my career in the way that I might have done when I was 21 22 And I think that's really really showing for invest investors to know and and actually the One of the one of the things I do very much like about landstown is is that you being brave and Being prepared to press the reset button when you realize that there's a different way That you need to go about making money for your investors and to be prepared to close a hedge fund To start up a long-only I'm from management business Which you know in the short term is going to be a little bit of pain for the for the profitability of the business But for the for the outcome for the investor. Yeah Um, it is it is second to none so my last question today Um is a little cheeky one, but I remember years ago you you invested in Um in Mossat Um and if starlink was to come to the market Let's run this year. Do you think it's an IPO you might get involved in? I definitely might yeah, I mean and interestingly going to where the mistake to into the point about mistakes You know the realities. I mean, I don't know enough about how under its new ownership in Mossats I'm doing but you know definitely to the to the kind of mistakes one makes and I and also guidance frankly to why our investment time frame is Three to five years. I one thing I Hopefully will never you'll never hear me say is and then my sense great example of this is um Feeling confident. I know that the longer the time frame the more confident I get and you know One thing I've learned many many times looking back at the portfolios we have had is Is sort of knowing what's going to happen to accompany in 10 years is very very hard I think and in Mossat's fascinating in that in practice I suspect what I said they have evolved anyway because there are lots of opportunities and satellite that starlings thick thing But the basic point that we were assuming that people wouldn't you know our presumption at the time was this was a quasi monopolis stick position and suddenly there's a gazillion New satellites up there. It's a really good indication of kind of why three to five years is about the most you should be The forming an investment view on for us Anyway, the people are better at them. We are I think and then To your style in question. I mean the other thing again is there are some really interesting quite. I mean there's a really interesting ecosystem building up around The sort of space in space in Oxfordshire not in the university Including some really strong satellite companies new satellite companies emerging. I mean Somebody told me there are 200 space companies in in column that really I mean it's a real center of excellence in the UK built around Anyway, but it's a real center of excellence. Anyway, the reason I bring it up now is the fascinating thing about starlink Is so actually Europe more so in continental than UK, but it's pretty clear. There'll be Some competitors the question I will have for Starlink is kind of how how unique is there market position given certainly On the one hand Send in Europe. It's pretty clear that continental Europe is buying non-starlink is it wants very hard to build non-starlink Things but I haven't done enough work on it yet. I'm very grateful because today I think we really have gone into quite a lot of decent um probably too much No, I say I Some people might think that but yeah, but I don't I think it's one really pure. I think it's one for the pureness to and thank you very much For being so clear in explaining so much to To a bear with a small brain well apologies for the apologies for those who yeah, we have come through a lot Thank you very much for having you much. It's a really pleasure. Thanks. Thank you all content on the algae's investment podcast is for your general information And use only and is not intended to address your particular requirements in particular the content does not constitute any form of advice recommendation representation endorsement or arrangement and is not intended to be relied upon by users in making or refraining from making any specific Investment or other decisions guests and presenters may have positions in any of the investments discussed