Latest / Merryn Talks Money / Forget the Magnificent Seven. This Is What's Next.

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Forget the Magnificent Seven. This Is What's Next. · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: I think that's a little bit of SpaceX's history. So
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  Speaker 2: when they went out and said we're going to go
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  Speaker 2: out and do reusable rockets and NASA said that was impossible,
• 0:15
  Speaker 2: they went out and did that. So there was a
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  Speaker 2: bit of skepticism at the time. And then they built
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  Speaker 2: a fantastic launch business and they said, Okay, we're going
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  Speaker 2: to go out and we're going to build Starlink, and
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  Speaker 2: then there was a lot of skepticism around whether that
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  Speaker 2: would be successful or not. Could you get the hardware
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  Speaker 2: and the software to work work together, and they absolutely
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  Speaker 2: did that, and now you've got a large part of
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  Speaker 2: the value coming through orbital data centers. But there's a
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  Speaker 2: recognition here that this is a very strong company with
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  Speaker 2: a huge history in hardware, n R and D, and
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  Speaker 2: actually that is a very large tam going forward and
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  Speaker 2: we'll continue to see that. But I think that's just
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  Speaker 2: really SpaceX's history of having a very ambitious view on
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  Speaker 2: what they're going to create, which no one has ever
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  Speaker 2: done before, and what we've seen is been able to
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  Speaker 2: do that time after time.
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  Speaker 1: Welcome to Marin Talk's Money the podcast image. People who
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  Speaker 1: know the markets, Explain the markets. I'm merin sumset Webon
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  Speaker 1: this week. I am speaking with Maggie Finari, CEO of
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  Speaker 1: J Rothschild Capital Management, which manages the four point five
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  Speaker 1: billion pound rit Capital Partners now Orit has long been
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  Speaker 1: one of the most popular multi asset funds for individual
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  Speaker 1: investors in the UK, but it's been through a longish
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  Speaker 1: period of being slightly off the boil. Look over the
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  Speaker 1: last five years and you see their price is actually
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  Speaker 1: slightly down at a time when the S and P
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  Speaker 1: five hundred has gone up around seventy percent. However, things
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  Speaker 1: have picked up recently under our guest, the shares are
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  Speaker 1: pretty much flat so far yere today we're around eighteen
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  Speaker 1: percent over the last year or so, similars in line
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  Speaker 1: with the S and P five hundred. However, that is not,
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  Speaker 1: as we are going on to discuss strictly the correct comparison,
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  Speaker 1: because OURT is not just a listed equity vehicle. It
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  Speaker 1: also has private companies, credit and real assets, and it
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  Speaker 1: is in the private portfolio in particular where there is
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  Speaker 1: a lot going on. It currently offers exposure to some
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  Speaker 1: of the years most talked about IPO candidate and completed
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  Speaker 1: IPOs including SpaceX and Thropics, Stripe, Open AI and data breaks.
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  Speaker 1: So we are very very glad to have Maggie on
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  Speaker 1: to here about both the opportunities and the risks of
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  Speaker 1: trustees in those IPOs and of course in the rest
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  Speaker 1: of the portfolio. Maggie, welcome to Marin Talks Money.
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  Speaker 2: Great, thank you, Marion, delighted to be here.
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  Speaker 1: Okay, I've slightly summed up what rit do, but we
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  Speaker 1: will have quite a lot of non UK listeners who
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  Speaker 1: might not know the trust as well as some of
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  Speaker 1: us do. So is there anything I missed, anything you'd
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  Speaker 1: like to explain about, exactually what it is that you do.
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  Speaker 2: We've been around for more than fifty years. Really started
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  Speaker 2: as the rothschildt family office under Jacob Rothschild in the
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  Speaker 2: early in the early seventies and we became a listed
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  Speaker 2: and Smith vehicle in nineteen eighty eight, so more than
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  Speaker 2: thirty five more than thirty five years ago, allowing people
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  Speaker 2: to invest along alongside us.
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  Speaker 1: And it's basically it's a multi asset portfolio. And as
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  Speaker 1: I said, this is not just listed at please, this
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  Speaker 1: is everything under the sun. And the idea is to
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  Speaker 1: provide regular long term returns and in the main to
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  Speaker 1: be a capital protective above all else.
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  Speaker 2: Is that right, it's a combination of the two. We
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  Speaker 2: clearly want to preserve capital, but a large part of
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  Speaker 2: the mandate because it is it does have equity within
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  Speaker 2: it close to seventy percent. It's really designed to capture
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  Speaker 2: growth while at the same time managing for a risk.
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  Speaker 2: We would largely do that through as you noted, our
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  Speaker 2: hedge funt program, our real assets. So as a result,
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  Speaker 2: over the last thirty five years or so, we've generated
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  Speaker 2: a return of ten point six percent compounded, We've been
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  Speaker 2: able to capture seventy one percent of the market upsite
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  Speaker 2: over that time and limited the side captured to about
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  Speaker 2: forty one percent.
