Latest / Merryn Talks Money / Looking to Outperform? Sell the US and Buy the UK

Transcript

Looking to Outperform? Sell the US and Buy the UK · Merryn Talks Money

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to Maren Talks Money,
0:10
Speaker 1: the podcast in which people who know the markets explain
0:12
Speaker 1: the markets. I'm Meren zumzet Web. This week we talk
0:15
Speaker 1: about why and how do I endo the UK, how
0:17
Speaker 1: the recent M and A surge is highlighting the opportunity
0:20
Speaker 1: in our domestic market, and what might happen ahead of
0:23
Speaker 1: the budget later this month. My guest is Alec Wright,
0:26
Speaker 1: portfolio manager at Fidelity and manager of the Fidelity Special
0:29
Speaker 1: Values Investment Trust and the Fidelity Special Situation Fund. We
0:33
Speaker 1: started by talking about the difference between those two investment vehicles.
0:41
Speaker 2: So the investment Trust, which is Special Values, is about
0:44
Speaker 2: ninety five percent the same as Special Situations, which is
0:47
Speaker 2: the open ended version. So it's just the difference is
0:52
Speaker 2: about five percent in gearing. Unusually, both funds can actually gear,
0:56
Speaker 2: and both funds do so using sort of cfds' that's
0:59
Speaker 2: very usual for an investment trust, but actually fairly unusual
1:03
Speaker 2: for an open ended fund. But for all intents and
1:06
Speaker 2: purposes that they're extremely similar.
1:08
Speaker 1: So if you're an ordinary retail investor and you're looking
1:11
Speaker 1: at both of them, MOC criteria using to choose between
1:14
Speaker 1: obviously one is open ended and one is close ended.
1:16
Speaker 1: But from the point of view of an investor, what's
1:18
Speaker 1: the difference.
1:20
Speaker 2: Well, so I think that the key thing that's different
1:22
Speaker 2: is obviously because the investment trust trades day to day,
1:25
Speaker 2: you get a discount or a premium, and the trust
1:28
Speaker 2: has been well I've been managing AT over the last
1:30
Speaker 2: twelve years, it's been on anything as high as a
1:32
Speaker 2: fourteen percent discount or as high as a three percent premium.
1:37
Speaker 2: And so I guess as an investor, what discount you
1:40
Speaker 2: buy in at obviously affects your returns on that product,
1:43
Speaker 2: even if it performs exactly the same as special situations.
1:46
Speaker 2: So it tends to be people that are making like
1:49
Speaker 2: a regular savings. And to be honest, I do this
1:51
Speaker 2: with my fidelity pension that goes into special situations because
1:55
Speaker 2: that buys every month and I don't get a choice
1:57
Speaker 2: of when to buy. Whereas my investment is special value.
2:00
Speaker 2: I tend to wait until the discount is bigger and
2:02
Speaker 2: by it those times and then trim my holdings when
2:05
Speaker 2: the discount is evaporated. And therefore you can get a
2:09
Speaker 2: sort of higher percentage return by sort of playing that
2:12
Speaker 2: discount as well as the underlying performance of the fund.
2:15
Speaker 1: And right now, investment trust discounts are pretty high across
2:17
Speaker 1: the board, as reading something es Days suggested, that's because
2:21
Speaker 1: a whole of them investment trust tend to be quite
2:23
Speaker 1: long term investors, so they're likely to have quite big gains.
2:26
Speaker 1: They're worried about capital gain sext coming, so there's more
2:29
Speaker 1: sales in the investment trust sector than elsewhere, hence discounts
2:33
Speaker 1: recently widening even more than they have before. That makes
2:37
Speaker 1: sense to you.
2:38
Speaker 2: That's yeah, that's right. So some Special Values is on
2:40
Speaker 2: about an eight to nine percent discount currently, which is
2:44
Speaker 2: towards the upper end of where it's been, although not
2:46
Speaker 2: that different actually, So if you look twelve months ago,
2:48
Speaker 2: we were on a somewhat similar discount, but we did
2:51
Speaker 2: narrow up a bit earlier in the year, and we
2:53
Speaker 2: have widened out a bit recently. And I think that
2:56
Speaker 2: explanation in terms of the CGT based selling is probably
3:02
Speaker 2: fairly accurate, actually, because the returns of the trust have
3:04
Speaker 2: been very strong over a long period of time and
3:07
Speaker 2: people who are in it generally have some pretty good gains,
3:10
Speaker 2: including in the last year. The trusts up about sort
3:12
Speaker 2: of twenty four percent in the last year, so people
3:15
Speaker 2: have been I think locking in some of those gains
3:17
Speaker 2: ahead of the budget.
3:19
Speaker 1: Yeah, it's fascinating, isn't it reminder to everybody that taxes
3:23
Speaker 1: can often drives behavior. I wonder if the government is listening.
3:26
Speaker 1: But the long term performance of the two vehicles is
3:29
Speaker 1: roughly similar.
3:30
Speaker 2: So Special Values has outperformed Special Situations over time. It
3:34
Speaker 2: varies by the year, but probably by half to seventy
3:38
Speaker 2: half percent to seventy five basis points per annum. So
3:41
Speaker 2: actually that's quite meaningful on the five percent difference. Also,
3:45
Speaker 2: there's a bit of a timing difference in when I
3:46
Speaker 2: took on Special Values. I took it on before Special Situations,
3:50
Speaker 2: and actually that was a particularly good time twenty twelve
3:53
Speaker 2: and twenty thirteen for the trust right out the gates.
3:55
Speaker 2: So even though the vehicles are extremely similar today, actually
4:00
Speaker 2: their long term performance does look quite differential, even though
4:04
Speaker 2: their more recent performance has been much more in line.
4:07
Speaker 1: Okay, great, all right, that's sort of all that been out.
4:09
Speaker 1: Oh we go, Let's talk about the UK market as
4:12
Speaker 1: a whole, because obviously you are mainly a UK investor.
4:15
Speaker 1: Now when when the government, this new government first came in.
4:19
Speaker 1: I think you are pretty optimistic, and I was looking
4:22
Speaker 1: at notes written by you and your colleagues around the
4:24
Speaker 1: time labor parties policies aimed at fostering growth and stability,
4:28
Speaker 1: et cetera, et cetera, may prove an inflection point for
4:30
Speaker 1: the UK as it is after years of underperformance. We
4:33
Speaker 1: definitely got the years of underperformance where a little dodgs,
4:35
Speaker 1: you are on the inflection point at this point, aren't we,
4:37
Speaker 1: And that the UK market has been holding its own
4:41
Speaker 1: but not necessarily moving anywhere fast.
4:44
Speaker 2: Yeah, I think that's right, although again we're we talked
4:49
Speaker 2: a little bit beforehand that the UK market has actually
4:52
Speaker 2: performed as well as the Nawsdack over the last twelve months.
