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DeepSeek's Disruption and What It Means for Your Investments · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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Speaker 2: Welcome to Marin Talks Money, the podcast in which the
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Speaker 2: people who know the markets explain the markets. I'm Marin
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Speaker 2: Sumset Web. This week I'm speaking with Stephen You. Stephen
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Speaker 2: is the lead manager of the Blue Whell Growth Fund,
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Speaker 2: a long only and very concentrated global equity fund which
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Speaker 2: is the backing of British billionaire Peter Hargreave's Stephen started
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Speaker 2: his career as a fund manager at a Hargurish Landsdowne.
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Speaker 2: He's since then held positions at New Star, Artemis and
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Speaker 2: Nevsky Capital.
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Speaker 3: Full disclosure.
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Speaker 2: A few years ago I did do some paid work
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Speaker 2: with Blue Whale, but I have not been commostly involved
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Speaker 2: with the fund since twenty twenty three, so time has
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Speaker 2: passed since then and this week is nically the perfect
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Speaker 2: time to get Stephen on. First of all, the fund
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Speaker 2: has an excellent track record and annualized returns since law
1:00
Speaker 2: j twenty seventeen of over fourteen percent a year. That's
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Speaker 2: against the return of more like five and a half
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Speaker 2: percent for UK based peers, so it's always good to
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Speaker 2: get someone on whose fund is actually performing very well.
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Speaker 2: It's also true that about a month ago, Blue Whals
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Speaker 2: started talking about reducing its stakes in some of the
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Speaker 2: big big US tech companies, including Microsoft and Meta, on
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Speaker 2: concerns about the costs of the capex of artificial intelligence.
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Speaker 2: So his holdings in Microsoft was, for example, cut to
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Speaker 2: about two percent of the porfolio from eight percent at
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Speaker 2: the beginning of last year. We'll talk a bit about that.
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Speaker 2: Now Blue Well is thought of as a tech investor
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Speaker 2: that may or not be fair. We're going to talk
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Speaker 2: about it. Stephen is increasingly less positive on the magnificent
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Speaker 2: seven tech stocks all round. We are speaking on Monday
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Speaker 2: this week, and his cautious attitude is looking to be
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Speaker 2: spot on. In this conversation we get more about Stephen's
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Speaker 2: thoughts on the tech giants while the fund has been
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Speaker 2: reducing that AI holding, and the deep seek upset, and
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Speaker 2: of course where he sees opportunity right now. Right the
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Speaker 2: way I've said that, it sounds like there's an awful
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Speaker 2: lot to get through and we haven't got days. We've
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Speaker 2: only got forty five minutes or so. So sorry about that, Stephen,
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Speaker 2: thank you.
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Speaker 3: For joining us.
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Speaker 2: You're going to have to talk fast, thank you. Marry right,
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Speaker 2: So let's start. I've talked a lot about the already
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Speaker 2: about the kind of things you hold in the founder
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Speaker 2: are perceived to hold in the fund. So why don't
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Speaker 2: we dial back a bit and talk about what you
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Speaker 2: see the funder is actually doing, how you invest, what
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Speaker 2: kind of stock you choose, what your valuation parameters are,
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Speaker 2: et cetera.
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Speaker 3: So we've started a strategy back in September twenty seventeen,
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Speaker 3: so it's over seven years ago now. The objective at
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Speaker 3: a time was very simple is we want to launch
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Speaker 3: a high convection mandates investing into between twenty five and
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Speaker 3: thirty five stocks with a quality bias. So we like
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Speaker 3: high quality businesses, but at the same time to be
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Speaker 3: able to significantly outperform the markets, which would include the
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Speaker 3: passive tracker in today's context. And I think that has
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Speaker 3: what we have been doing. So I think on a
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Speaker 3: very high level that we actually would exclude low quality
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Speaker 3: businesses that we would deem as not sustainable highly intented,
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Speaker 3: and then the opposite of the spectrum would be company
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Speaker 3: with very strong balanced it, good management team, sustainable business model, etc.