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  Speaker 1: Well, why don't we start off talking about the exciting bit,
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  Speaker 1: talking about the private part of the portfolio, or actually
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  Speaker 1: the public part of the portfolio that was private until
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  Speaker 1: a couple.
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  Speaker 3: Of weeks ago.
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  Speaker 1: So why don't we start with your holding in in SpaceX.
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  Speaker 3: You've had a holding in that for a while, right.
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  Speaker 2: Yes, SpaceX was actually the first investment I made in
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  Speaker 2: our private's portfolio when I joined about two years ago.
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  Speaker 2: We could see real compounding value in the business through
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  Speaker 2: Starlink and the fact that the business had an incredible
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  Speaker 2: mote behind behind it, and we were delighted to see
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  Speaker 2: them IPO just a few weeks ago quite successfully, and
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  Speaker 2: we just think there's a lot of long term value
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  Speaker 2: yet to come. The companies definitely also changed in the
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  Speaker 2: last two years of so we've seen more recently they're
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  Speaker 2: really looking to expand into the compute space, another very
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  Speaker 2: large market for the business. So we think that this
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  Speaker 2: is a long term compounder, and now it's also in
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  Speaker 2: public markets as well.
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  Speaker 1: It will feel too a lot of people in the
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  Speaker 1: commentary around space except the risk is actually in that
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  Speaker 1: AI bit and the compute space, and that some of
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  Speaker 1: the businesses are very easy to understand. The space bit itself,
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  Speaker 1: everyone kind of grasped, the satellite bit, everyone kind of grasped,
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  Speaker 1: the Internet bit, everyone kind of grasped. But the AI bit,
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  Speaker 1: that is where most of the valuation is focused, right,
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  Speaker 1: That's where the expectations really come from, and that seems
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  Speaker 1: like the riskiest bit in terms of the competition out
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  Speaker 1: there and the lack of understanding who were going to
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  Speaker 1: be the long term winners. But from what you're saying,
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  Speaker 1: it sounds like you're very happy with the valuation at
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  Speaker 1: this level, and you're going to be a long term
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  Speaker 1: holder regardless.
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  Speaker 2: Yeah, we are pleased with evaluation. And I think that's
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  Speaker 2: a little bit of SpaceX's history. So when they went
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  Speaker 2: out and said we're going to go out and do
• 5:47
  Speaker 2: reusable rockets and NASA said that was impossible, they went
• 5:51
  Speaker 2: out and did that. So there was a bit of
• 5:52
  Speaker 2: skepticism at the time. And then they built a fantastic
• 5:56
  Speaker 2: launch business and they said, Okay, we're going to go
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  Speaker 2: out and we're going to build Starlink. There was a
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  Speaker 2: lot of skepticism around whether that would be successful or not.
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  Speaker 2: Could you get the hardware and the software to work together,
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  Speaker 2: and they absolutely did that, and now you've got a
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  Speaker 2: large part of the value coming through orbital data centers.
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  Speaker 2: But there's a recognition here that this is a very
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  Speaker 2: strong company with a huge history in hardware and R
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  Speaker 2: and D, and actually that is a very large tam
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  Speaker 2: going forward and we'll continue to see that. But I
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  Speaker 2: think that's just really SpaceX's history of having a very
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  Speaker 2: ambitious view on what they're going to create, which no
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  Speaker 2: one has ever done before. And what we've seen is
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  Speaker 2: they've been able to do that time after time.
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  Speaker 1: And then you have also in the portfolio companies that
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  Speaker 1: you might consider to be competitors to a degree in
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  Speaker 1: the AI spased and for a big open AI etc.
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  Speaker 2: I would say, when I look at that and when
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  Speaker 2: I look at our exposure to AI, we were very
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  Speaker 2: deliberate in the way that we wanted to get that
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  Speaker 2: exposure for our shareholders. We decided that we wanted to
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  Speaker 2: be in the companies that are actually creating that use
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  Speaker 2: for AI. So we didn't invest necessarily in semiconductors in
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  Speaker 2: the public space. And we also, just given our access
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  Speaker 2: and our ability to do private investments, wanted to deliver
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  Speaker 2: something to our shareholders in investments as you just noted,
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  Speaker 2: that can't be easily accessed as a private or public
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  Speaker 2: markets investor. And where we wanted to invest was in
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  Speaker 2: a very diversified way. So we wanted to be able
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  Speaker 2: to invest in the AI frontier model, so our largest
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  Speaker 2: exposure there is anthropic. Then we thought about the infrastructure space,
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  Speaker 2: so we invested in data bricks, and then as we
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  Speaker 2: thought about the application layer, we also have good exposure
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  Speaker 2: to cut to the likes of Ramp and Stripe. So
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  Speaker 2: when we look across I think about our AI exposures
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  Speaker 2: being diversified across the AI stack and what we've defined
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  Speaker 2: as category leaders. So we've been really deliberate in the
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  Speaker 2: number of investments we've made, which is we've noted is
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  Speaker 2: just a handful of investments over the two years. But
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  Speaker 2: who we think are going to be the long term winners?
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  Speaker 3: And are you.
