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Where One Top Value Investor Thinks You Should Put Your Money Now · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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  Speaker 2: Welcome to Maren Took to Money, the podcast in which
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  Speaker 2: people who know the markets explain the markets. I'm Maren
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  Speaker 2: sumsep Web. This week I am speaking with Ben Whitmore
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  Speaker 2: about his new value equity fund boutique, Brickwood Asset Management.
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  Speaker 2: Ben is one of the UK's most renowned value investors.
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  Speaker 2: Before he launched Brickwood, he was a star at Jupiter
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  Speaker 2: Asset Management, where he handled around a fifth of Jupiter's assets.
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  Speaker 2: In fact, news of his exits sent the shares down
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  Speaker 2: nearly fifteen percent in a single day in January, so
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  Speaker 2: needless to say, Ben's investment strategy has really worth paying
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  Speaker 2: attention to, and in our conversation we talk about the
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  Speaker 2: funds he has launched, why he launched you in the
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  Speaker 2: first place, and what he expects to happen next. Ben,
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  Speaker 2: thank you so much for coming in today. We hugely
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  Speaker 2: appreciate it's nice to have you with us. Thank you
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  Speaker 2: very much for having me right now. We have to
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  Speaker 2: start with why you've done this in the first place.
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  Speaker 2: Why would you leave a giant, comfortable company where you're
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  Speaker 2: running billions and billions of pounds Presumably making an excellent living,
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  Speaker 2: everything going very well, great reputation. Why would you leave
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  Speaker 2: all that to set up on your own?
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  Speaker 3: Oh? Okay, I think it's a great question. It's not
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  Speaker 3: just me, the four of us, and we just felt
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  Speaker 3: that there was an opportunity to create a value boutique
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  Speaker 3: really well known for value investing, and that we by
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  Speaker 3: concentrating on that, we could design the systems and technology
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  Speaker 3: we wanted, we could have the clients service that we wanted,
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  Speaker 3: and that by really focusing on it, we hope that
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  Speaker 3: in the end that would lead to better outcomes for
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  Speaker 3: the clients by that sort of real focus of the
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  Speaker 3: whole organization. And we felt that there was an opportunity.
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  Speaker 4: To do it.
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  Speaker 3: Value had been pretty scarred over the last ten plus years,
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  Speaker 3: especially globally, and we felt that there was an opportunity
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  Speaker 3: that might occur over the next five ten years, some
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  Speaker 3: form of mean reversion, and we felt that there hadn't
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  Speaker 3: really been any value boutiques out there recently launched, and
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  Speaker 3: we thought that was just an opportunity. We all liked
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  Speaker 3: and trusted each other and felt that the team of
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  Speaker 3: us we could give it a shot.
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  Speaker 2: It's interesting, though, isn't he You're right, there are very
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  Speaker 2: very few real value players left out there after all
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  Speaker 2: these years of value not working. There aren't very many
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  Speaker 2: value boutiques, and there weren't really that many value teams
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  Speaker 2: sitting inside any of the bigger companies.
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  Speaker 4: Yeah.
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  Speaker 3: Absolutely, And I think that's just a natural process. If
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  Speaker 3: you've started in fund management in the last five, ten,
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  Speaker 3: fifteen years, value investing has not been a growing area.
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  Speaker 3: It's been shrinking, or people have retired or given up
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  Speaker 3: or and so naturally you've gone into the other areas
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  Speaker 3: that have been increasing their headcount.
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  Speaker 2: Let's just go back even one more step and say,
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  Speaker 2: we're going to talk a lot about value investing. But
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  Speaker 2: what does that mean to you when you say value,
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  Speaker 2: what are you talking about?
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  Speaker 4: Yeah?
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  Speaker 3: I think it's a very good question because at one extreme,
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  Speaker 3: some people think it's Ben Graham buying heavily discounted companies
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  Speaker 3: trading it below the cash on the balance sheet, and
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  Speaker 3: at the other end of the spectrum it's Ben Graham's
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  Speaker 3: most famous student, Warren Buffett, who who's more about buying,
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  Speaker 3: you know, very good quality companies at resonall prices. I
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  Speaker 3: think for us, the key thing is that the starting
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  Speaker 3: point is the valuation, So we are looking for low valuation,
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  Speaker 3: but just as importantly, just as if you're in a
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  Speaker 3: supermarket doing all weekly shop, value is a trade off
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  Speaker 3: between price and quality. So we're very keenly aware that
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  Speaker 3: starting valuation is extremely important, but you need to be
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  Speaker 3: cognizant of the quality of the company. One of the
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  Speaker 3: great things about value investing is there's a lot of
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  Speaker 3: books on it you can read and read and read.
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  Speaker 3: And one of the sort of key guiding points for
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  Speaker 3: our investment process is the cyclically adjusted price earnings ratio.