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Speaker 3: But of course, I think if you look at what
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Speaker 3: has happened in the market with some other peers who
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Speaker 3: are running a very similar mandate, is that there has
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Speaker 3: been a bit of a deviation in performance terms over
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Speaker 3: the last couple of years. And so then when I
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Speaker 3: reflected back on what we are trying to achieve investor
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Speaker 3: on top of what I just outlined seven years ago,
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Speaker 3: is at the same time of not only investing into
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Speaker 3: high quality businesses, you would want to pick the winners
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Speaker 3: that the companies are actually able to capture more market
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Speaker 3: share or revenue or profit in a new environment. And
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Speaker 3: I think that's what we are set out to do.
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Speaker 2: Okay, Can I take you back a little bit to
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Speaker 2: the definition of quality. One of the things you said
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Speaker 2: when you were talking about what makes a quality company
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Speaker 2: is having a sustainable business model. By that, do you
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Speaker 2: mean one that you believe will last for a long
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Speaker 2: time or do you mean sustainable in the sense of ESG.
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Speaker 3: Sustainable more to do with the business model in itself.
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Speaker 3: I mean, we are not a ESG or high impact fund,
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Speaker 3: but we do deem ESG factors as a business consideration
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Speaker 3: or business and risk consideration. So what I'm referring to
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Speaker 3: is a sustainable business model in terms of recurring revenue
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Speaker 3: stream cash flow conversion that you're able to tap into
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Speaker 3: your customers with high switching costs, which means that then
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Speaker 3: it's not easy for them to move to a new
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Speaker 3: competitor to use something similar in term service or products.
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Speaker 3: So that is what we like or prefer to invest into.
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Speaker 2: That kind of company, This kind of company with a
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Speaker 2: great balance sheet, with great cash flows, with great management,
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Speaker 2: with a sustainable business model, and one that you can
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Speaker 2: see continuing to generate profit growth out the out indefinitely.
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Speaker 2: That's automatically going to be expensive, right, So what are
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Speaker 2: the valuation parameters that you have?
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Speaker 3: We build financial model for every single company we have
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Speaker 3: and then we would make sensible or conservative forecast in
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Speaker 3: terms of how much money we'll expect our company to
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Speaker 3: make in the next three to five years. So one
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Speaker 3: valuation metrics that we will look at is free cash
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Speaker 3: throw yield just for that. So it's how much free
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Speaker 3: cash throw the company would have generated in five three
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Speaker 3: to five years from today. And of course the way
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Speaker 3: that we access the quality of the business is the
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Speaker 3: sustainability of the free cast throw level of generation three
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Speaker 3: to five years from today, isn't it. It's not like
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Speaker 3: a one number that you get in five years time.
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Speaker 3: And then that number disappear in a six or seven years,
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Speaker 3: so that is not what a high quality business means.
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Speaker 3: A good company means that they can continue to deliver that.
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Speaker 3: But of course we do not have a crystal ball
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Speaker 3: so that you cannot just make a number to say, okay,
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Speaker 3: I think this company's going to do well ten years
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Speaker 3: from today. So you want to have a sensible time horizon,
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Speaker 3: which for us between three to five years. And at
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Speaker 3: the same time you will be able to track the
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Speaker 3: recent developments such as quarterly earnings invested day or when
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Speaker 3: the company announced their new guidance for this coming year
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Speaker 3: in terms of their plan, and then you can marry
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Speaker 3: that with your business analysis alongside the forecast that you
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Speaker 3: have made to determine whether the company is likely to
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Speaker 3: achieve those results. So that's what we do. But the
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Speaker 3: point that I want to make just to go back
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Speaker 3: on the quality spectrum of companies that we look at.
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Speaker 3: Obviously there's a price to pay as a starting point,
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Speaker 3: but I think what is really important as you can
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Speaker 3: probably worked out across different holdings that could be deemed
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Speaker 3: as good quality businesses that the performance potential or how
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Speaker 3: they have performed over time are very different so identifying
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Speaker 3: a good company or high contit businesses, the starting point is, like,
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Speaker 3: we do know that these companies are not going to disappear.
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Speaker 2: So it's one of the things that I'm trying to
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Speaker 2: get at is, let's say you've bought a quality company.
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Speaker 2: It's great. Everyone else a company company is doing very well.
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Speaker 2: Is there a point when you look at it and
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Speaker 2: you go, it's still doing really well, but it's too expensive?
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Speaker 2: Of course, so what's the point which you go, well, actually,
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Speaker 2: it's now so expensive I can't have it in my
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Speaker 2: portfolio anymore. Or as a growth investor, does that point
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Speaker 2: never exist because you expect a good company to grow
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Speaker 2: into any valuation. You see where I'm going here with it.