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  Speaker 1: Still expecting open ai to lest relatively soon because at
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  Speaker 1: one point it was going to be this year, but
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  Speaker 1: now it looks like it's pushed out a bit.
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  Speaker 3: Yeah.
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  Speaker 2: I mean we're reading the headlines the same as anyone else.
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  Speaker 2: You know, from our perspective, they'll go public when they're
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  Speaker 2: when they're ready, and that's the same for anthropics or
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  Speaker 2: data brecks from our perspective as well. Given we're long
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  Speaker 2: term holders, we're happy if the company is compounding in
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  Speaker 2: the private space or in the listed space. From our perspective,
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  Speaker 2: that's still generating very strong returns for our shareholders.
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  Speaker 1: And being in the private space in general, what percentative
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  Speaker 1: of the portfolio is it at the moment, it's.
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  Speaker 2: About thirty three percent of the portfolio today.
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  Speaker 1: Yeah, and this is a I mean, it's quite long
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  Speaker 1: term having this private portfolio.
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  Speaker 3: And I think you, like a lot.
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  Speaker 1: Of other people, believe that we've now moved into eight
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  Speaker 1: time when the majority of the growth of exciting companies
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  Speaker 1: is going to happen off market. So if you want
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  Speaker 1: to have access to them, you have to be in
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  Speaker 1: the private space, not just the public.
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  Speaker 2: Yeah, that's that's right. We take the view that a
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  Speaker 2: lot of that innovation is happening in the private space,
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  Speaker 2: and we've seen a lot of value capture, so we
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  Speaker 2: want to be able to capture that value in the
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  Speaker 2: private space and then be able to compound it in
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  Speaker 2: the public space. But you see a lot of value
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  Speaker 2: that's being created, whether it's SpaceX which stayed private for
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  Speaker 2: close to twenty five years, or Anthropic and Open and
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  Speaker 2: others which have seen this massive growth over the last
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  Speaker 2: couple of years, you know, forty five billion or so
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  Speaker 2: and run rate revenues. You want to be able to
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  Speaker 2: capture those opportunities early, and that's what we've looked look
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  Speaker 2: to do.
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  Speaker 1: And when you when you look at this dynamic over
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  Speaker 1: the last kind of fifteen years or so, what we
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  Speaker 1: have seen this huge growth in private equity effectively and
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  Speaker 1: in private credit, which is being the big driver of
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  Speaker 1: the privates that you incredit quite a few of the
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  Speaker 1: other investment trust in the UK, it started to state
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  Speaker 1: big positions and do you see that continuing or do
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  Speaker 1: you look at it and say, well, that was in
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  Speaker 1: part a function of super low interest rates and the
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  Speaker 1: capital but became available because of that, and maybe particularly
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  Speaker 1: with these big IPOs, might market a turning point as
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  Speaker 1: people turn back to the public markets, that being a
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  Speaker 1: more old fashioned but high interest rate the way do
• 10:12
  Speaker 1: you raise capital and interest rates and normal.
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  Speaker 2: So just to clarify our privates exposures primarily in that
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  Speaker 2: more private equity space, so private equity growth venture in
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  Speaker 2: that space, we don't own any private credit, just to
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  Speaker 2: just to be clear, and what we think about it is,
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  Speaker 2: you know, we'll think about private investments in terms of decades.
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  Speaker 2: Everything goes through a cycle. So as a result, we
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  Speaker 2: think the right the right allocation towards private assets and
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  Speaker 2: our portfolios anywhere between twenty five to a third of
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  Speaker 2: our portfolio. And we're really looking in to capture and
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  Speaker 2: identify companies and founders that are going to create that
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  Speaker 2: next set of generational companies. So we think as a
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  Speaker 2: long term thesis private investing is it core part of
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  Speaker 2: the portfolio, and that's really where a lot of that
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  Speaker 2: growth happens.
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  Speaker 1: And in the portfolio, again, let's stick with the private part.
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  Speaker 1: Presumely you're still by. There are smaller names that we
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  Speaker 1: all know, these great big names, and it's interesting and
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  Speaker 1: exciting to see them in portfolios that we can access.
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  Speaker 1: But what about lower down in this portfolio, what kind
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  Speaker 1: of company do they?
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  Speaker 2: Companies like Motive, which has also recently filed for an IPO,
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  Speaker 2: or in companies like crack and as well. But what
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  Speaker 2: I would say is, over time our portfolios, we look
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  Speaker 2: through both our funds exposure and our direct exposure. What
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  Speaker 2: you'll really see is a concentration in our portfolio. So
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  Speaker 2: we have, you know, our top ten holdings form eighty
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  Speaker 2: five percent of our of our directs exposure. So at
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  Speaker 2: the end of the day, that's largely in the great
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  Speaker 2: names that we've been speaking about, companies like data bricks,
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  Speaker 2: companies like anthropic, companies like Epic Systems, which is a
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  Speaker 2: fabulous healthcare IT services company that was a stablished in
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  Speaker 2: the early nineteen seventies, which really has a very strong
• 12:03
  Speaker 2: dominant share in terms of providing software for hospitals. So
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  Speaker 2: we've got a very strong suite of companies that just
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  Speaker 2: continue to compound growth, but we tend to focus on
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  Speaker 2: later stage companies and what we view to be those
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  Speaker 2: category winners.