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  Speaker 3: And now what is that that is? Rather than take
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  Speaker 3: a snapshot of the earnings, because you don't know where
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  Speaker 3: you are in a company's life cycle or economic cycle,
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  Speaker 3: Graham and Odd suggested you take an average over a
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  Speaker 3: business cycle, and they said seven is better than five,
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  Speaker 3: tens better than seven, So ten as an approximation at
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  Speaker 3: business cycle, and if you like, we're looking at companies
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  Speaker 3: that look lowly valued on their average earnings power over
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  Speaker 3: a ten year cycle, and that.
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  Speaker 4: Way you get much more of.
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  Speaker 3: A feel for where true low valuation lies, rather than
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  Speaker 3: if you like, accidentally picking a cyclical company at its
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  Speaker 3: highs or conversely avoiding it when it's at its lows,
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  Speaker 3: and that for us is one of our absolutely key
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  Speaker 3: valuation metrics. And the other reason why we believe in
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  Speaker 3: it so much is we're very evidence based and the
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  Speaker 3: evidence over long periods of time shows that that's a
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  Speaker 3: very powerful indicator of subsequent returns. And if you look
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  Speaker 3: on sort of online resources for this, Professor Schiller has
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  Speaker 3: a whole series of this stuff around the Shiller pee,
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  Speaker 3: which he called which is the same thing that cyclically adjusted.
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  Speaker 2: Pews for timing.
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  Speaker 3: Isn't it very poor for timing, but it does point
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  Speaker 3: to you like a.
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  Speaker 2: In the right direction, and that has a tendency to
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  Speaker 2: revert to the mean.
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  Speaker 4: Yes.
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  Speaker 2: And again, one of the conversations that I've had with
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  Speaker 2: a lot of growth managers over the last decade or
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  Speaker 2: so is the idea that reversion to the mean is
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  Speaker 2: dead because the very fast growing technology company is destroy
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  Speaker 2: the idea that any sector or marker as a whole
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  Speaker 2: would revert to any kind of mean.
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  Speaker 3: Yeah, and they're absolutely right to a degree. But what
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  Speaker 3: I think is also very important aboun mind is that innovation, industrialization,
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  Speaker 3: technological change has been happening for the last hundred plus years,
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  Speaker 3: and so it's not a new phenomena. It's been happening
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  Speaker 3: for the last hundred years. So if you we don't
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  Speaker 3: need to talk about all the things that have occurred
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  Speaker 3: in the last one hundred years which have surprised and
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  Speaker 3: shocked people, but that rate of innovation and change and
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  Speaker 3: new products, new ways of housing, formation or shopping, or
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  Speaker 3: transport or ways of living have been in place for
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  Speaker 3: the last one hundred plus years, and the evidence stretches
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  Speaker 3: back over nearly one hundred and fifty years. So I
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  Speaker 3: absolutely acknowledge that. But I think where I differ would
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  Speaker 3: be that's been in place for the last one hundred
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  Speaker 3: and thirty years. Imagine going back to I don't know
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  Speaker 3: the data tends to start in eighteen seventy one, but
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  Speaker 3: if you went back then and imagined what life was
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  Speaker 3: like in nineteen ten or nineteen thirty, or nineteen fifteen,
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  Speaker 3: nineteen seventy nine, you would think that there's been the
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  Speaker 3: most incredible amount of change.
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  Speaker 4: Now. I do think it's.
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  Speaker 3: Right that it's probably more exacerbated now perhaps than say
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  Speaker 3: would have been in maybe a decade of the eighties,
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  Speaker 3: but that change is always something that's been around in
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  Speaker 3: the world economy, and so I don't think that this
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  Speaker 3: particular period means that everything that has worked in investing
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  Speaker 3: is now discounted.
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  Speaker 2: You have launched value funds really at rather a good time.
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  Speaker 2: Your timing, whether purfle or not, have been fairly impeccable.
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  Speaker 2: We're just seeing the US market coming off, seeing significant
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  Speaker 2: falls in the NATICT this year, etc. And we're seeing
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  Speaker 2: the much cheaper European markets begin to pick up. So
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  Speaker 2: there is look slightly is the beginning of a great
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  Speaker 2: rotation out of expensive US markets into cheaper global markets.
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  Speaker 2: Timing is impeccable.
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  Speaker 3: I guess it's a bit how you need to say.
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  Speaker 3: Time will tell, but I think all you can say,
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  Speaker 3: leaving aside the sort of very short term, is that
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  Speaker 3: rest of the world versus America, or small versus large,
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  Speaker 3: or value versus growth, that there are at quite big
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  Speaker 3: extremes when look globally. So when if you're like the
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  Speaker 3: rubber band is pulled so tight, it doesn't take much
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  Speaker 3: to change that narrative. Now, I don't know whether it's
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  Speaker 3: going to be caused by everything that's going on at
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  Speaker 3: the moment, but we do very much believe that at
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  Speaker 3: some point there will be some if you're like mean
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  Speaker 3: reversion or change in the very low valuation applied to
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  Speaker 3: quite a few assets in UK, Europe, Japan, Latin America.