4:55
Speaker 2: So it's actually been sort of four years now since
4:58
Speaker 2: the trust has underperformed the US. So yes, there was
5:02
Speaker 2: a very painful period of underperformance for the UK market,
5:05
Speaker 2: particularly from sort of twenty fifteen to twenty twenty, but
5:08
Speaker 2: that feels quite a long time ago. And actually the
5:12
Speaker 2: UK market I think has been doing sort of just fine.
5:15
Speaker 2: What is true though, is that it's been doing just
5:17
Speaker 2: fine because earnings have been quite good and actually the
5:20
Speaker 2: low valuation of the UK market, which sort of occurred
5:24
Speaker 2: post twenty fifteen has not corrected, so the UK market
5:27
Speaker 2: remains very cheap, particularly versus other international markets.
5:31
Speaker 1: Yeah, and it doesn't necessarily feel right now that we're
5:35
Speaker 1: getting that a sense of growth and stability and they're
5:37
Speaker 1: run up to budget. There's so much we just talked
5:40
Speaker 1: about capital gain, sexperts, there's so many other things that
5:42
Speaker 1: seem very up in the air at the moment. There
5:44
Speaker 1: was this idea before this government came in that they
5:47
Speaker 1: would provide a sense of certainty about tax and a
5:49
Speaker 1: sense of certainty about the environment, but we haven't necessarily
5:53
Speaker 1: got what we were hoping for that.
5:55
Speaker 2: Yeah, I think the issue is is we haven't really
5:57
Speaker 2: had very much a tool yet. So obviously the budget
6:00
Speaker 2: it's the first test of that, so it's sort of
6:02
Speaker 2: a wait and see. I think you're right. All the
6:04
Speaker 2: rhetoric has definitely been positive and labor have very actively
6:09
Speaker 2: engaged with the city and corporates. So again, when I
6:13
Speaker 2: talked to big banks and insurance companies that they were
6:17
Speaker 2: regularly talking to Rachel Reeve's both pre election and immediately
6:20
Speaker 2: post election about sort of what can be done to
6:23
Speaker 2: improve growth, what can labor do to sort of help
6:27
Speaker 2: the economy, because clearly the best way to get more
6:30
Speaker 2: revenue for the government is for the economy to grow,
6:34
Speaker 2: and therefore sort of the taxation to increase naturally is
6:38
Speaker 2: GDP and companies profits and consumers' incomes goes up. So
6:43
Speaker 2: that's definitely a laudable aim and I think that sort
6:47
Speaker 2: of labor have made very good noises. The question is is,
6:51
Speaker 2: obviously is that alone going to sort of be enough,
6:56
Speaker 2: And there is a potential for us obviously tax risers
6:59
Speaker 2: in the bud which are generally negative obviously for the
7:03
Speaker 2: economy when you see higher taxes, whatever they may be.
7:07
Speaker 1: Yeah, I'm with the last government found out that simply
7:10
Speaker 1: repeating the word growth over and over and over again
7:12
Speaker 1: doesn't actually produce growth.
7:14
Speaker 2: Yeah, that's right. And obviously stability has been the key issue.
7:18
Speaker 2: Obviously a sort of Brexit pandemic and then obviously a
7:21
Speaker 2: succession of different chancellors and prime ministers has been very unhelpful.
7:25
Speaker 2: So just the fact that Labor do have a large
7:28
Speaker 2: majority and seem a lot more stable than the previous
7:31
Speaker 2: government I think as a help. Also, some of the
7:34
Speaker 2: planning reforms are definitely positive in terms of sort of
7:38
Speaker 2: building more houses, making it easier to build and faster.
7:44
Speaker 2: That is definitely positive, but obviously it's early days in
7:47
Speaker 2: terms of the actual economic policy and what's going to
7:50
Speaker 2: come out of the budget.
7:51
Speaker 1: Yeah, well we'll have to await for the budget for that.
7:53
Speaker 1: I've just been writing mildly obsessed with copal game tax.
7:57
Speaker 1: I've just been writing about it, and it is it's
8:00
Speaker 1: fascinating to see this expectation that has been built up
8:04
Speaker 1: that the budget will be very bad. I suddenly get
8:06
Speaker 1: a capital gains will be aligned with income tax. But
8:10
Speaker 1: one of the things that very likely to happen is
8:11
Speaker 1: what always happens with this kind of thing, and that
8:14
Speaker 1: something will happen but won't be as nearly a bad
8:16
Speaker 1: as everyone said. So it's more likely to be something
8:18
Speaker 1: like percent than forty five percent, and everyone go thing
8:21
Speaker 1: goodness for that, And what would have been seen is
8:24
Speaker 1: quite a big tax rise previously is suddenly seen as
8:26
Speaker 1: quite a small tax rise.
8:28
Speaker 2: Yeah, certainly, I think, And to be honest, that's politics
8:31
Speaker 2: for you. It's always best to make it set the
8:33
Speaker 2: expectation like bad. So actually even something that might have
8:37
Speaker 2: been seen as bad actually comes as a bit of
8:39
Speaker 2: a relief. I think as well, if you're thinking about
8:42
Speaker 2: what rate of tax actually maximizes the tax take, I
8:45
Speaker 2: think a lot of international studies have shown a CGT
8:48
Speaker 2: rate of around thirty percent probably actually maximizes your take
8:52
Speaker 2: and stops people moving offshore, stops avoidance, et cetera, because
8:56
Speaker 2: the cost of doing that. So the question is is
8:59
Speaker 2: are you doing it for ideological reasons or are you
9:01
Speaker 2: doing it for actually revenue raising reasons. But we have
9:06
Speaker 2: to wait and see.
9:08
Speaker 1: We'll find out exciting times, Alex. Right, let's talk about
9:12
Speaker 1: how you invest. You are an unusual thing these days.
9:15
Speaker 1: You're someone with a biased value. Yeah.
9:18
Speaker 2: So the makeup of the fund, and as it's always
9:21
Speaker 2: been since Anthony Bolton launched it in nineteen seventy nine,
9:25
Speaker 2: is a value contrarian vehicle. And I think it's always
9:29
Speaker 2: been a bit contrarian to be a value manager. But
9:32
Speaker 2: actually i'd say increasingly because growth has been so much
9:35
Speaker 2: in the ascendancy over the last decade, it's become sort
9:38
Speaker 2: of very contrarian. And definitely you see that the number
9:41
Speaker 2: of sort of big rivals that sort of in this
9:44
Speaker 2: space ten years ago that now aren't around, and so
9:47
Speaker 2: you're right, there are less people in the UK market
9:50
Speaker 2: investing in this way because it's been a hard way
9:52
Speaker 2: to invest, and obviously also a market that's been hard
9:55
Speaker 2: to get money into with the UK sort of being
9:57
Speaker 2: out of favor as well. I think the good news
10:00
Speaker 2: about that is, obviously contrary going against the crowd, the
10:05
Speaker 2: more you're going against the crowd, the more chance you've
10:08
Speaker 2: actually got sort of outperforming and finding hidden gems. The
10:11
Speaker 2: more people that are looking at stuff, the more competition
10:14
Speaker 2: makes it harder to sort of ad alpha. So on
10:17
Speaker 2: one side, it's bad it's been hard to keep money
10:19
Speaker 2: in the sector and there's been lots of outflows, But
10:22
Speaker 2: in terms of the opportunity to outperform, I think it's
10:25
Speaker 2: actually quite a nice setup.