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  Speaker 1: And in those winners, I just want to ask before
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  Speaker 1: we move on from those, I mean, the big worry
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  Speaker 1: at the moment in the market is the level of
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  Speaker 1: capex and the sustainability or not of that level of investment.
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  Speaker 3: Does that concern you?
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  Speaker 2: So we've been watching that very carefully like everyone else.
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  Speaker 2: What I would say is we have been consistently underweight,
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  Speaker 2: if you will, the mag seven from that perspective. But
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  Speaker 2: there is a level of CAPEX built out that is necessary.
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  Speaker 2: And if we think about, well, what is the TAM
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  Speaker 2: or what's the potential of AI, we definitely think that's
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  Speaker 2: a very long term structural theme and you do need
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  Speaker 2: the compute going forward. So the way we think about AIS,
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  Speaker 2: people say AI is a new form or what software
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  Speaker 2: is going to look like in the future. The software
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  Speaker 2: market is a one trillion dollar TAM. We think that
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  Speaker 2: the evolution of AI is AI agents right in that
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  Speaker 2: second half of the story where AI agents are going
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  Speaker 2: to be able to do the work directly, while software
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  Speaker 2: has actually, over the last decade decade plus has really
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  Speaker 2: looked to create efficiencies in the way that we work,
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  Speaker 2: and that next iteration with AI is the ability for
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  Speaker 2: AI agents to do that work directly, and that's a
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  Speaker 2: sixty five or sixty trillion dollar TAM. So as a
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  Speaker 2: result of that, what you see is a very significant
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  Speaker 2: market opportunity for AI, but you need to build out
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  Speaker 2: the compute to be able to do that.
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  Speaker 1: TAM being totally addressable market for the non professionals listening, Yes,
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  Speaker 1: thank you. Right, let's look at the rest of the portfolios.
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  Speaker 1: So you know, the private super interesting, lots of exciting
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  Speaker 1: stuff going on in there, but still only thirty thirty
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  Speaker 1: odd percent of the portfolio. And so the much larger
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  Speaker 1: part is the listed equity area, where interestingly you have
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  Speaker 1: been less overweight for US than most portfolios, you know,
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  Speaker 1: and you're definitely of the view that the age of
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  Speaker 1: US except journalism has come to an end and that
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  Speaker 1: one should be more exposed as wells that you've got
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  Speaker 1: quite a lot of Japan, quite a lot of Europe,
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  Speaker 1: et cetera.
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  Speaker 2: Yeah, no, that is right. I wouldn't say it's necessarily
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  Speaker 2: over from that perspective, we do think, as we've noted,
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  Speaker 2: some of the most innovative companies in the world continue
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  Speaker 2: to exist in the US. But what we have seen,
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  Speaker 2: going back to the commentary around what's taken place in
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  Speaker 2: the last decade, is that the US was really it
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  Speaker 2: as the only market where you could see a lot
• 15:02
  Speaker 2: of growth. And what we're seeing today, as we've seen is,
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  Speaker 2: you know, in our view, the world order has changed
• 15:09
  Speaker 2: from that into what we refer to as a more
• 15:11
  Speaker 2: multipolar world. So what does that mean. It means that
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  Speaker 2: governments and countries really need to focus on their own sovereignty.
• 15:19
  Speaker 2: They need to focus on building out and securing their
• 15:21
  Speaker 2: own supply chains, their own AI infrastructure, their own mirrortime security.
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  Speaker 2: And as a result, that's creating a lot of growth
• 15:30
  Speaker 2: in those countries that we haven't seen before. And we
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  Speaker 2: wanted to be there quite early from that perspective, so
• 15:36
  Speaker 2: we started adding to emerging markets, we started adding to Europe,
• 15:40
  Speaker 2: we started adding to our commodities exposure as real well,
• 15:44
  Speaker 2: really with a viewing that many of those markets looked
• 15:48
  Speaker 2: very cheap from a multiple perspective, really because that growth
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  Speaker 2: was yet to start to be priced in and we
• 15:55
  Speaker 2: believe that that is coming. And we've also seen countries
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  Speaker 2: like Germany and others indicate that there willing to spend
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  Speaker 2: more fiscally, and we just think you're going to see
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  Speaker 2: more of that. Going back to the view that you
• 16:05
  Speaker 2: know from our from our perspective, the US and other
• 16:08
  Speaker 2: countries around the world have made it very clear that
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  Speaker 2: they are going to focus on their own sovereignty.
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  Speaker 1: So just be clear, it's still got thirty five percent
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  Speaker 1: of the sexuity portfolio in the US, whereas it's more
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  Speaker 1: out altogether. And then and thinking of the least twenty
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  Speaker 1: five percent in Europe, twenty percent Asia, seventeen percent Japan.
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  Speaker 1: So when you say emerging markets, do you really mean Asia?