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Speaker 3: Yeah, we totally agree with you. That's always a price
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Speaker 3: for everything, right, even that for a high quality company,
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Speaker 3: let's say Nvida or Microsoft Amanthers, that's always a price.
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Speaker 3: So we do take that into account. So the way
7:39
Speaker 3: that we look at it is two things. So one
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Speaker 3: is we make forecasts in terms of how much money
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Speaker 3: or prehe through our company is expected to deliver in
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Speaker 3: the next three to five years, and of course up
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Speaker 3: to three years. You can look at the market consensus numbers.
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Speaker 3: So what we want is our forecast to remain ahead
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Speaker 3: of the market expectation, which means that if we ended
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Speaker 3: up to be correct based on our analysis, that a
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Speaker 3: company would continue to beat expectations, right, And of course
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Speaker 3: that will be from time to time that the market
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Speaker 3: has caught up with our expectations and we are no
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Speaker 3: longer ahead of market expectation, and in that manner that
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Speaker 3: we would deem the shares to be overvalue within a
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Speaker 3: short time horizon, which is up to three years. Okay,
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Speaker 3: that's one which we do look at. Secondly, is about
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Speaker 3: the five year number, which we look at a single
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Speaker 3: valuation metric free CASHUW yield, just as for death in
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Speaker 3: five years time. And the way that we look at it,
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Speaker 3: obviously there's no market consensus to refer to, but we
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Speaker 3: were trying to adjust that number alongside the quality of
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Speaker 3: the business. Right, So if you're a good company, of
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Speaker 3: course there's a spectrum of good company versus better company,
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Speaker 3: high quality company, etc. And the price would be very
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Speaker 3: different from one to another. And I think in today's
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Speaker 3: context that's going back to Microsoft to make it a
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Speaker 3: bit simple, is that we believe that the quality of
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Speaker 3: the business for Microsoft is not improving from here, But
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Speaker 3: when you look at the business seven years ago when
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Speaker 3: they went through the digital transformation to make it a
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Speaker 3: cloud subscription model, that the quality of the business was
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Speaker 3: improving for a good period of time. But what is
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Speaker 3: changing now is when you look at the valuation of Microsoft,
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Speaker 3: let's say, using a five year three careful yield number,
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Speaker 3: in the next five years compare to previously, when we
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Speaker 3: look at Microsoft, that number is very much similar. So
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Speaker 3: Microsoft is trading at an all time high valuation compared
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Speaker 3: to when we first invested, But then the quality of
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Speaker 3: the business in our view, is deteriorating, so we think
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Speaker 3: the share is overly expensive. But we are not here
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Speaker 3: to suggest that Microsoft is going to disappear as a company, right,
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Speaker 3: so we are still going to use Microsoft continuously. But
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Speaker 3: when you look at the return on invested capitol profile
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Speaker 3: from Microsoft from here in the next five years, that
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Speaker 3: number is likely to come down rather than going up
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Speaker 3: from in our view, based on how much money they
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Speaker 3: have spent into artificial intelligence investment. So if I just
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Speaker 3: link it back to the context of NVIDA, I'm sure
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Speaker 3: we'll talk about some other stuff like deep seek later on.
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Speaker 3: But when you look at a very simple like pe
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Speaker 3: ratio one year forward consensus on Bloomberg number and Vida
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Speaker 3: and Microsoft is trading at the same level, which is
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Speaker 3: about thirty times earnings. But of course for Nvidia to
10:32
Speaker 3: be able to sell you many more products, let's hope
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Speaker 3: that is going to continue that journey, and it is
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Speaker 3: higher than what Microsoft has been doing in terms of
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Speaker 3: the copilot. And of course the end customer for Nvida
10:45
Speaker 3: would be coming from the free care throw generation of
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Speaker 3: Microsoft previously, so that number that free castrow has been
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Speaker 3: passed on to Nvidia's top line.
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Speaker 2: Okay, so in part go back to what you were
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Speaker 2: saying at the beginning beginning of the answer to that question.
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Speaker 2: A lot of it is about wanting or needing the
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Speaker 2: rest of the market to have positive a positive surprise
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Speaker 2: relative to you.