10:27
Speaker 1: Okay, so you're looking for the companies that other people
10:30
Speaker 1: can't find, the unloved companies sitting around, but not the
10:33
Speaker 1: value traps, companies that you feel will have some kind
10:37
Speaker 1: of catalysts that will move them forward. So I like
10:40
Speaker 1: we often say to retail investors, you don't need a catalyst.
10:42
Speaker 1: You just need to find a reasonably good company and
10:44
Speaker 1: sit there and wait because no one's judging you on
10:46
Speaker 1: a quarterly basis, but that's not quite how you look
10:48
Speaker 1: at it.
10:49
Speaker 2: I think the danger of buying stocks without any conceivable
10:53
Speaker 2: catalyst is clearly that value trap, so that there are
10:57
Speaker 2: areas of the market where things potentially do structurally change,
11:01
Speaker 2: and therefore companies are cheap for a reason, and actually
11:05
Speaker 2: therefore you don't get good returns just by sort of
11:08
Speaker 2: buying everything that's cheap, because some of them will continue
11:12
Speaker 2: to be cheap, and in fact, they may actually stop
11:14
Speaker 2: being cheap over time if their earnings just continue to
11:17
Speaker 2: sort of degrade. So we do do a lot of
11:20
Speaker 2: work on Yeah, the basket of stocks we look at
11:23
Speaker 2: is those cheapest stocks, but then we do a lot
11:25
Speaker 2: of work to try and sift out those ones we
11:28
Speaker 2: think where that the story is structurally impaired rather than
11:32
Speaker 2: just there being a short term issue that actually over
11:35
Speaker 2: time should work out and you'll see more people invest. So,
11:40
Speaker 2: for me, the greatest ideas ideas that we buy that
11:43
Speaker 2: people think it's a value company, they think it's a
11:45
Speaker 2: poor company, but actually when I come to sell growth
11:48
Speaker 2: investors are buying it because actually they think it's a
11:50
Speaker 2: great company and it's going to grow consistently. Those are
11:54
Speaker 2: the very best returns that we get in our fund, huh.
11:58
Speaker 1: And not tempting to hang on rather than sell it
12:01
Speaker 1: to a growth investor. Or. You just don't want to
12:03
Speaker 1: get involved in that style swap.
12:05
Speaker 2: No, So I find it difficult to sort of think
12:10
Speaker 2: what's this company going to do over a five to
12:12
Speaker 2: ten year view, which is what you have to do
12:14
Speaker 2: as a growth investors. I think it's very difficult to
12:18
Speaker 2: actually predict the sort of the long term trajectory of stocks,
12:22
Speaker 2: which once you get to a certain multiple, you really
12:24
Speaker 2: need to do because effectively, the earnings of the company
12:27
Speaker 2: aren't going to justify the share price until a very
12:29
Speaker 2: long way into the future. So we tend to try
12:32
Speaker 2: and think about a three to five year view, what's
12:34
Speaker 2: going to happen with companies, particularly where we think earnings
12:38
Speaker 2: can recover from a depressed level, and then if people
12:41
Speaker 2: really start paying up for that, we're happy.
12:44
Speaker 1: To sell on. So you're right.
12:45
Speaker 2: Often after we sell stocks, they do continue to outperform
12:49
Speaker 2: for a period, and so we tend to sell gradually.
12:54
Speaker 2: But we don't look to hold on to things once
12:56
Speaker 2: we think they're appropriately valued and that there are high multiples.
13:00
Speaker 1: Okay, let's go back to the idea of the catalyst
13:05
Speaker 1: and what that might be. And obviously, in the UK
13:07
Speaker 1: market at the moment, one of the biggest catalysts for
13:10
Speaker 1: a share poster rises m and A and mutterings about
13:12
Speaker 1: a takeover or an approach. And we're seeing an increasing
13:15
Speaker 1: number of companies in the UK disappearing from the market.
13:18
Speaker 1: And when we come back later to the sharp fall
13:20
Speaker 1: and the number of companies listed in the UK and
13:22
Speaker 1: how this doesn't exactly help, but that is one of
13:25
Speaker 1: the big catalysts at the moment, isn't it.
13:27
Speaker 2: Yeah, it's something that we've actually seen in the fund
13:30
Speaker 2: throughout the time that we've managed over a decade, that
13:34
Speaker 2: there have been consistent takeouts of companies because if you
13:37
Speaker 2: think about what we're buying, we have a big mid
13:40
Speaker 2: and small cap bias. So while we do invest in
13:43
Speaker 2: the larger cap stocks, generally fifty to sixty percent of
13:46
Speaker 2: the fund is in mid and small caps where where
13:48
Speaker 2: takeovers are more likely. And then if you're buying something
13:51
Speaker 2: that you think is a good company but it's a
13:54
Speaker 2: low price, again, that's the kind of thing that either
13:57
Speaker 2: private equity or other corporates will will look cat and think, well,
14:01
Speaker 2: if we offer seventy five or eighty percent of sort
14:04
Speaker 2: of what the fair value is. But that's a long
14:06
Speaker 2: way ahead of the stock price we're going to be
14:08
Speaker 2: able to buy the company. And so again, if we're
14:12
Speaker 2: getting a fair price, we're happy to sell out of that.
14:14
Speaker 2: If we can instead of holding for something for three
14:17
Speaker 2: to five years, we can buy and sell it in
14:19
Speaker 2: twelve months. And that has happened. I think. Actually two
14:23
Speaker 2: of our big contributors this year, Essential and Smart Metering
14:27
Speaker 2: were because there were the takeouts, but actually they're the
14:29
Speaker 2: only two in the top twenty, so I wouldn't say
14:32
Speaker 2: the level of activity is actually significantly higher in the portfolio.
14:38
Speaker 2: And then it's been over the last sort of three
14:39
Speaker 2: or four years. It's sort of been fairly consistent, actually, but.
14:43
Speaker 1: It's quite encouraging. Is it across the market as a
14:46
Speaker 1: whole to see people noticing that this is an inexpensive market? Oh?
14:52
Speaker 2: Definitely. I suppose. What's strange is that for quite a
14:56
Speaker 2: while now, as I sort of said, ever since sort
14:58
Speaker 2: of things calmed down post COVID come sort of twenty
15:01
Speaker 2: one twenty two, you've seen a heightened level of takeover activity,
15:06
Speaker 2: particularly from private equity in US corporates because they're looking
15:10
Speaker 2: at the high valuations that companies trade in the private
15:13
Speaker 2: markets or on the public markets in the US and
15:16
Speaker 2: they're sort of thinking, well, there's a huge arbor charge
15:18
Speaker 2: gap here to something that's quoted in the UK, and
15:22
Speaker 2: they're taking advantage of that. I suppose what has been
15:25
Speaker 2: strange is until the last twelve months where the market
15:29
Speaker 2: has perked up a bit, is that that hasn't generally
15:32
Speaker 2: sort of caused other people to buy, and particularly hasn't
15:35
Speaker 2: caused UK investors to buy back into the market. So
15:38
Speaker 2: one subset of buyers it's very excited about the valuations
15:42
Speaker 2: in the UK, but that hasn't sort of spread to
15:44
Speaker 2: a wider set of buyers.