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  Speaker 2: Yes, well, why don't we start my looking at the
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  Speaker 2: UK because that's the first fund you launched, the UK
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  Speaker 2: Value Fund. You just mentioned that there is this big
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  Speaker 2: gap between large and smaller, and smaller companies have massively
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  Speaker 2: unperformed and if you're really looking for extreme value in
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  Speaker 2: the UK, you might go small. But you haven't done that, right.
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  Speaker 2: It's a large cap fund.
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  Speaker 3: Yes, it's a large medium sized company fund. I co
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  Speaker 3: manage that fund with my colleague Kevin Murphy. That's where
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  Speaker 3: we've spent our last combined fifty years.
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  Speaker 2: And Kevin came from the Value Team. It showed us, yes.
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  Speaker 3: Exactly, that's why we spent our fifty years concentrating. So
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  Speaker 3: we don't want to do anything different from what we
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  Speaker 3: have been doing. But yes, you can find a lot
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  Speaker 3: of very lowly valued shares in that whole space.
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  Speaker 2: GE's been phenomenally unpopular for a long time, and we've
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  Speaker 2: talked a lot on this podcast over the last couple
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  Speaker 2: of years about the UK it's so cheap. Get him
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  Speaker 2: while you still can. If you don't buy these, other
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  Speaker 2: people will et cetera, et cetera. And of course everyone
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  Speaker 2: has completely ignored us, and we've seen ongoing outflows from
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  Speaker 2: the UK market over and over and over. It's been very,
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  Speaker 2: very depressing. So you know, you're really very optimistic here.
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  Speaker 3: I think it just depends on your timeframe. As you say,
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  Speaker 3: the out flows have carried on. But I think you know,
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  Speaker 3: flows tend to follow performance, and if you did see
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  Speaker 3: the UK stop market showing some good performance, I think
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  Speaker 3: you would see the flows change.
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  Speaker 2: I think in good performance in the UK, and even
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  Speaker 2: small caps aren't performing at the moment quite as badly
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  Speaker 2: as you might expect given global upset.
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  Speaker 3: Yeah, you know, I am optimistic because the starting valuation
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  Speaker 3: is solow. I definitely can't predict, and they think around
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  Speaker 3: flows or timing. But I am very optimistic because just
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  Speaker 3: the starting valuation solow and history shows that very low
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  Speaker 3: starting valuations are good. Now, your point, which you make
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  Speaker 3: is very valued. But what about the timing of it,
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  Speaker 3: and that I can't help on or can't predict. But
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  Speaker 3: what I do know is that that very low starting
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  Speaker 3: point is a good sign for if you like the
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  Speaker 3: medium to long term investor.
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  Speaker 2: Okay, well, I was reading the fact cheek for this
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  Speaker 2: UK fund earlier. One of the things you say is
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  Speaker 2: that your hope is to outperform the index on a
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  Speaker 2: rolling five year basis after fees. I hope you won't
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  Speaker 2: mind me saying that that's remarkably unambitious.
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  Speaker 3: Well, I think it's better to not try and set
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  Speaker 3: a very very high hurdle. If you look back historically
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  Speaker 3: at the long run data in say the IA UK
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  Speaker 3: or company sector, historically, if you have had compounded at
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  Speaker 3: two percent pranum neta fees ahead of the index over
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  Speaker 3: ten to fifteen years, you're comfortably in the top decile.
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  Speaker 2: So why not say that you would like to achieve
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  Speaker 2: two percent? Well, I think more than the index over
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  Speaker 2: a rolling fabily period.
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  Speaker 3: As soon as you start getting very precise, it might
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  Speaker 3: not be that helpful. But I also think that you
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  Speaker 3: don't want to try and make very big promises either.
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  Speaker 3: I think you're much better to get on and run
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  Speaker 3: the fund and try and deliver that good performance.
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  Speaker 2: Here okay, and we can see your history of good
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  Speaker 2: performance so well, you might not be promising yet we
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  Speaker 2: can make a guess or what you might be hopeful for.
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  Speaker 3: And I think also that financial service is more broadly
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  Speaker 3: sometimes gets a bad reputation for sort of being a
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  Speaker 3: bit too aggressive on the marketing and such like. And
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  Speaker 3: I think you're much better to be cautious on promises
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  Speaker 3: and concentrate much more on actual delivery.
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  Speaker 2: It fair enough. We spend a lot of time criticizing
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  Speaker 2: fun management companies for being more marketing companies and money
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  Speaker 2: management companies and asset gatherers rather than activists or us to.
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  Speaker 2: So fair enough, Okay, let's talk about the fund then
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  Speaker 2: forty six holdings, so not that concentrated.