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  Speaker 2: So we mean emerging markets, So we do. That does
• 16:31
  Speaker 2: include a component of China to it, and it also
• 16:34
  Speaker 2: includes a component of Brazil and so on.
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  Speaker 1: And when you when you talk about that, are you
• 16:41
  Speaker 1: investing in Brazil and individual companies or is that where
• 16:44
  Speaker 1: you're buying other funds?
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  Speaker 2: So will typically do do that through a fund manager
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  Speaker 2: is very specialized in those markets, and we believe that
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  Speaker 2: if we are able to which we are able to
• 16:55
  Speaker 2: access some of the best managers in the world. They
• 16:57
  Speaker 2: will be able to identify those alpha RS opportunities directly.
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  Speaker 3: Okay, that does add to costs.
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  Speaker 2: It does add to costs, but that's why we're very selective.
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  Speaker 2: They are only incentivized if they make money for us,
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  Speaker 2: so you do create that alignment from that perspective.
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  Speaker 1: So emerging markets will mainly be via other fund managers
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  Speaker 1: Japan also via other fund managers.
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  Speaker 2: Yes, that's right. We've been with some of our managers
• 17:21
  Speaker 2: for almost twenty years and they've had very strong, strong
• 17:24
  Speaker 2: performance from that perspective.
• 17:26
  Speaker 1: And can retail investors look and see which other managers
• 17:29
  Speaker 1: you're using.
• 17:30
  Speaker 2: Yes, that's all disclosed in our annual report.
• 17:33
  Speaker 1: So where is it that you are buying individual equities
• 17:36
  Speaker 1: because there is a large part that is direct investing, right,
• 17:39
  Speaker 1: is that mainly America?
• 17:41
  Speaker 3: UK?
• 17:42
  Speaker 2: It would be largely, yes, the UK and the US.
• 17:45
  Speaker 2: So those are markets that we know very well that
• 17:47
  Speaker 2: we're able to leverage from our network and also that
• 17:50
  Speaker 2: specialist expertise that we have in house. And then we'll
• 17:54
  Speaker 2: look to engage with with managers where we want specialized expertise.
• 17:59
  Speaker 2: So take biotech, We'll use a manager or two for
• 18:02
  Speaker 2: the biotech space because I don't want to go out
• 18:04
  Speaker 2: and hire thirty PhDs to help me figure out to
• 18:08
  Speaker 2: help me figure out biotech. But again, we are cost
• 18:10
  Speaker 2: conscious from that perspective, and they only generate or earn
• 18:14
  Speaker 2: their fee if they if they've been able to make money.
• 18:17
  Speaker 3: Okay, so what are you owned directly? What are the
• 18:20
  Speaker 3: top two or three equities. Let's look about this.
• 18:22
  Speaker 2: So one of the companies we've been excited about, and
• 18:25
  Speaker 2: I've written in our annual report is a European listed
• 18:28
  Speaker 2: company called Galderma. And this example speaks to a little
• 18:32
  Speaker 2: bit about the way we utilize our network. So gal
• 18:35
  Speaker 2: Derma was a private company, was owned by EQT for
• 18:38
  Speaker 2: a number of years. This was a company that we
• 18:40
  Speaker 2: had the opportunity to get to know while it was
• 18:44
  Speaker 2: a private company. And then we were able to participate
• 18:47
  Speaker 2: on the IPO because we are a permanent capital vehicle
• 18:50
  Speaker 2: with a view being we are long term investors. We
• 18:53
  Speaker 2: received a very good allocation on the IPO and we've
• 18:56
  Speaker 2: been able to continue to build on that position over
• 18:59
  Speaker 2: the last couple of years as we've gained increasingly more
• 19:02
  Speaker 2: conviction in and around it. And that's that's a little
• 19:05
  Speaker 2: bit of the approach that we like to take with
• 19:07
  Speaker 2: our public portfolio.
• 19:09
  Speaker 1: And when we were talking earlier about where you have
• 19:12
  Speaker 1: equity exposure at US, saying that one of the things
• 19:15
  Speaker 1: that drove you to divers find more away from the
• 19:17
  Speaker 1: US was valuations because some of these markets looks phenomenally cheap.
• 19:21
  Speaker 1: You know, that was a time when Japan looked remarkably
• 19:24
  Speaker 1: cheap and Europe looked remarkably cheap than they still obviously
• 19:27
  Speaker 1: I had discount to the US, but much more expensive
• 19:30
  Speaker 1: than they were. When you look around the world, where
• 19:32
  Speaker 1: is it that you see value in overall markets?
• 19:34
  Speaker 3: At the moment, we see.