15:47
Speaker 1: What might bring UK buyers back into the market, And
15:50
Speaker 1: we talk about this on this podcast all the time,
15:52
Speaker 1: and John and I were very pro the brit I
15:54
Speaker 1: Sera and quite irritated when it was removed because we
15:57
Speaker 1: were thinking about ways to send a signal to the
15:59
Speaker 1: market at the global market that the government is supportive
16:03
Speaker 1: of the UK market. But obviously we're not going to
16:05
Speaker 1: get a broteiser. What do you think might bring people
16:08
Speaker 1: back into this market.
16:11
Speaker 2: It's a tricky one. Because I think generally sort of
16:13
Speaker 2: performance people chase sort of recent performance. Some unfortunately sort
16:18
Speaker 2: of retail investors like to sort of invest into something
16:21
Speaker 2: that has been working rather than something prospectively that's necessarily
16:24
Speaker 2: going to work. But again, I've been surprised that the
16:29
Speaker 2: better performance of the market itself has just not turned
16:32
Speaker 2: things around. And maybe that's because you've effectively seen other
16:37
Speaker 2: markets also produce very strong returns, so people have sort
16:40
Speaker 2: of got used to actually high returns being the norm
16:44
Speaker 2: by investing in stock markets, and that hasn't been the
16:47
Speaker 2: case over time. The degree of out performance and absolute
16:51
Speaker 2: performance from the US market has been extraordinary over the
16:54
Speaker 2: last ten years and is extremely unlikely to continue. So
16:58
Speaker 2: I think, unfortunately, probably what gets people interested in the
17:02
Speaker 2: UK market is the US market falling. That seems to
17:06
Speaker 2: sort of be the key driver for everything now because
17:10
Speaker 2: it has been so dominant in the narrative, So things
17:14
Speaker 2: like the British iSER it would have helped, but I
17:17
Speaker 2: think it's really the US market's become dominant kind of
17:20
Speaker 2: all conversations interesting.
17:22
Speaker 1: I mean, there are an awful lot of people who
17:24
Speaker 1: genuinely believe that the US market has always been this
17:27
Speaker 1: extraordinary that is, outperformance has kind of been permanent, where
17:31
Speaker 1: in fact it really only started twenty fifteen ish you
17:35
Speaker 1: began to see that out performance really get going, and
17:38
Speaker 1: so it's perfectly reasonable to suspect that it will come
17:41
Speaker 1: to an end. And of course for UK investors, a
17:43
Speaker 1: lot of those outsides for returns have been driven by
17:45
Speaker 1: the currency as well. You know, strong dollar has given
17:48
Speaker 1: them a double whammy on top of the market, and
17:50
Speaker 1: as both those things turn around, it's perfectly possible you
17:53
Speaker 1: might see people going, oh, maybe a little home bias
17:55
Speaker 1: wouldn't be such a bad thing after all.
17:57
Speaker 2: Yeah, it's sort of extraordinary the sort of the US
18:01
Speaker 2: market actually did very poorly in that in the market
18:04
Speaker 2: prior to the GFC sort of pre sort of seven,
18:08
Speaker 2: it'd been a sort of structural underperformer, and US shops
18:11
Speaker 2: are increasingly building international teams. It was all about international
18:14
Speaker 2: diversification and growth, and that that feels like a very
18:18
Speaker 2: long time ago now, and many market partitioners weren't even
18:22
Speaker 2: in the market at that point, which is why there's
18:24
Speaker 2: sort of this view among a sort of subset of
18:26
Speaker 2: investors that the US always outperforms, that that was definitely
18:30
Speaker 2: not always. Thus and also where the US came from,
18:33
Speaker 2: like why has it performed so well? Well, some of
18:36
Speaker 2: these companies were trading very cheaply back in twenty ten
18:39
Speaker 2: twenty twelve. You could famously obviously buy Apple on single DIGITPE,
18:43
Speaker 2: Microsoft almost on a single DIGITPE, so in retrospect those
18:47
Speaker 2: were amazing buys. But those valuations are now in the thirties.
18:51
Speaker 2: So yes, there's been good earnings growth, but there's been
18:54
Speaker 2: a huge amount of multiple expansion there which you haven't
18:56
Speaker 2: seen in the UK, and to be fair, in other
18:58
Speaker 2: markets globally as well. So I think the UK is
19:01
Speaker 2: particularly cheap, but actually I'd say pretty much every market
19:05
Speaker 2: in the world except the US looks a lot more
19:08
Speaker 2: reasonably valued exciting.
19:10
Speaker 1: So do you think, Alex, if we get together in
19:12
Speaker 1: another decade, we can sit here and talk about the
19:14
Speaker 1: regular outperformance of the UK market and UK exceptionalism, etc.
19:19
Speaker 1: There'll be a little reversion to the mean and young
19:22
Speaker 1: people coming into the market now in fifteen years will
19:24
Speaker 1: think that it's the UK that always performs, but making
19:27
Speaker 1: the mistake that if you buy something cheap it's going
19:29
Speaker 1: to absform.
19:30
Speaker 2: Yeah, So certainly on a ten year view, I definitely
19:33
Speaker 2: think that the performance of the UK market will be
19:35
Speaker 2: better than the US. Definitely. Now it's not going to
19:39
Speaker 2: happen every year, but definitely on a longer term view,
19:43
Speaker 2: I think it's a far more interesting proposition because of
19:47
Speaker 2: where the valuations are today. You can look at all
19:51
Speaker 2: the academic literature that over time the biggest determinant of
19:56
Speaker 2: performance over a long time, So not over twelve months.
20:00
Speaker 2: On twelve months, it makes hardly any difference, But the
20:02
Speaker 2: biggest determinant on a ten year view is what price
20:06
Speaker 2: you paid for the asset in the first place.
20:08
Speaker 1: And John and Aya always saying there, and no one
20:10
Speaker 1: believes us anymore. No one believes us anymore because every
20:12
Speaker 1: year were proven wrong by the US market.
20:15
Speaker 2: Yeah, it's been an unusually long period of outperformance, but
20:19
Speaker 2: as I said, it's sort of it's sort of strange
20:22
Speaker 2: that it is a period of outperformance that kind of
20:25
Speaker 2: finished kind of about four years ago, but no one
20:28
Speaker 2: really seems to have noticed. But it's not that other
20:30
Speaker 2: markets of their it's other markets have sort of just
20:33
Speaker 2: performed in line with the US. So yeah, I definitely
20:37
Speaker 2: hoped that the narrative might change when obviously twenty two
20:39
Speaker 2: was an incredibly poor year for the US market compared
20:44
Speaker 2: to other markets. But obviously as things then RuaRed back again,
20:47
Speaker 2: I think people sort of sort of forgot about just
20:50
Speaker 2: how bad that year had been and just how much
20:52
Speaker 2: volatility there was. That's the other thing.