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  Speaker 3: No, not that concentrated. There's a lot of academic and
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  Speaker 3: experienced evidence around how much you need for diversification, but
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  Speaker 3: also there's a sort of balance here. Probably twenty to
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  Speaker 3: thirty would get you sufficient diversification on a sort of
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  Speaker 3: theoretical basis, But there are also quite a lot of
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  Speaker 3: loading value stocks at the moment. So if you increase
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  Speaker 3: the number of holdings whilst at the same time being
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  Speaker 3: able to keep the valuation the same, you're getting a
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  Speaker 3: bit more diversification. So I do think that is sensible,
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  Speaker 3: I really do.
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  Speaker 2: Okay, Well, should we talk about some of the stocks
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  Speaker 2: in that UK portfolio, because I think we do have
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  Speaker 2: quite a lot of listeners who do buy individual stocks
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  Speaker 2: and are interested in these big, cheap, high yielding stocked
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  Speaker 2: in the UK, and I'm interested. I am looking at
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  Speaker 2: facts each and maybe slightly out of date. The dividend
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  Speaker 2: yield on it is four point seven percent, and just
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  Speaker 2: for the sake of interest, the p ratio forward p
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  Speaker 2: ratio average across the portfolio is eight point eight times,
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  Speaker 2: so remarkably cheap.
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  Speaker 3: Actually it is a lowly valued fund. Just to highlight
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  Speaker 3: a couple of companies, two very different companies. We've got
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  Speaker 3: an investment in Travis Perkins that's building merchant operating predominantly
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  Speaker 3: in the UK. It's actually trading below tangible book value.
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  Speaker 3: Its book value is predominantly some property and working capital.
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  Speaker 3: So when companies trade below tangible book value, the stock
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  Speaker 3: market is saying something very pessimistic. They've got a new
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  Speaker 3: chair and they did have a new CEO who Sally,
• 13:47
  Speaker 3: due to ill health, has recently had to step down.
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  Speaker 3: But they've got pretty strong market positions. The business hasn't
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  Speaker 3: been that well run, hence the opportunity to buy it
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  Speaker 3: at below tangible book value. Difficult economic environment but I
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  Speaker 3: think if we can find our whole series of investments
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  Speaker 3: training at that low valuation, with established franchises, but where
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  Speaker 3: there have been some problems but not even like permanent problems,
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  Speaker 3: that's exactly what we're trying to do.
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  Speaker 2: Doesn't look like you're looking for particular catalysts, so there
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  Speaker 2: could be some value traps in here.
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  Speaker 4: Yeah.
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  Speaker 3: Well, I think catalysts, by their nature are surprises. I
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  Speaker 3: think it would be quite difficult to say that we
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  Speaker 3: know what the surprises are going to be. You know,
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  Speaker 3: surprises to markets are genuine surprises. I think, though, what
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  Speaker 3: the evidence shows is that what we're trying to do
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  Speaker 3: is that low valuation helps to protect you from negative surprises,
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  Speaker 3: but at the same time you're much more exposed to
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  Speaker 3: positive surprises. And so we don't know the catalyst. But
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  Speaker 3: what we think is that more broadly, catalysts tend to
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  Speaker 3: be either fears recede or profits recover, and some in
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  Speaker 3: that area is how we think we'll get the valuation
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  Speaker 3: change to reflect the value of the business.
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  Speaker 2: All right, I interrupted you were telling us a stock story.
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  Speaker 3: Carry I think the other one at the other sort
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  Speaker 3: of extreme in terms of business, but not in terms
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  Speaker 3: of valuation would be Burbery, that is reasonably well known
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  Speaker 3: luxury goods company concentrating on outerwear, scarves and other fashion
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  Speaker 3: where that's had a very difficult time, partly due to
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  Speaker 3: a downturn in luxury spending in China, but also due
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  Speaker 3: to some self inflicted wounds. They changed the chief executive
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  Speaker 3: last summer as well, and their merchandising and pricing strategy
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  Speaker 3: went wrong. The new chief executive is returning the business
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  Speaker 3: to if you're like the real core check, if you're
• 15:47
  Speaker 3: like what it stands for, and you're able to pick
• 15:50
  Speaker 3: that up on investing that on a if you're like
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  Speaker 3: a cape yield of about fifteen sixteen percent, which is
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  Speaker 3: very very low in relation to absolute valuations, whereby the
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  Speaker 3: stock market is feeling very pessimistic about the ability to
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  Speaker 3: recover the lost profits which have happened. And so if
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  Speaker 3: we can find, as you say, forty to fifty ideas
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  Speaker 3: like that, we're very very happy.
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  Speaker 2: Have you been watching the TikTok of luxury goods being
• 16:21
  Speaker 2: made in China?
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  Speaker 4: No? I haven't.
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  Speaker 2: It's worth it. It's worth it. If you go go
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  Speaker 2: and look on tikto, you're probably not on TikTok. So
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  Speaker 2: I'm not on TikTok either. I'd rely on my kids
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  Speaker 2: with this. But there are lots of videos doing the
• 16:31
  Speaker 2: rounds of luxury goods factories in China, showing how things
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  Speaker 2: are made and when they're made in China, when you
• 16:38
  Speaker 2: think they're not made in China, etc. They're fascinating and
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  Speaker 2: I wonder if if that kind of thing will have
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  Speaker 2: an impact on luxury goods spending.