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Speaker 3: That's right. Yeah, So this very simplistic way that investors
11:10
Speaker 3: should be thinking about is in order to do a
11:13
Speaker 3: lot better than your peer group the markets, the ETF is,
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Speaker 3: you need to have a differentiated view on the outlook
11:21
Speaker 3: of a company. And that's more likely to be correct
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Speaker 3: than wrong because it's very easy for anyone to have
11:27
Speaker 3: a concharriant view. You can take a view on a
11:29
Speaker 3: company on a market to be a contrariant for extended
11:33
Speaker 3: period of time, and you're probably going to get carryouts
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Speaker 3: in terms of that view, because the market is right
11:39
Speaker 3: most of the time. Right. So then in order to
11:42
Speaker 3: do something different, which is in performance terms that you
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Speaker 3: need to deliver more than your competitis or the market,
11:48
Speaker 3: you need to have a differential angle, and you need
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Speaker 3: to maintain the differential angle with the probability that diffreenshiond
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Speaker 3: angle is likely to be right, or maintain it to
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Speaker 3: be correct. And as long as there's still a decent gap,
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Speaker 3: then we think that's likely that the market is going
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Speaker 3: to follow us, and vice versa. If we end up
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Speaker 3: to be behind the market and we are likely to
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Speaker 3: be correct, and we would think the shares could be
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Speaker 3: expensive because the market is going to follow us, that
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Speaker 3: maybe there would be earnings vision downgrades on the other side.
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Speaker 2: Yeah, And this is easier said than done, of course,
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Speaker 2: And as you say, the market is more often right
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Speaker 2: than wrong. And so if you're going to run a
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Speaker 2: portfolio like this really has to be a concentrated portfolio.
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Speaker 2: So twenty five, twenty six, twenty seven, that's the amount
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Speaker 2: of companies you can realistically find that will fit inside
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Speaker 2: these parameters.
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Speaker 3: That's right. And the other points that I want to
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Speaker 3: just illustrate to the audience that this is very important
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Speaker 3: in today's context is obviously the market is very efficient.
12:44
Speaker 3: Everyone have access to the same level of information. In
12:47
Speaker 3: order to have this differential angle, you need to do
12:50
Speaker 3: something original. You need to make it very deep dive
12:53
Speaker 3: in a way that you have outwork your competitors or
12:58
Speaker 3: the market audience. So the way that we translate that
13:01
Speaker 3: at Blue Well is there are five of us on
13:03
Speaker 3: the investment team. Okay, that doesn't sound like a lot
13:06
Speaker 3: of people, right, but when you marry that with the
13:08
Speaker 3: number of stocks that we have in the fund, which
13:10
Speaker 3: on average twenty five, then you're saying that we're saying
13:13
Speaker 3: that that's on average an individual covering five companies. So
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Speaker 3: Eve and a professional full time workers is covering five
13:22
Speaker 3: companies for the entire year, versus another individual who might
13:26
Speaker 3: be covering ten or fifteen or more and maybe not
13:29
Speaker 3: full time two because you have a day job. Then
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Speaker 3: the level of research that we could put behind the
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Speaker 3: scene to understand what the company is trying to do
13:39
Speaker 3: or whether we have a friendship angle, I think the
13:41
Speaker 3: chance of that happening is higher. We're not an expert
13:44
Speaker 3: on anything, right. If you ask me about the stocks
13:47
Speaker 3: that's outside the fun that probably cannot have a proper conversation.
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Speaker 3: But for the stocks that we end up having invested,
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Speaker 3: then yes, I think we could claim to be an
13:55
Speaker 3: expert just because we have spent a lot more time
13:59
Speaker 3: when you're very full in terms of that resource.
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Speaker 2: So one of the things that has happened as a
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Speaker 2: result of the way that you invest is that you
14:06
Speaker 2: have ended up quite a heavy tech investor. And as
14:08
Speaker 2: I said at the beginning, a lot of people when
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Speaker 2: they hear Blue Whale, they think tech. They think of
14:12
Speaker 2: you as a tech investor. At one of your biggest
14:15
Speaker 2: tech areas has.
14:16
Speaker 3: Been in A and AI.
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Speaker 2: You know, you and I have talked a lot about
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Speaker 2: your position in video before, and let's go back then
14:22
Speaker 2: to Microsoft to matter to why you've been selling out
14:25
Speaker 2: for some of these docks but staying in video.