20:54
Speaker 1: People.
20:56
Speaker 2: There was a lot of talk actually when I started
20:58
Speaker 2: in the city, which was all the way back into
21:00
Speaker 2: two thousand and one, just how concentrated the UK market was,
21:02
Speaker 2: and how the Footsie was a bad benchmark because the
21:06
Speaker 2: large companies were so much and therefore like a tracker
21:08
Speaker 2: was a really bad thing to invest in. But actually
21:11
Speaker 2: that's the US now. The lack of diversification when you're
21:15
Speaker 2: buying even a global tracker now is actually quite scary.
21:18
Speaker 2: Just how much of that is made up with just
21:20
Speaker 2: a few companies.
21:21
Speaker 1: Yeah, and I think a lot of people don't quite
21:23
Speaker 1: understand what they're buying when they buy those big global trackers,
21:26
Speaker 1: that they're effectively buying US tech. But we have talked
21:29
Speaker 1: about that on this podcast quite a lot, so I
21:31
Speaker 1: hope the information is going out there. Let me ask
21:33
Speaker 1: you about one of the things that I think has
21:36
Speaker 1: been a long term drag on the UK, and that
21:38
Speaker 1: is our productivity problem. And I know you talked to
21:40
Speaker 1: a lot of companies, spend a lot of time talking
21:43
Speaker 1: to company management. Do you see any sign in the
21:46
Speaker 1: companies that you invest in or on a wider basis
21:48
Speaker 1: that there is any turnaround here that the productivity revolution
21:52
Speaker 1: we kept being promised via digitalization and technology, etc. Is
21:55
Speaker 1: that happening. Yeah.
21:57
Speaker 2: So, I guess it's very difficult to sort of look
22:01
Speaker 2: at a sort of a country's GDP versus sort of
22:03
Speaker 2: the market in terms of sort of productivity because I
22:06
Speaker 2: think certainly when I look at my portfolio in terms
22:09
Speaker 2: of what companies are producing and what they're doing in
22:14
Speaker 2: terms of output for the number of employees, Definitely companies
22:17
Speaker 2: across the border are improving their profitability. Sort of digital
22:21
Speaker 2: investments definitely mean that you need less people to produce
22:24
Speaker 2: the same amount of output, particularly post COVID with the
22:29
Speaker 2: sort of use of digital tools and sort of remote working,
22:32
Speaker 2: offshore working, that there's definitely been a speed up in
22:35
Speaker 2: terms of company's ability to produce the same for sort
22:40
Speaker 2: of less cost. But obviously when you see that in
22:43
Speaker 2: the UK productivity stats as a whole, that isn't necessarily translated,
22:47
Speaker 2: and that's obviously there's two disconnects here. Obviously it's only
22:51
Speaker 2: the larger companies that are on the stock market. So
22:53
Speaker 2: the vast bulk of economic output in the UK obviously
22:56
Speaker 2: comes from sme s which aren't on the stock market.
23:00
Speaker 2: And the fact that obviously seventy five percent of the
23:02
Speaker 2: stock market in the UK is in companies where the
23:06
Speaker 2: operations are based in the UK anyway, So there's a
23:08
Speaker 2: huge difference actually between uk PLC in terms of the
23:12
Speaker 2: country and actually the sort of the UK stock market
23:15
Speaker 2: that we are investing in.
23:17
Speaker 1: Okay, let's talk about the portfolio. Then let's go to
23:21
Speaker 1: the fund that is there a sector bias in it
23:24
Speaker 1: or a shift in sectors that you're finding at the
23:26
Speaker 1: moment has it positioned?
23:27
Speaker 2: So we try and invest right across the market, and
23:30
Speaker 2: we do so in everything from sort of one hundred
23:33
Speaker 2: million pound market cup companies all the way up to
23:35
Speaker 2: one hundred billion pound market cap companies. But I'd say
23:38
Speaker 2: over time the sort of the value contrarian sort of
23:42
Speaker 2: streak in me is sort of because of the nature
23:45
Speaker 2: of the market over the time that we've been running
23:47
Speaker 2: the fund since twenty twelve, has led to actually financials
23:51
Speaker 2: being the biggest weight of the fund. Pretty consistently because
23:55
Speaker 2: I think that has continued to be a really unloved sector.
23:59
Speaker 2: It's obviously also a complicated sector that I think sort
24:02
Speaker 2: of smaller investors shy away from. And obviously there was
24:07
Speaker 2: and continues to be a lot of regulatory change there.
24:09
Speaker 2: So there's multiple things you have to be on top of,
24:12
Speaker 2: which I think as a big house at Fidelity we
24:15
Speaker 2: can be on top of. We have regulatory affairs, We
24:18
Speaker 2: obviously have our own financials business in platforms as well
24:22
Speaker 2: as in investments. We have specialist banking analysts, insurance analysts, etc.
24:26
Speaker 2: So that's been an area that's been very big for
24:28
Speaker 2: the fund and indeed actually very fruitful for the fund
24:31
Speaker 2: over the whole time, particularly so from insurance companies earlier on,
24:37
Speaker 2: but more latterly from the banks. So we own the
24:39
Speaker 2: likes of Natwees, Standard Chartered, Barclays and the fun today.
24:43
Speaker 1: And well, that change is interest rate. It's full.
24:46
Speaker 2: So I think clearly interest rates increasing has been beneficial
24:50
Speaker 2: for the banks. But I think what a lot of
24:52
Speaker 2: people miss and why people are staying out of the
24:55
Speaker 2: banks again is the sort of simplistic view that you
24:57
Speaker 2: never want to own banks when interest rates are falling. Well,
25:01
Speaker 2: that would be the case if you were having to
25:02
Speaker 2: pay high multiples for the banks, because lower interest rates
25:05
Speaker 2: to do lower the earnings of the banks. But actually
25:09
Speaker 2: what was really painful for the sector was the era
25:12
Speaker 2: of zero interest rates because if you think about it,
25:16
Speaker 2: banks find it very difficult to charge people to have accounts.
25:20
Speaker 2: So the lowest you can go in terms of a
25:22
Speaker 2: current account or a savings account is zero. And if
25:25
Speaker 2: interest rates in terms of on the loan side are
25:27
Speaker 2: down at that level, it's very difficult to make a spread.
25:30
Speaker 2: So I think there's nothing really to fear from interest
25:33
Speaker 2: rates falling from five percent down to two percent. Again,
25:37
Speaker 2: that's probably lower than most people are expecting. There is
25:40
Speaker 2: a lot to fear if that two percent goes back
25:43
Speaker 2: to half a percent. And so I think banks will
25:45
Speaker 2: remain a good investment and highly profitable if interest rates
25:51
Speaker 2: stay in a more normal range. If they go back
25:54
Speaker 2: to zero, banks won't be a good investment.