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  Speaker 4: So these are copies, is that right?
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  Speaker 2: No? Well, supposedly not. I'm watching TikTok here.
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  Speaker 4: Yeah, okay.
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  Speaker 3: So one of the things that Berbera spent a lot
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  Speaker 3: of time on is the supply chain. So obviously it's
• 16:57
  Speaker 3: very well known for its UK heritage demand factoring in
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  Speaker 3: the UK, so I think clearly that is a concern
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  Speaker 3: for companies more broadly, but I would I'd feel pretty
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  Speaker 3: confident that that wouldn't apply to Berbera.
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  Speaker 2: Is there an ESG overlay of any kind on the fund?
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  Speaker 2: I see, and will come to global one in a minute.
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  Speaker 2: But I see you have got ahead of stewardship kind
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  Speaker 2: of compulsory?
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  Speaker 4: Is it? Right?
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  Speaker 1: Now?
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  Speaker 2: How do you approach all that? I mean, obviously it's
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  Speaker 2: not classic ESG because in your top ten you've got
• 17:29
  Speaker 2: British American tobacco, et cetera shell BP, So it's not
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  Speaker 2: your standard ESG overlay. But how do you approach that?
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  Speaker 3: Yes, so Andrew Mortimer, as are at a stewardship and
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  Speaker 3: those the S energy are very important because they can
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  Speaker 3: be fundamental to permanent loss of capital if you don't
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  Speaker 3: take them seriously enough. Now, historically people have always thought
• 17:52
  Speaker 3: about the G the governance. You know, you've had poor
• 17:55
  Speaker 3: governance that can lead to permanent loss of capital via
• 17:58
  Speaker 3: poor management of the business capital allocation. But the E
• 18:02
  Speaker 3: and the S, the environmental and like the social side,
• 18:07
  Speaker 3: those are important when you're thinking about if you're like
• 18:12
  Speaker 3: the sustainability of the franchise and so for us, they're
• 18:15
  Speaker 3: all part of thinking about investment risk or it's the
• 18:20
  Speaker 3: risk that we're going to lose our client's capital and
• 18:23
  Speaker 3: anyone investment. So yes, we do absolutely want to take
• 18:27
  Speaker 3: all of those into consideration when making an investment decision.
• 18:31
  Speaker 2: Okay, can we talk about BP a bit. That's been
• 18:33
  Speaker 2: in the news a lot and I'm sure a lot
• 18:35
  Speaker 2: of our listeners are interested in it as a standalone
• 18:37
  Speaker 2: to DOC.
• 18:38
  Speaker 3: Yes, so, BP has been in the news. Well, I
• 18:42
  Speaker 3: guess a lot recently, but when I think about since
• 18:46
  Speaker 3: I started in the city in nineteen ninety four, it's
• 18:49
  Speaker 3: been in the news a lot. And you're absolutely right,
• 18:55
  Speaker 3: it's currently in the news because the previous CEO tried
• 18:59
  Speaker 3: to to deploy more capital into low carbon or renewable assets.
• 19:07
  Speaker 3: The returns on those have not been very good. He
• 19:10
  Speaker 3: was also looking to shrink the oil and gas portfolio
• 19:14
  Speaker 3: quite aggressively as the world transitioned away from if you
• 19:17
  Speaker 3: like carbon.
• 19:18
  Speaker 2: Assets, except that is not really doing that, is it.
• 19:21
  Speaker 3: But the pace of changes is not as fast as
• 19:25
  Speaker 3: was anticipated, And so the new CEO, who was the
• 19:30
  Speaker 3: finance director, is really running the company I think more
• 19:35
  Speaker 3: in line with how society is changing now. That might
• 19:39
  Speaker 3: come into for some criticism that they're not going faster,
• 19:42
  Speaker 3: but I think he's basically adopting a more pragmatic approach.
• 19:45
  Speaker 3: What really needs to happen, I think at VP, and
• 19:48
  Speaker 3: it's what they've said, is that oil and gas companies
• 19:50
  Speaker 3: are very capital intensive. They need to concentrate on the
• 19:52
  Speaker 3: returns from deploying that capital rather than if you're like
• 19:57
  Speaker 3: talking about the strategy talking about a deploying thing and
• 20:00
  Speaker 3: what the returns may or may not be. They need
• 20:02
  Speaker 3: to concentrate on what they're The new change of strategies
• 20:05
  Speaker 3: around is the actual returns from the capital deployed, rather
• 20:09
  Speaker 3: than having a strategy what it might be.
• 20:12
  Speaker 2: Do you think that that is happening now? I mean,
• 20:13
  Speaker 2: this has been one of the most of the many
• 20:16
  Speaker 2: disappointing stocks in the UK that BP is consistently disappointed
• 20:19
  Speaker 2: at Shoholders, hasn't it.