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Speaker 3: So just on a fray high level that we we
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Speaker 3: we would still say that we are global fund but
14:35
Speaker 3: with a tech bias. And if I look back to
14:38
Speaker 3: the last seven years that our tech exposure has been
14:41
Speaker 3: fairly consistent. I would say just about forty percent throughout
14:44
Speaker 3: that journey. But what has been interesting within that exposure
14:49
Speaker 3: was that the composition of that mix was very different
14:53
Speaker 3: seven years ago compared to now. So seven years ago,
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Speaker 3: before the pandemic, we were heavily exposed to digital transformation
15:00
Speaker 3: opportunities and since then we have moved on and since
15:04
Speaker 3: twenty twenty two or twenty twenty three, we have switched
15:08
Speaker 3: those exposure into artificial intelligence, which is the hot topic
15:12
Speaker 3: over the last few years. And of course we have
15:13
Speaker 3: done very very well on the bank of that. But
15:16
Speaker 3: when you look at it very high level, yes, over
15:18
Speaker 3: the course of last seven years, we did have a
15:20
Speaker 3: bias to technology company. I think the points that I
15:23
Speaker 3: want to make is is when I try to look
15:25
Speaker 3: back on what happened over the last seven years, I've
15:29
Speaker 3: done a bit of analysis myself. Look at all the
15:31
Speaker 3: companies that's been listed in the stock market, whether they
15:35
Speaker 3: are American companies, British companies, European, Chinese or Indian companies
15:39
Speaker 3: that over the last seven years, the market share winners
15:42
Speaker 3: in terms of the world revenue shares has been American companies.
15:47
Speaker 3: I think people would have what worked out even without
15:50
Speaker 3: these studies. But at the same time, if you look
15:52
Speaker 3: at which part of the North American company have got
15:55
Speaker 3: the most share in terms of the dollar or time
15:58
Speaker 3: that we're spending with them now, would be the big
16:01
Speaker 3: tech companies. And then what is it at the expense
16:04
Speaker 3: of the expense of some traditional business model that are
16:08
Speaker 3: more maybe high street facing, not in the digital world.
16:12
Speaker 3: And hence, I think, as far as we are concerned,
16:15
Speaker 3: that we like companies or sectors that can capture a
16:19
Speaker 3: larger share of the world GDP or when we say,
16:22
Speaker 3: maybe a larger share of our dollars spend or our wallets,
16:26
Speaker 3: or maybe from an enterprise perspective, where do they invest
16:28
Speaker 3: their money into. And so we are very pramatic whether
16:32
Speaker 3: those companies would end up to be technology company, which
16:35
Speaker 3: has been the case for the last seven years, but
16:37
Speaker 3: then it might not be the case in the next
16:39
Speaker 3: seven years. So then if you ask me to go
16:41
Speaker 3: back in time, would I have done a lot better
16:44
Speaker 3: by launching a technology fund. I think, looking at the
16:48
Speaker 3: stock pick that we ended up with, like, I think
16:50
Speaker 3: that performance would be even more exceptional than what we
16:53
Speaker 3: have achieved for the Blue Out Growth Fund, which is
16:55
Speaker 3: a global mandate But the one thing that I'm not
16:58
Speaker 3: changing is I don't want to be fixated on technology
17:01
Speaker 3: because as far as a global investor or fund is concerned,
17:05
Speaker 3: that we want to be able to navigate a market environment.
17:10
Speaker 3: But today that is where you want to be, which
17:12
Speaker 3: is technology.
17:14
Speaker 2: Okay, So let's talk then about technology, and let's talk
17:17
Speaker 2: about AI in particular. We're talking, as I said in
17:19
Speaker 2: the beginning, we're talking on Monday and over the weekend.
17:22
Speaker 2: There's all this information has come out about deep Seek
17:25
Speaker 2: with the Chinese AI product and how it can it
17:27
Speaker 2: can now well do everything with a cheaper kind of chip.
17:31
Speaker 2: So it represents a genuine threat to everyone else who
17:35
Speaker 2: spent billions and billions of cathecs on developing AI products
17:39
Speaker 2: to suddenly find that this exists. Right, So we see
17:44
Speaker 2: as we're speaking, we've seen the video of ten eleven percent,
17:47
Speaker 2: and we're seeing the tech across the board beginning to
17:50
Speaker 2: come off. So do you see this Have you looked
17:53
Speaker 2: at it in particularly? Do you see this as as
17:55
Speaker 2: a threat to the big tech company in the US.