25:58
Speaker 1: And what about another theme that you have quite a
26:01
Speaker 1: lot of it in the portfolio, which is the life insurance.
26:03
Speaker 2: Yeah, so the life insurance companies, I think again have
26:07
Speaker 2: been sort of much maligned. So they were very much
26:09
Speaker 2: sort of lumped with the banks in the financial crisis,
26:14
Speaker 2: but actually they did an awful lot better because they
26:17
Speaker 2: didn't have sort of lots of bad loans like we
26:20
Speaker 2: saw for the banks, where there was sort of very
26:23
Speaker 2: poor lending practices sort of through two thousand and five
26:25
Speaker 2: two thousand and seven, and actually the structure of those
26:29
Speaker 2: businesses have changed quite a lot, so that the Solvency
26:33
Speaker 2: two regime I think was very helpful, particularly for the
26:37
Speaker 2: UK life insurers that don't have guaranteed products, and so
26:41
Speaker 2: the performance of the UK life insurers has been very
26:45
Speaker 2: strong all the way from sort of twenty twelve to recently,
26:49
Speaker 2: and particularly as those operations have sort of become slimmed down,
26:53
Speaker 2: lower cost, and so Aviva would be the biggest of
26:57
Speaker 2: our positions there. That's been very positive for shareholders and
27:01
Speaker 2: in fact, Aviva pretty much in all the areas that
27:04
Speaker 2: you'd want to be in that are sort of structurally growing.
27:06
Speaker 2: So they're very big in wealth and B two C
27:10
Speaker 2: platform so for consumers to invest direct that. They're also
27:14
Speaker 2: very big in workplace pensions defined contribution as well as
27:19
Speaker 2: sort of nun life insurance, and so that they're pretty
27:23
Speaker 2: much in all the growth areas and yet they're still
27:25
Speaker 2: pretty much trading as a sort of no growth, sort
27:30
Speaker 2: of volatile business on and sort of low single digit
27:33
Speaker 2: ps with a yield in the seven to eight percent range,
27:37
Speaker 2: So a huge improvement in the business, but yet not
27:40
Speaker 2: paid for by the market.
27:45
Speaker 1: I suppose one of the great growth thereas there, as
27:47
Speaker 1: you say, is the DC pensions that pretty much everyone
27:49
Speaker 1: listening to this will it be in order to enroll
27:51
Speaker 1: into a defined contribution pension of some kind of those assets.
27:54
Speaker 1: It's just rolling up an awful lot of them inside
27:57
Speaker 1: the life insurance companies.
27:58
Speaker 2: Yeah, definitely. If you look the biggest players in that,
28:02
Speaker 2: it's the life insurance companies, so Aviva and Phoenix, which
28:05
Speaker 2: is another holding, as well as Legal in General, which
28:07
Speaker 2: we've owned historically but we don't own today. That if
28:11
Speaker 2: you've got a good low cost offering and it is
28:14
Speaker 2: a very low cost business because revenue margins are small,
28:19
Speaker 2: that the revenue growth is very high. Because it's still
28:22
Speaker 2: a reasonably nascent business. Most DC pots are still quite
28:25
Speaker 2: small because the vast majority of people retiring today still
28:29
Speaker 2: have dB pots. But over time that will become a
28:33
Speaker 2: much much bigger business and therefore being a big player
28:36
Speaker 2: in that area. It's very positive. And these companies also
28:40
Speaker 2: do very well out of defined benefit d risking as
28:43
Speaker 2: well as companies sort of transfer that in. So even
28:46
Speaker 2: though dB is a dying product, actually there's still a
28:50
Speaker 2: lot of money to be made from that as those
28:51
Speaker 2: pensions pay out over the next sort of thirty to
28:54
Speaker 2: fifty years, So there's still a lot of value to
28:57
Speaker 2: be had from the insurance companies from that side as well.
29:00
Speaker 1: One of the biggest holdings in both the trust and
29:02
Speaker 1: the fund is Imperial. That's a long term holding that
29:06
Speaker 1: you'll keep.
29:08
Speaker 2: So again, our average holding period for things it's three
29:12
Speaker 2: to five years. We've brought into Imperial back in twenty
29:16
Speaker 2: eighteen and we have added to it since then, notably
29:20
Speaker 2: in twenty twenty, and it is the biggest holding in
29:23
Speaker 2: both funds, so it makes up about sort of four
29:25
Speaker 2: and a half percent. So again, I think this is
29:28
Speaker 2: a really unloved sector. Tobacco as a sector that an
29:31
Speaker 2: awful lot of people will not invest in, and I
29:36
Speaker 2: think that's also been the case for quite a while,
29:38
Speaker 2: but even more so as you sort of saw the
29:40
Speaker 2: big push to sort of ESG and responsible investing in
29:44
Speaker 2: the sort of eighteen nineteen twenty period, and so I
29:49
Speaker 2: think that opens up a real opportunity people not investing
29:53
Speaker 2: effectively when people are not investing for none economic reasons,
29:56
Speaker 2: so they're investing for some other reason, which opens up
30:00
Speaker 2: an opportunity for people to prepare to invest in this area,
30:06
Speaker 2: particularly when companies have excess cash flow that they can
30:10
Speaker 2: use in buybacks. So that's why I have a much
30:12
Speaker 2: bigger position in Imperial than I do in bat which
30:15
Speaker 2: I also own in the portfolio, is that their buyback
30:19
Speaker 2: is just a much higher percentage of market cap. And therefore,
30:23
Speaker 2: even with a top line in tobacco, which basically isn't
30:27
Speaker 2: going anywhere, profits and tobacco have been flat for a
30:29
Speaker 2: number of years. But if you can buy back seven
30:32
Speaker 2: or eight percent of your company every year and you
30:34
Speaker 2: only have to pay six or seven times earnings for that,
30:37
Speaker 2: that's incredibly accreative on a per share basis. So the
30:41
Speaker 2: EPs that the earnings per share of the company are
30:43
Speaker 2: actually going up, probably at a faster pace than the market,
30:47
Speaker 2: despite that lower than market valuation. On top of paying
30:51
Speaker 2: a very good dividend yield of sort of six or
30:53
Speaker 2: seven percent, which probably on itself is largely that the
30:56
Speaker 2: long term return of the market. So I think economically
31:00
Speaker 2: that's a very attractive business that very few people are
31:03
Speaker 2: sort of prepared to look at.
31:05
Speaker 1: Yeah, and how do you get that past your own
31:07
Speaker 1: ESG department and stewardship team.