• 19:36
  Speaker 2: Value in a lot of different places, because what we've
• 19:38
  Speaker 2: seen more recently is a very narrow market market rally
• 19:42
  Speaker 2: this year, markets are up, but it's really been in
• 19:44
  Speaker 2: one or two sectors, so call it energy, call it semiconductors,
• 19:48
  Speaker 2: And there have been a lot of overlooked areas of
• 19:51
  Speaker 2: the market and more of those as you refer to
• 19:53
  Speaker 2: in terms of more of those quality names, and a
• 19:56
  Speaker 2: few different areas of the market where you just haven't
• 19:58
  Speaker 2: seen a big rally. So from that perspective, there's been
• 20:01
  Speaker 2: a lot more opportunity than the double digit returns in
• 20:04
  Speaker 2: some of the indices might otherwise suggest. We do expect
• 20:09
  Speaker 2: a broadening of the market to come through, and we
• 20:11
  Speaker 2: think that other you'll see a bit of the catch up,
• 20:14
  Speaker 2: similar to what we saw last year where other markets
• 20:18
  Speaker 2: like Europe had better returns than the US, as did
• 20:21
  Speaker 2: emerging markets.
• 20:22
  Speaker 3: Yeah, what about the UK.
• 20:25
  Speaker 2: We are underweight the UK today really and we've seen
• 20:30
  Speaker 2: other opportunities elsewhere.
• 20:32
  Speaker 1: Let's look at the other part of the portfolio that
• 20:35
  Speaker 1: people I think would really be much less familiar with,
• 20:37
  Speaker 1: which you call uncorrelated strategies, which is the bonds. Obviously
• 20:41
  Speaker 1: government bonds, other credit and real assets. Your bondholdings are
• 20:45
  Speaker 1: really remarkably low, right government bond holding.
• 20:48
  Speaker 2: Yeah, we've traditionally had a lower weighting toward bonds. Really
• 20:53
  Speaker 2: with that part of uncorrelated strategies really focused on hedge funds,
• 20:58
  Speaker 2: and again that's really just the way that we look
• 21:00
  Speaker 2: at the portfolio construction. Going back to resilience, our hedge
• 21:05
  Speaker 2: fund program within uncorrelated strategies is really designed to be
• 21:09
  Speaker 2: that cushion or ballast when markets are down. So what
• 21:12
  Speaker 2: you would have seen last year when we had a
• 21:14
  Speaker 2: macro macro event in terms of the wall of tariffs,
• 21:18
  Speaker 2: that came up in the United States or in Q
• 21:21
  Speaker 2: one of this year where you had the US around war,
• 21:24
  Speaker 2: so you gained a very a different event, but quite
• 21:28
  Speaker 2: significant on the markets from a geopolitical perspective. That part
• 21:31
  Speaker 2: of our portfolio produced positive returns and as a result,
• 21:35
  Speaker 2: in Q one last year, in Q one this year,
• 21:37
  Speaker 2: while markets were down, our portfolio was up. And we
• 21:41
  Speaker 2: just want to be able to invest in those types
• 21:43
  Speaker 2: of funds that have a very low or uncorrelated return
• 21:47
  Speaker 2: to market. So whether it's a macro fund or a
• 21:50
  Speaker 2: quant fund or an equity neutral fund, we tend to
• 21:53
  Speaker 2: invest in a few of those managers really to give
• 21:56
  Speaker 2: us that ballast on returns.
• 21:57
  Speaker 1: And how out of the portfolio is that, Because there's
• 21:59
  Speaker 1: a slight problem, isn't it when you have something in
• 22:01
  Speaker 1: your portfolio that's designed to be the baddest or the
• 22:04
  Speaker 1: defensive part in that you want to have enough to
• 22:06
  Speaker 1: make a difference, but not so much that your overall
• 22:09
  Speaker 1: performance gets dragged down in a good time.
• 22:11
  Speaker 2: Yeah, So that part of our portfolio is just a
• 22:14
  Speaker 2: bit over ten percent, and then we combine that with
• 22:16
  Speaker 2: our gold our gold holdings, they are roughly in that
• 22:19
  Speaker 2: four to five percent range, and then we have a
• 22:23
  Speaker 2: bit of guilts and so on, so call it twenty
• 22:25
  Speaker 2: percent overall.
• 22:27
  Speaker 1: Okay, let's look at the gold. But we've got a
• 22:28
  Speaker 1: lot of gold bugs listening to this podcast. How do
• 22:32
  Speaker 1: you land on four to five percent? Is that a
• 22:35
  Speaker 1: steady allocation or does it go up and down depending
• 22:38
  Speaker 1: on how you're feeling? And why for five percent? Why
• 22:41
  Speaker 1: not ten percent? Why not three percent?
• 22:43
  Speaker 2: So we just view it as a core part of
• 22:45
  Speaker 2: our portfolio construction, So really it is a diversifier within
• 22:50
  Speaker 2: the portfolio. It's also a strong diversupply that we have
• 22:53
  Speaker 2: a lot of US dollar exposure as well, so it
• 22:56
  Speaker 2: serves multiple functions in the portfolio. And what we've found
• 22:59
  Speaker 2: through our risk modeling over time is having that allocation
• 23:02
  Speaker 2: in that five percent range typically is a good range
• 23:05
  Speaker 2: for us. It could go anywhere from four to seven percent,
• 23:08
  Speaker 2: but we try not to be too specific on what
• 23:11
  Speaker 2: we think the goal price is going to be. What
• 23:13
  Speaker 2: we're using it for as a diversifier within our portfolio,
• 23:16
  Speaker 2: and that's been our target range for a long time now.