18:00
Speaker 2: Do you think it's a bit overblown or does it
18:03
Speaker 2: justify your view that you need to get out of
18:06
Speaker 2: the companies that have been spending huge months on AI.
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Speaker 3: So we are a true believer in how geners AI
18:14
Speaker 3: is going to change the world, whether it's on a
18:16
Speaker 3: consumer basis or in the enterprise professional basis. So deep
18:20
Speaker 3: Sea have actually reinforced our view that this is happening.
18:25
Speaker 3: So what deep Sea has managed to do in terms
18:28
Speaker 3: of breakthrough that it actually solved two things that has
18:32
Speaker 3: been the bottleneck of the AI industry. The first thing
18:36
Speaker 3: is the price or the course of training models of
18:39
Speaker 3: doing AI. And you might record the same. Ottoman, the
18:43
Speaker 3: co founder of open ai, recently make a comment a
18:46
Speaker 3: few weeks ago saying that the chat GPT version that
18:49
Speaker 3: charged you two hundred dollars a month that he's seeing
18:53
Speaker 3: a lot of demand, but they are actually lost making
18:56
Speaker 3: even by charging you two hundred dollars a month to
18:59
Speaker 3: use it. So asked us, no doubt that there's many
19:02
Speaker 3: more things that AI can do. But then the question
19:05
Speaker 3: is what is the price that you want to pay
19:07
Speaker 3: for that. So ef that subscription is two thousand dollars
19:11
Speaker 3: a month, you might not be paying for that. But
19:13
Speaker 3: there's no doubt that there's enough use cases that people
19:17
Speaker 3: want to embrace AI. In terms of the day to day.
19:20
Speaker 3: So what Deep Seak had managed to do is they
19:22
Speaker 3: managed to use some very dated and video technology to
19:27
Speaker 3: put use a very similar output to what check GBT
19:31
Speaker 3: has done. After they have spent billions and billions of
19:35
Speaker 3: dollars investing into that, and on the back of that
19:37
Speaker 3: is the big tech company so far in the US
19:42
Speaker 3: in particular, they have a monopoly to drive AI applications
19:47
Speaker 3: because the entry ticket, or the barrier to entry is
19:50
Speaker 3: whether you have the billions to spend on Nvidia GPU.
19:54
Speaker 3: If you don't have access to the GPU compute, you
19:56
Speaker 3: cannot develop any AI application, right. So what Deepsea have
20:00
Speaker 3: managed to do is I think they have started a
20:03
Speaker 3: revolution for the startup AI company globally that anyone with
20:08
Speaker 3: no access to billions of investment can start to work
20:12
Speaker 3: on some air application. The other bottleneck which deep Sea
20:16
Speaker 3: have managed to solve, I think is energy demand. As
20:20
Speaker 3: far as the current energy infrastructure is concerned, that is
20:23
Speaker 3: not capable to handle what is yet to come from
20:26
Speaker 3: the AI world, right and hence when you look at
20:29
Speaker 3: the big tech companies, they have been spending money now
20:32
Speaker 3: exploring the new clear energy. But of course nuclear is
20:36
Speaker 3: not just not the end answer because it does take
20:38
Speaker 3: a long time and you need to public get a
20:40
Speaker 3: permission to build it, so it's not going to solve
20:42
Speaker 3: anything immanent. So what Deep Sea can managed to do
20:45
Speaker 3: is to optimize the software or the AI algorithm that
20:49
Speaker 3: they no longer need as much EPU compute, which means
20:53
Speaker 3: energy demand or energy intensity for the use cases that
20:57
Speaker 3: we have so far to date could be could be
21:00
Speaker 3: replicated with lower energy supply. So it's actually very helpful
21:05
Speaker 3: in terms of development.
21:06
Speaker 2: So what we have here now is the possibility of
21:09
Speaker 2: an AI model which is much cheaper and much less
21:13
Speaker 2: energy intensive than previous assumptions.
21:16
Speaker 3: That's right.