• 20:21
  Speaker 3: You can see it in the stock market has expressed
• 20:22
  Speaker 3: by the valuation. There's a sense of deep distrust in
• 20:26
  Speaker 3: the company, and so I think you get a very
• 20:30
  Speaker 3: low starting valuation, a sort of a very big discount
• 20:34
  Speaker 3: to European and American super majors. Clearly it's not a
• 20:38
  Speaker 3: super major really, it's shrunk quite a lot over the
• 20:40
  Speaker 3: last ten twenty years, especially following mccondo. So I think
• 20:44
  Speaker 3: that big discount can't really only be closed by them
• 20:49
  Speaker 3: demonstrating operational performance. And I think that's that is definitely
• 20:52
  Speaker 3: what it seems that the stock market in investors want.
• 20:55
  Speaker 2: Let's talk about the second fund, because you've moved pretty
• 20:58
  Speaker 2: quickly here. Lawn's UK one pretty small and you've gone
• 21:01
  Speaker 2: straight into launch a global value fund, also still pretty
• 21:04
  Speaker 2: small at the moment. What was the thinking behind that?
• 21:07
  Speaker 2: Because you can have your UK fund, you can have
• 21:09
  Speaker 2: twenty percent of the assets in non UK companies, right,
• 21:12
  Speaker 2: yes you can? Ye, yeah, so you can. You can
• 21:14
  Speaker 2: put a little global in there if you feel like it.
• 21:16
  Speaker 2: But nonetheless you've still vote launched a devoted global fund.
• 21:20
  Speaker 3: So I'm managing that with my co manager, Dormat Murphy,
• 21:23
  Speaker 3: who I've spent the last ten years working with, and
• 21:26
  Speaker 3: we ran global funds together.
• 21:28
  Speaker 2: Brother's going to get along? Okay, do you think?
• 21:30
  Speaker 4: Yes?
• 21:30
  Speaker 2: I do, Yes, I could work with one of my siblings.
• 21:33
  Speaker 4: Yeah. So I've worked with them both throughout my.
• 21:35
  Speaker 2: Career, separately, never together.
• 21:37
  Speaker 4: They never together.
• 21:38
  Speaker 3: But from all I can see is there they get
• 21:43
  Speaker 3: on very very well together. There's a big age grap
• 21:46
  Speaker 3: between them, which may well help, but they they're both
• 21:50
  Speaker 3: very passionate value investors. The three of us are sort
• 21:53
  Speaker 3: of joined by that like that, by that great passion
• 21:57
  Speaker 3: and interest. But why did we do a global fund?
• 22:01
  Speaker 3: I think they're very different, and so here this is
• 22:04
  Speaker 3: about accessing opportunities all across the globe, and I think
• 22:08
  Speaker 3: it's important to keep them pretty distinct.
• 22:10
  Speaker 2: There are some cross shareholdings, right, yes, BAT being.
• 22:14
  Speaker 3: Yep, there are some BAT or BP. There are definitely
• 22:17
  Speaker 3: some cross shareholdings. But we've got, you know, exposure across Europe, Japan,
• 22:23
  Speaker 3: Hong Kong, Latin America, America.
• 22:26
  Speaker 4: There's a huge.
• 22:29
  Speaker 3: Range of low valuation stocks to try and capture. And yes,
• 22:34
  Speaker 3: they're they're very distinct portfolios.
• 22:36
  Speaker 2: Yeah, you've got the resource to cover the whole world
• 22:38
  Speaker 2: like that, you're in Japan, etc.
• 22:43
  Speaker 3: You're absolutely right if you said, oh, go and find
• 22:47
  Speaker 3: these companies. But if you didn't have a process, I
• 22:49
  Speaker 3: completely agree with you. But we've got a very distinct process.
• 22:52
  Speaker 3: So we have two screens. One is if you like
• 22:55
  Speaker 3: the cyclically adjusted pe which we talked about. The second
• 22:59
  Speaker 3: one is a green that screen named after Joel green Blatt,
• 23:02
  Speaker 3: famous American investor. So we run those screens and we
• 23:06
  Speaker 3: use the screens. They're not magic formulas, but they're very
• 23:10
  Speaker 3: good at pointing you in the right direction. We use
• 23:13
  Speaker 3: these screens to push our work into a very narrow field.
• 23:19
  Speaker 3: When you think about global markets and so lets say
• 23:22
  Speaker 3: maybe ten ten thousand investible securities, and it pushes you
• 23:27
  Speaker 3: into those areas and concentrate your looking and you're modeling
• 23:32
  Speaker 3: on those.
• 23:32
  Speaker 2: Okay, So you can use technologies make sure the universe
• 23:35
  Speaker 2: the universal stocks you choose from is it as you've
• 23:37
  Speaker 2: very small.