31:10
Speaker 2: So the beauty of this fund, as it's always been,
31:12
Speaker 2: it's a go anywhere fund. So there's no restrictions from
31:16
Speaker 2: an ESG point of view in terms of what I
31:19
Speaker 2: can own. So if I think we're going to make
31:21
Speaker 2: an absolute good return on a company, doesn't matter what
31:25
Speaker 2: that company does, We're able to invest, which I think
31:27
Speaker 2: is a key advantage. Now that doesn't mean we don't
31:30
Speaker 2: consider ESG concerns because why did this area investing become
31:36
Speaker 2: very big Because there was a view that governments would
31:38
Speaker 2: step up their issues to deal with companies that produced
31:42
Speaker 2: externalities that were not good sort of socially or for
31:46
Speaker 2: the environment. Governance has always been very important. So again
31:49
Speaker 2: appropriate governance is a key thing we do look for.
31:52
Speaker 2: I think the thing is when you look at tobacco,
31:54
Speaker 2: though in a bit like defense, that we've owned a
31:56
Speaker 2: lot of over time, although actually we've now sold most
31:59
Speaker 2: of it because those companies were taken out by private
32:02
Speaker 2: equity or American suitors. Actually, I think tobacco is very
32:07
Speaker 2: aligned with actually what governments want. So governments every day
32:10
Speaker 2: they want less people to smoke, because it is clearly
32:13
Speaker 2: harmful and it is bad for people, and the tobacco
32:17
Speaker 2: companies very much back that up by putting the price
32:20
Speaker 2: of cigarettes up every year, so increasingly seven eight or
32:24
Speaker 2: even in some markets like the UK, ten percent less
32:26
Speaker 2: people every year are smoking. That is exactly what the
32:30
Speaker 2: government wants. Now, obviously, the beauty of tobacco is that, yes,
32:34
Speaker 2: volumes might be going town ten, but if price is
32:37
Speaker 2: going up seven naturally profits are largely flat. And clearly
32:42
Speaker 2: it is an addictive product. People who are generally on
32:44
Speaker 2: it don't give up, but new people aren't taking up.
32:47
Speaker 2: So I think actually that from a fundamental and economic
32:52
Speaker 2: point of view, this is very aligned with what the
32:55
Speaker 2: government wants. And then obviously there's a lot of investment
32:58
Speaker 2: in next generation and lower harm products like vaping, like
33:02
Speaker 2: heated tobacco, like chewable tobacco. That that again is an
33:07
Speaker 2: area where tobacco companies can make good profits and increasingly,
33:11
Speaker 2: actually bat makes the same percentage margins now in vaping
33:16
Speaker 2: in the US that they make in tobacco, So there
33:19
Speaker 2: is there is actually more longevity to these stories than
33:22
Speaker 2: maybe there wasn't the past, and very much aligned with
33:26
Speaker 2: government's interests.
33:28
Speaker 1: Interesting, are there other opportunities that come as a result
33:33
Speaker 1: of there being sectors that other people don't want to
33:35
Speaker 1: invest in? Does that carry through for you to the
33:38
Speaker 1: oil companies some of the big resources companies for example.
33:41
Speaker 2: So again we do look at these these companies, and
33:45
Speaker 2: we do, and we do have some oil in the portfolio.
33:48
Speaker 2: But again I think it's sort of it's trickier in
33:53
Speaker 2: those areas because I think there has been an increase
33:56
Speaker 2: in taxation in that area, and it's an area that
34:00
Speaker 2: has been open to that because the public sort of
34:03
Speaker 2: negative perceptions for it, and so that's something that has
34:07
Speaker 2: actually hurt the portfolio. Increase in UK taxation in particular. Also,
34:13
Speaker 2: I'd say because of the size of those companies five
34:18
Speaker 2: years ago, there probably was quite an opportunity there because
34:21
Speaker 2: increasingly sort of the particularly ESGY funds weren't able to invest,
34:25
Speaker 2: but also other people sort of I didn't think oil
34:29
Speaker 2: was a particularly interesting area, but because BP and Shell
34:33
Speaker 2: have been such great performers, actually increasingly most if you
34:37
Speaker 2: look at most mainstream UK funds, they do own those
34:40
Speaker 2: stocks today, so that I don't think there's this's the
34:44
Speaker 2: same contrarian opportunity now and increasingly I've been selling down
34:48
Speaker 2: some of my oil holdings. Mining is also interesting. I
34:53
Speaker 2: haven't ever really owned much mining through the whole decade,
34:59
Speaker 2: and that's that's quite again, like oil, a very concentrated
35:02
Speaker 2: sector in the UK. It's only really sort of three companies.
35:06
Speaker 2: It's glen Core, It's Rio, and it's Anglo. And actually
35:10
Speaker 2: demand for that product because it's mainly out of China
35:14
Speaker 2: has stayed much stronger than maybe I would have thought
35:17
Speaker 2: ten years ago. China's use of commodities has stayed at
35:21
Speaker 2: very high levels.
35:22
Speaker 1: Now.
35:22
Speaker 2: Obviously it has come off a little bit more recently
35:25
Speaker 2: with the very publicized issues we've seen in China, but
35:29
Speaker 2: I think prices particularly fine or are still very high.
35:32
Speaker 2: So the mining isn't a sector outside of some small caps,
35:35
Speaker 2: that we've really owned much of in the fund over time.
35:39
Speaker 1: One more thing I want to ask you about is
35:40
Speaker 1: house building. I see you in own can homes are you?
35:43
Speaker 1: And we've talked a little bit about planning at the
35:45
Speaker 1: beginning and how the house building may may become a
35:47
Speaker 1: lot easier going forward. Is that a sector you expect
35:50
Speaker 1: to have more exposure.
35:50
Speaker 2: To, Yes, a house building and construction something we are
35:54
Speaker 2: sector we've sort of been in and out of over time,
35:57
Speaker 2: and we did back in the early days quite a lot.
36:00
Speaker 2: As things, we're really recovering out of the global financial
36:03
Speaker 2: crisis and the euro crisis, but we very much did
36:07
Speaker 2: sell down our UK exposure, which was the right thing
36:11
Speaker 2: to do, so that we owned very little at going
36:13
Speaker 2: into the Liz Trust budget, which was obviously very negative
36:15
Speaker 2: for the sector. Can Holmes and glen Bay which both
36:19
Speaker 2: big positions in the fund. While they are UK quoted stocks,
36:23
Speaker 2: they only operate in Ireland, and again I think that
36:26
Speaker 2: sort of shows the differentiation of the product may be
36:28
Speaker 2: compared to others that in a sector that people have
36:31
Speaker 2: sort of perceived there being problems because of the rising
36:34
Speaker 2: cost of finance, that they very much traded the Irish
36:37
Speaker 2: house builders like the UK ones, whereas actually if you
36:40
Speaker 2: look at what's happened for both of those companies in
36:42
Speaker 2: the last year, both have produced record profits and record volumes,
36:47
Speaker 2: which is incredibly different from what you've seen in the UK,
36:51
Speaker 2: and that's very much actually down to government support. So
36:55
Speaker 2: whereas the UK government was incredibly supportive of the UK
36:58
Speaker 2: housebuilders coming out of the GFC with help to buy
37:02
Speaker 2: a lot of government incentives. As the UK sort of
37:06
Speaker 2: house builders became very profitable, built more houses emittedly, probably
37:10
Speaker 2: not as many as the government would like, they've actually
37:13
Speaker 2: sort of very much turned the tail and actually been
37:15
Speaker 2: pretty unsupportive of the UK sector since then in terms
37:18
Speaker 2: of higher tax rates, removal of help to buy cladding provisions,
37:23
Speaker 2: whereas an island you've seen a huge raft of incentives
37:27
Speaker 2: come in much later, but to be very helpful at
37:31
Speaker 2: keeping volumes up and keeping what is a much bigger
37:34
Speaker 2: housing crisis in Ireland trying to alleviate that. So those
37:39
Speaker 2: two have been great performers over the last year in
37:42
Speaker 2: a big positions, and we only have a very small
37:45
Speaker 2: position in UK housebuilders, which we built more recently. So
37:48
Speaker 2: I've had a one percent position in Chris Nicholson because
37:52
Speaker 2: I think the UK situation well, I think improving from here,
37:57
Speaker 2: and we talked about sort of planning which probably will help,
38:00
Speaker 2: but that's a slow burn. It takes time to change.