• 23:19
  Speaker 3: And what do you think is happening in the gold
• 23:20
  Speaker 3: pros at the moment?
• 23:22
  Speaker 1: And we had this very exciting moment when it went
• 23:24
  Speaker 1: above five thousand dollars and we all got terribly excited,
• 23:27
  Speaker 1: and then down it came again, slipping under four thousand
• 23:30
  Speaker 1: and all over the place at the moment, and people say,
• 23:33
  Speaker 1: this gold is not behaving like gold is supposed to
• 23:35
  Speaker 1: behave so all the things that you've just described it's
• 23:38
  Speaker 1: supposed to do in your portfolio, it hasn't been doing.
• 23:42
  Speaker 2: So I think there is as you noted, you want
• 23:44
  Speaker 2: to be a bit tactical. So we did do some
• 23:46
  Speaker 2: profit taking in the earlier part of the year, but
• 23:49
  Speaker 2: again that was also because it went above a specific
• 23:52
  Speaker 2: threshold from a sizing perspective within within our portfolio. But
• 23:56
  Speaker 2: gold is still well, you know, it's still I think
• 23:59
  Speaker 2: this morning above four thousand. That is very good price
• 24:03
  Speaker 2: for gold, you know. So at the end of the day,
• 24:05
  Speaker 2: one can expect there to be some volatility, but we're
• 24:08
  Speaker 2: not looking at it day to day. We're looking at
• 24:10
  Speaker 2: it over the long term.
• 24:12
  Speaker 3: Yeah.
• 24:12
  Speaker 1: So, but do you think there's anything particular in driving
• 24:14
  Speaker 1: that's volatility. I mean, you know a lot of people
• 24:18
  Speaker 1: who we talk to to say, isn't the balance in
• 24:20
  Speaker 1: my portfolio that I wanted? It acts like a liquidity driven,
• 24:24
  Speaker 1: financialized asset, and that's not what I wanted.
• 24:27
  Speaker 2: I mean, I think part of it is just central
• 24:29
  Speaker 2: bank buying. So you had an unexpected event with the
• 24:32
  Speaker 2: US Iran war, and you needed to buy oil and
• 24:36
  Speaker 2: build up reserves and at higher prices, and clearly that's
• 24:40
  Speaker 2: become a competition to being able to buy gold as well.
• 24:43
  Speaker 2: So I think you've had a pretty significant geopolitical event
• 24:46
  Speaker 2: that was unexpected in and around oil prices, and that's
• 24:49
  Speaker 2: necessitated a priority around around oil versus gold at the
• 24:53
  Speaker 2: moment by central banks.
• 24:55
  Speaker 1: What are you worried about at the moment, as people
• 24:58
  Speaker 1: in the market are really worried about something, what's bothering you?
• 25:03
  Speaker 2: If I could narrow it down to one single risk,
• 25:06
  Speaker 2: it's really inflation. As we think about higher oil prices,
• 25:10
  Speaker 2: some of the supply chain disruptions we've seen that perhaps
• 25:13
  Speaker 2: have gone on for a bit longer than anyone than
• 25:16
  Speaker 2: anyone would have anticipated. And then you've also got higher
• 25:20
  Speaker 2: spending on capex as we spoke about earlier. So the
• 25:23
  Speaker 2: real question on our minds is inflation, whether that inflation
• 25:29
  Speaker 2: is transitory, whether the US will be able to really
• 25:32
  Speaker 2: get inflation back down to two percent. What are the
• 25:34
  Speaker 2: implications on bond yields. So we're also watching from that
• 25:37
  Speaker 2: perspective oil prices to see if they start to gradually
• 25:41
  Speaker 2: come down, which does help with the inflation piece, But
• 25:44
  Speaker 2: that would be the risk that we're looking at that
• 25:46
  Speaker 2: kind of defines many of the other risks and many
• 25:48
  Speaker 2: of the other things that people are speaking about in
• 25:50
  Speaker 2: the market today.
• 25:52
  Speaker 1: Yeah, I mean, it seems like rising inflation would be
• 25:54
  Speaker 1: a risk attached to what we started part of this
• 25:56
  Speaker 1: conversation with, which is the renationalization of various supply chains,
• 26:01
  Speaker 1: et cetera.
• 26:02
  Speaker 3: That's automatically inflationary, right, it.
• 26:05
  Speaker 2: Is to a degree, but it also creates growth in
• 26:09
  Speaker 2: those markets, so that can also be offset by productivity gains.
• 26:13
  Speaker 2: So you could have AI productivity gains comes through, but
• 26:17
  Speaker 2: you can have industrial or more cyclical productivity gains come
• 26:21
  Speaker 2: through that also helps to offset some of that some
• 26:24
  Speaker 2: of that inflation and then lower oil prices. So there
• 26:27
  Speaker 2: are a few pieces that go into it. So we're
• 26:29
  Speaker 2: looking at the data and just looking to ensure that
• 26:33
  Speaker 2: our portfolio is kind of able to push through those
• 26:35
  Speaker 2: various macro events.