• 23:37
  Speaker 3: So not only can you use technology to help you
• 23:40
  Speaker 3: look for where the stocks are, but and this has
• 23:46
  Speaker 3: really been led by Kevin, you can also use technology
• 23:49
  Speaker 3: to help you with all your modeling. So we like
• 23:51
  Speaker 3: to model balance sheet, cash flow, profit loss account looking
• 23:54
  Speaker 3: backwards for all the companies. You can use technologies now
• 23:57
  Speaker 3: to do that for you rather than thumbing through the
• 24:00
  Speaker 3: born accounts and manulm putting the numbers. You can then
• 24:03
  Speaker 3: integrate all of that with your audit management system in
• 24:07
  Speaker 3: an integrated data platform, so you can do an enormous
• 24:12
  Speaker 3: amount of work to present the ideas in the format
• 24:16
  Speaker 3: with the financial history that you want, so that you
• 24:19
  Speaker 3: can spend much more time on considering the reasons why
• 24:22
  Speaker 3: the shares lowly valued, thinking about the issues and forming
• 24:26
  Speaker 3: an investment rationale and do.
• 24:28
  Speaker 2: You visit them down the companies.
• 24:30
  Speaker 3: We meet a lot of companies, but it's not a prerequisite.
• 24:35
  Speaker 3: Some of our Japanese holdings we have a met but
• 24:37
  Speaker 3: we tend to meet most of them.
• 24:39
  Speaker 2: Yes, tell us about your favorite Japanese holding.
• 24:42
  Speaker 3: So I'm not very good on favorite holding. So I
• 24:44
  Speaker 3: think it's everyone has.
• 24:47
  Speaker 2: All fund managers say that, I bet you have favorite stock.
• 24:50
  Speaker 3: I think everyone has favorite stock. I think it's like children.
• 24:53
  Speaker 3: You don't have a favorite child. But if I gave,
• 24:56
  Speaker 3: I mean the amazing thing in Japan is how you
• 24:59
  Speaker 3: can bar good businesses with good franchises trading below the
• 25:05
  Speaker 3: cash on their balance sheet, the cash and investments. And
• 25:08
  Speaker 3: so we've got a arrange there. Whether it's and I'll
• 25:11
  Speaker 3: if you've got any listeners who speak Japanese, they might
• 25:14
  Speaker 3: be horrified by my pronunciation, but I'll try my best.
• 25:18
  Speaker 3: Whether that's Cato Sangyo, a food distributor, whether it's ts
• 25:23
  Speaker 3: Tech that makes car seats, whether that's Metapal that distributes pharmaceuticals.
• 25:30
  Speaker 3: These are all very lowly valued businesses, but where there
• 25:35
  Speaker 3: are strong businesses underlying them. It's just that, for whatever
• 25:41
  Speaker 3: reason it is the history of the Japanese stock market,
• 25:45
  Speaker 3: they're trading it exceptionally low valuations.
• 25:48
  Speaker 2: It just goes on and on and on, doesn't it.
• 25:50
  Speaker 2: Every time you think the Japanese marketers come back, like
• 25:53
  Speaker 2: you might have said, for example, last year, year before.
• 25:55
  Speaker 2: Then suddenly something goes wrong, and the Japanese market has
• 25:57
  Speaker 2: always hit harder than any other market. It's incredibly frustrating
• 26:00
  Speaker 2: market to be in.
• 26:02
  Speaker 3: I mean, I think there have been some quite concrete
• 26:04
  Speaker 3: changes happen in corporate governance in Japan, and the evidence
• 26:09
  Speaker 3: shows that when you look at things like share buybacks,
• 26:13
  Speaker 3: dividend in greases, that whilst there still is issues around
• 26:18
  Speaker 3: corporate governance and independence of directors, there is actual tangible
• 26:23
  Speaker 3: change taking place.
• 26:24
  Speaker 2: I agree. I agree. Well, we talked about that a
• 26:27
  Speaker 2: lot on this podcast as well. We're big on Japan
• 26:28
  Speaker 2: as well and often slightly disappointed. Are there any other
• 26:33
  Speaker 2: really interesting stocks in that global portfolio that we could
• 26:37
  Speaker 2: talk about we would like to talk about, not a favorite,
• 26:39
  Speaker 2: just the most interesting.
• 26:41
  Speaker 3: I mean, there's a huge spread whether you're talking about
• 26:45
  Speaker 3: say a Latin American brewer net cash on the balance sheet,
• 26:50
  Speaker 3: very low valuation, whether you're talking about European satellite company
• 26:56
  Speaker 3: or a ten percent cash dividend yield where there's now
• 27:00
  Speaker 3: a view that maybe European governments don't want to rely
• 27:03
  Speaker 3: on starling. There are lots of interesting things which are
• 27:07
  Speaker 3: very lowly valued. The other small area of the portfolio,
• 27:12
  Speaker 3: which is very lowly valued, has anything to do with dentistry.
• 27:16
  Speaker 2: If this is a first, This is a first. No
• 27:18
  Speaker 2: one has ever mentioned dentistry on this podcast before.