38:04
Speaker 2: Island's been trying to improve the planning for about five
38:06
Speaker 2: years and they just starting to crack it now. So
38:09
Speaker 2: I think that will help over the life of a parliament,
38:12
Speaker 2: but probably won't happen help very much over the next
38:15
Speaker 2: twelve to eighteen months.
38:16
Speaker 1: Okay, it's a long game. A couple of quick questions,
38:20
Speaker 1: what's your newest holding that you can talk about.
38:23
Speaker 2: Oh, that's a tricky one.
38:25
Speaker 1: It wasn't a trick question. I promised it was just
38:27
Speaker 1: a casual question, an easy one. Yeah.
38:30
Speaker 2: No, it's tricky in that I'm trying to think about
38:33
Speaker 2: exactly what's relevant. But it sits within our thirty day
38:37
Speaker 2: disclosure requirement.
38:39
Speaker 1: Yes exactly, and that you've finished buying your position in
38:42
Speaker 1: for now etc. Now it's not the thing.
38:45
Speaker 2: So again, I think Tesco is something we've bought over
38:48
Speaker 2: the last six months, which is a big position that
38:50
Speaker 2: we've finished buying because I do think actually the UK
38:55
Speaker 2: consumer looks in pretty rude shape, which is unusual because
39:00
Speaker 2: when you look at sort of particularly sort of the US,
39:05
Speaker 2: where consumer spending has been really strong for a long time,
39:08
Speaker 2: that's a market that's much more worrying. And so I
39:11
Speaker 2: think Tesco is doing a really good job in terms
39:15
Speaker 2: of its market share. There's actually two very clear market
39:19
Speaker 2: shared donors in that area. So again that's what we'd
39:21
Speaker 2: like to see sort of where supply is actually contracting,
39:23
Speaker 2: and Asda and Morrison's because they're both very highly leveraged
39:28
Speaker 2: actually in the space where they're closing space, which is
39:31
Speaker 2: sort of helping all the other supermarkets, and Tesco's doing
39:34
Speaker 2: just a really great job at sort of taking market share,
39:38
Speaker 2: taking the fight to the discounters in terms of Aldi
39:41
Speaker 2: and Liddle with their sort of price match and sort
39:44
Speaker 2: of just grinding it out. So that's a fairly unusual position,
39:48
Speaker 2: i'd sort of say, in terms of its quite large
39:50
Speaker 2: cap and it's quite high market share, but something actually
39:54
Speaker 2: for what's perceived as a boring stock can actually be
39:57
Speaker 2: sort of quite exciting.
39:58
Speaker 1: All right, excellent file question the clincher to the podcast.
40:02
Speaker 1: If I let you only invest in one thing and
40:08
Speaker 1: it was either gold or bitcoin, you had older for
40:10
Speaker 1: ten years, which one would it be?
40:12
Speaker 2: Yeah, So this is a fascinating question in not that
40:15
Speaker 2: there's any question in my mind, and the answer which
40:17
Speaker 2: would be gold. But both of these assets have no
40:20
Speaker 2: intrinsic value. So I don't believe in investing in things
40:24
Speaker 2: with no intrinsic value that I invest in companies that
40:27
Speaker 2: I think have earnings that should grow over time. So
40:30
Speaker 2: I would expect on a ten y of you both
40:32
Speaker 2: of those assets to have very poor returns compared to
40:36
Speaker 2: investing in inequities. That being said, gold has been around
40:41
Speaker 2: for millennia, and even though it has no intrinsic value,
40:45
Speaker 2: it has actually shown itself to be a reasonable store
40:48
Speaker 2: of value over time. And therefore, if I was to
40:51
Speaker 2: choose one, it would clearly be gold, because there's every
40:54
Speaker 2: possibility in ten years that the bit bock coin could
40:57
Speaker 2: be completely worthless and might not even exist. As I said,
41:01
Speaker 2: on a ten year of view, I think it very
41:03
Speaker 2: unlikely gold has no value.
41:05
Speaker 1: Yeah, okay, that's kind of view my view. I like
41:07
Speaker 1: it when people agree with me towards the end. Is
41:09
Speaker 1: there any market if let's say that I would to
41:12
Speaker 1: take that question further out and say you could have
41:15
Speaker 1: gold or bitcoin or any other asset class or market
41:19
Speaker 1: in the world apart from the one and once you specialize.
41:21
Speaker 2: Yeah, So I'd probably say that Japanese market would be
41:24
Speaker 2: the most interesting out after the UK, because I think
41:28
Speaker 2: it is a market where it's had a feltle bit
41:31
Speaker 2: like the UK a very very long period of underperformance,
41:36
Speaker 2: and also not only have sort of valuations come back
41:40
Speaker 2: a lot through that period, but actually sort of companies
41:44
Speaker 2: underlying returns have been very poor for a long time
41:46
Speaker 2: and that is starting to change. So I'd say, yeah,
41:49
Speaker 2: on a ten year view outside of the UK, which
41:52
Speaker 2: you expect me to say, is probably going to be
41:54
Speaker 2: the best performer, I'd say Japan is that the one
41:57
Speaker 2: I would pick.
41:58
Speaker 1: Alex, You're wonderful. Thank you for letting me talk to
42:00
Speaker 1: you so long, enjoyed it and homously thanks for coming on.
42:03
Speaker 1: Thank you, Thanks for listening to this week's Maren Talks Money.
42:07
Speaker 1: If you like us, show rate for review and subscribe
42:09
Speaker 1: wherever you listen to podcasts, and you can keep sending
42:11
Speaker 1: questions or comments to Merrin Money at Bloomberg dot net.
42:14
Speaker 1: You can also follow me and John on Twitter or
42:16
Speaker 1: x I'm at marinas W and John is John Underscore STEPK.
42:20
Speaker 1: This episode was hosted by Meet Maren zumzet Weber, was
42:23
Speaker 1: produced by Zamasadi. Production support and sound designed by Blake
42:26
Speaker 1: Maples and special thanks to Alex Wright.