• 26:37
  Speaker 1: Yeah, and we're wondering about oil prices because while it
• 26:41
  Speaker 1: would make sense that they would now maybe fore graduate
• 26:44
  Speaker 1: from here, there is a part of the equation that
• 26:47
  Speaker 1: we're not talking about that much, which is the rebuilding
• 26:50
  Speaker 1: of reserves in the US and in China. So over
• 26:54
  Speaker 1: this emergency period, those reserves, which are built up over
• 26:57
  Speaker 1: decades have been run down over months and now need
• 27:01
  Speaker 1: to be built up again, which I would have thought,
• 27:03
  Speaker 1: and I'm not an expert in the oil area, but
• 27:05
  Speaker 1: I would have thought that that would provide a pretty
• 27:07
  Speaker 1: firm flaw under oil prices.
• 27:10
  Speaker 2: So yeah, so that's right. It's an area in and
• 27:13
  Speaker 2: around that maybe not only the US or China, could
• 27:17
  Speaker 2: be that other countries are also looking to do the same.
• 27:20
  Speaker 2: But it could also provide a gateway, as we've seen
• 27:23
  Speaker 2: for alternative energy sources and those sectors as we've also
• 27:27
  Speaker 2: seen start to rally as people look to not only
• 27:30
  Speaker 2: oil but other areas and sources of energy going forward,
• 27:33
  Speaker 2: which could also then be deflationary from that perspective.
• 27:36
  Speaker 1: Yeah, does the Trust have exposure in the energy space,
• 27:39
  Speaker 1: in oil or in renewables.
• 27:41
  Speaker 2: We don't have exposure to renewables. Early on in just
• 27:46
  Speaker 2: before the Iram Wars started, we had been thinking about
• 27:48
  Speaker 2: energy and energy security. We did put on an oil
• 27:51
  Speaker 2: position that did very well, so as a result we
• 27:54
  Speaker 2: look to sell that position, but we are thinking longer
• 27:57
  Speaker 2: term around energy security. Going back to our European sovereign
• 28:01
  Speaker 2: any theme.
• 28:02
  Speaker 3: Have me talked about Japan.
• 28:04
  Speaker 1: You've got quite a lot of the portfolio in that
• 28:05
  Speaker 1: and that's sixteen seventeen percent.
• 28:07
  Speaker 2: Sixteen or seventeen percent I think within our quoted equities
• 28:11
  Speaker 2: portfolio and just more broadly across our entire portfolio that
• 28:15
  Speaker 2: would be in the single digits.
• 28:17
  Speaker 1: But it's still it's fairly interesting. Well's driving that position.
• 28:22
  Speaker 1: I mean it was as a few years ago that
• 28:24
  Speaker 1: would have been price ridiculously cheap market. Japan is still
• 28:27
  Speaker 1: good value relative to some other markets, but you wouldn't
• 28:30
  Speaker 1: say it was cheat now.
• 28:31
  Speaker 2: If I take a step back. We've been investors in
• 28:33
  Speaker 2: Japan for about twenty years as a firm really with
• 28:36
  Speaker 2: a view that was quite focused on the corporate governance theme,
• 28:39
  Speaker 2: with a view being that the government insisted that companies
• 28:43
  Speaker 2: in Japan look to have a certain level of roe
• 28:47
  Speaker 2: and really look to drive those those reforms through. And
• 28:50
  Speaker 2: we believe that that trend has just continued in that market.
• 28:53
  Speaker 2: I think what you've also seen, similar to other countries
• 28:57
  Speaker 2: like Korea and or the US, is in Japan the
• 28:59
  Speaker 2: market it's done very well. But what you've also seen
• 29:02
  Speaker 2: is anything that was linked to semiconductors or semi conductor
• 29:06
  Speaker 2: components has done very well in Japan, while you can
• 29:11
  Speaker 2: still see value in the more traditional sectors. So again,
• 29:14
  Speaker 2: if you look across the sectors, not and not all
• 29:16
  Speaker 2: sectors in Japan, said differently, have been growing at the
• 29:19
  Speaker 2: same at the same rate, so we do see a
• 29:21
  Speaker 2: lot of value there.
• 29:23
  Speaker 3: Thank you, Maggie, thanks for joining us perfect.
• 29:25
  Speaker 2: Thank you so much.
• 29:29
  Speaker 3: Thanks for listening to this week's Marin Talk's Money.
• 29:31
  Speaker 1: If you like us, show rate to review and subscribe
• 29:33
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• 29:35
  Speaker 1: comments to Marin Money at Bloomberg dot net. You can
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• 29:40
  Speaker 1: at marinas w and John is John Underscore Stepic. This
• 29:44
  Speaker 1: episode is hosted by Me Marin Unset Web was produced
• 29:46
  Speaker 1: by Somemisadi, Moses Andam and Jennifer Sili, undersigned by Blake
• 29:50
  Speaker 1: Mabel's and Aaron Casper, and special thanks of course to
• 29:53
  Speaker 1: Maggie Fanari