21:17
Speaker 2: It's a big positive supply shock to the global economy surely,
21:22
Speaker 2: so that will take us a big step further down
21:25
Speaker 2: towards the productivity boom that we've all been waiting for
21:28
Speaker 2: for decades now. So this is actually as a huge
21:32
Speaker 2: and disruptive supply change.
21:35
Speaker 3: Yeah, that's right. Yeah, So basically it has leveled the
21:38
Speaker 3: playing field, that is, more startup AI companies is able
21:43
Speaker 3: to join the raise to be more creative innovative. At
21:46
Speaker 3: the same time, it's lower the price or the cost
21:50
Speaker 3: to run certain air applications.
21:52
Speaker 2: So if you look big picture, then that should mean
21:54
Speaker 2: less inflation, more productivity. It's yet another wave of deflation
21:58
Speaker 2: coming out of China, I think.
22:00
Speaker 3: But a very high level that is of our view
22:02
Speaker 3: even before this week, is like AI is very defationary
22:07
Speaker 3: over time, right, like in terms of increasing productivity, in
22:12
Speaker 3: terms of maybe having fewer headcounts in certain more maundane
22:16
Speaker 3: kind of operations like back office or maybe some customer
22:19
Speaker 3: service function. So I think over time, a lot of
22:22
Speaker 3: things that we're doing today could be done by AI.
22:24
Speaker 3: But of course the question is like how long does
22:27
Speaker 3: it take? Right, Even that it's so expensive to invest
22:30
Speaker 3: in the AI as a starting point and to be
22:32
Speaker 3: able to come up the applications that work, and then
22:35
Speaker 3: you then end up you need to have the customers
22:37
Speaker 3: happy to pay for this at the same time, right,
22:39
Speaker 3: So that I think there's a lot of box to take.
22:41
Speaker 3: But then by lowering the course, I think it does
22:45
Speaker 3: open up a lot of opportunities. When analogy I want
22:48
Speaker 3: to make on this is if you look at the
22:50
Speaker 3: smartphone ecosystem, right, let's say the app store on iPhone
22:53
Speaker 3: or Android when it first launched, you probably have like
22:56
Speaker 3: maybe fifty two hundred apps, but over time when as
23:00
Speaker 3: the platform become more level and in a way that
23:04
Speaker 3: is making more accessible to any software developers app developers.
23:07
Speaker 3: Now you have a few million apps in your app store,
23:09
Speaker 3: which we don't even know all of them, and the
23:13
Speaker 3: number of applications of use cases that you can do
23:16
Speaker 3: on your smartphone is a lot more and hence the penetration.
23:19
Speaker 3: It's not just Apple is winning, right, Apple is only
23:22
Speaker 3: a small player in the market. You have a lot
23:24
Speaker 3: of entry level smartphone that can do most of the stuff.
23:27
Speaker 3: So this is what is going to be very helpful
23:30
Speaker 3: from the AI adoption penetration kind of conversation going forward.
23:35
Speaker 3: So what deep Seak has done is accelerating the adoption
23:39
Speaker 3: and penetration of AI.
23:41
Speaker 2: Okay, and so what does that mean for your portfolio?
23:43
Speaker 2: What does that mean for Nvideo in particular, because we've
23:46
Speaker 2: talked about you selling down other companies, possibly one sort
23:49
Speaker 2: of overinvested in AI and you think that weakens them
23:52
Speaker 2: long term. But in Video, you've maintained your holdings in
23:55
Speaker 2: you haven't wanted to get out of that at all.
23:58
Speaker 2: What does this news mean for them?