• 27:21
  Speaker 3: So dentistry is probably we all know it is very stable.
• 27:26
  Speaker 3: So your and your checkup is very very stable. But
• 27:29
  Speaker 3: what is cyclical is the sort of high end teeth
• 27:34
  Speaker 3: work which has become.
• 27:36
  Speaker 2: In visual lines and that kind of thing.
• 27:38
  Speaker 3: Yeah, well, just more sort of complete makeovers of your teeth.
• 27:42
  Speaker 3: It's proven to be a bit cyclical. And at the
• 27:46
  Speaker 3: same time, the companies that supply implants or aligners also
• 27:53
  Speaker 3: supply the equipment for the screening and diagnostic tools for
• 27:57
  Speaker 3: the dentists. And if the dentist have got less high
• 28:01
  Speaker 3: end work, then they're less inclined to replace the screening
• 28:05
  Speaker 3: tools or the diagnostic tools. So there is a bit more.
• 28:08
  Speaker 3: The market was surprised by the cyclicality that when interest
• 28:13
  Speaker 3: rates went up, and so what that has is that
• 28:18
  Speaker 3: we've got two investments in dentistry.
• 28:20
  Speaker 2: One is called en Vista, that's the American one, and
• 28:23
  Speaker 2: one is.
• 28:23
  Speaker 3: Called It's ticket is x Ray, but it's a dentist
• 28:27
  Speaker 3: splice Aarona, And both of those are very very lowly
• 28:31
  Speaker 3: valued because people have seen what's happened in the last
• 28:35
  Speaker 3: few years and have become very, very concerned about the
• 28:38
  Speaker 3: dental both equipment and implant market. But we think over
• 28:43
  Speaker 3: the medium term dentistry it's quite a concentrated market in
• 28:47
  Speaker 3: terms of companies operating in there. Will revert back to
• 28:50
  Speaker 3: mean people will save up and do more of that
• 28:53
  Speaker 3: high end work in time, but the valuations you can
• 28:57
  Speaker 3: fly them at are very low, and these are some
• 29:00
  Speaker 3: strong businesses. There's quite a lot of IP and technology
• 29:04
  Speaker 3: in dentistry.
• 29:05
  Speaker 2: Okay. One of the things that we talk about a
• 29:07
  Speaker 2: lot on the board and that has obviously been the
• 29:09
  Speaker 2: massive our performer of the year and actually the decade
• 29:12
  Speaker 2: is gold. Any exposure to gold in the portfolios? Would
• 29:15
  Speaker 2: you have a hold of gold miner?
• 29:16
  Speaker 3: So we're long only equities, so we can't use any
• 29:21
  Speaker 3: of the normal things that protect from downturns in markets
• 29:26
  Speaker 3: like director. We don't use any of that which is
• 29:28
  Speaker 3: long anly equities. But we do think about insurance, and
• 29:31
  Speaker 3: by that I mean shares that would do something different
• 29:34
  Speaker 3: if the market is felt. We do have a holding
• 29:37
  Speaker 3: in a gold miner. We also have a holding in
• 29:42
  Speaker 3: a company called float traders. That benefits from sharp rises
• 29:47
  Speaker 3: in volatility which tend to occur with like deep draw
• 29:51
  Speaker 3: downs and stock markets. So we do tend to think
• 29:53
  Speaker 3: about insurance as well.
• 29:54
  Speaker 2: Okay, interesting, that's how we as look at gold as
• 29:56
  Speaker 2: being portfolio insurance. You really hope it doesn't go up,
• 29:59
  Speaker 2: but when it does, it glad had it.
• 30:01
  Speaker 4: So we do. We do definitely think about that.
• 30:02
  Speaker 2: Yes, so prisumanly that means you you hold some exposure
• 30:05
  Speaker 2: to bitcoin in portfolio as well.
• 30:07
  Speaker 3: So we don't have any exposure to bitcoin. No, But
• 30:11
  Speaker 3: when I did read the last statement from flow traders,
• 30:16
  Speaker 3: they make markets in ETFs and there are quite a
• 30:19
  Speaker 3: lot of crypto ETFs, so I mean there is, like,
• 30:22
  Speaker 3: so there is, Yeah, that would be quite small.
• 30:25
  Speaker 2: Interesting. Thank you brilliant. Thank you very much for joining us.
• 30:28
  Speaker 4: Thank you very much.
• 30:37
  Speaker 2: Thanks for listening to this week's Maren Dalg's Money. If
• 30:39
  Speaker 2: you like our show, rate review and subscribe wherever you
• 30:41
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• 30:44
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• 30:46
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• 30:49
  Speaker 2: marinsw and John is John Underscore Steppeic. This episode was
• 30:53
  Speaker 2: hosted by me Marren Sunset Web. It was produced by
• 30:55
  Speaker 2: Sersadi and Moses and sound designed by Blake Naples and
• 30:59
  Speaker 2: special thanks of course to Ben Whittemore