24:00
Speaker 3: So we've seen the AI domain. We are still a
24:03
Speaker 3: pro AI infrastructure company. So a companies who are on
24:06
Speaker 3: the receiving and so including NVIDA and Broadcom for example,
24:09
Speaker 3: both of them in our top ten. And the way
24:12
Speaker 3: that to think about is of obviously our view has
24:15
Speaker 3: not changed yet. I mean, it doesn't mean that we
24:16
Speaker 3: might not change that meal in time, but our view
24:19
Speaker 3: has not changed that by freeing up some of the
24:21
Speaker 3: GPU capability. Let's say if you assume that all the
24:27
Speaker 3: big tech companies the utilization of all the GPU they
24:30
Speaker 3: have got in house is one hundred percent, so they
24:32
Speaker 3: basically they utilize everything they have got and hence they
24:35
Speaker 3: need to continue to order more GPU going forward, right,
24:39
Speaker 3: whether it's from NVIDA or working with Broadcom to do
24:42
Speaker 3: in house GPU. Okay, what deep Seat have managed to
24:45
Speaker 3: suggest is maybe there a certain level of optimization you
24:48
Speaker 3: can do to free up some existing capacity. Right, So
24:52
Speaker 3: rather than one hundred percent utilization, maybe the number is
24:55
Speaker 3: like fifty percent utilization, So you suddenly have like a
24:57
Speaker 3: fifty percent free up capacity you can work on other
25:00
Speaker 3: AI applications or development that you might not need to
25:03
Speaker 3: then order more GPU from NVDA or Broadcom. Right, So
25:06
Speaker 3: that is the narrative happening in today's market. Our view
25:10
Speaker 3: is a bit different. Our view is that sure, okay,
25:13
Speaker 3: that is fine. If everyone is trying to take a
25:15
Speaker 3: step back to say, oh, actually we can take it
25:17
Speaker 3: easy now because our competitor have got capacity free up.
25:21
Speaker 3: We do have that too. Let's slow down the development
25:23
Speaker 3: of AI and not to invest more in the GPU.
25:27
Speaker 3: If everyone is doing that, that's fine, which is not
25:29
Speaker 3: the case. People are going to utilize more of the
25:33
Speaker 3: free up capacity to develop more things. I mean the
25:36
Speaker 3: stuff that AI use. Cases that we have been talking
25:39
Speaker 3: today or most people have access to. Well, talk about
25:42
Speaker 3: GPT technology, which is like a searching algorithm of some
25:46
Speaker 3: model giving you a very strict answer quickly correcting your
25:49
Speaker 3: emails suggesting a few things going on. But what we
25:52
Speaker 3: haven't talked about, which is very new now is happening.
25:55
Speaker 3: It's called AI agents. AI agent means this agent would
25:59
Speaker 3: actually help you to do things. So instead of speaking
26:02
Speaker 3: to the BA British Airway chat board saying, oh my
26:06
Speaker 3: flight got canceled? Can you help me to do the refund?
26:08
Speaker 3: Where do I go? And then they give you all
26:10
Speaker 3: the answer is that no, no.
26:11
Speaker 2: They don't give you the answer. They don't give you
26:13
Speaker 2: the answer. Okay, it doesn't happen you know nothing about
26:16
Speaker 2: the BA chat boards.
26:19
Speaker 3: That's worse then, But what is happening if BA is
26:21
Speaker 3: smart enough, Like when when this AI agent comes along,
26:24
Speaker 3: is the AI agent itself not only able to answer
26:27
Speaker 3: your question, but at the same time it's going to
26:29
Speaker 3: fix it for you in the backhand. Right when I
26:31
Speaker 3: talk about a agent, it would need to be ambent
26:33
Speaker 3: themed within the backcand system of British Airway, not just
26:37
Speaker 3: on the surface chatting with you on some random queries.
26:40
Speaker 3: It's going to link up to the back end and hence,
26:42
Speaker 3: like whan I say, okay, my flight got tencel, can
26:44
Speaker 3: A get refund done for you? Like you get the
26:46
Speaker 3: payment straight away? Just talk about to the AI agent.
26:48
Speaker 3: So that journey has not even started, right, So what
26:51
Speaker 3: I'm trying to say here is like there's many many
26:53
Speaker 3: more use cases that we have not yet come to use,
26:57
Speaker 3: and any free up capacity would would basically accelerate those
27:02
Speaker 3: development without like basically saturating the utilization to date. And
27:07
Speaker 3: I think everyone is raising to do that. And the
27:09
Speaker 3: other thing which is very important if you look at
27:12
Speaker 3: what deep Sea have said, or maybe some of the
27:15
Speaker 3: comments on Twitter have been trying to tackle is like
27:18
Speaker 3: those GPU they have got it is not enough to
27:22
Speaker 3: go forward. They managed to utilize a very limited data
27:26
Speaker 3: number of GPU to get to where they got to.
27:28
Speaker 3: But that is not the end story. That's not the
27:30
Speaker 3: end story that China no longer any GPU, because I
27:34
Speaker 3: would imagine if tomorrow that Trump decided or actually we
27:37
Speaker 3: want to become friends with China again, we would let
27:39
Speaker 3: you have as many GPU as you want from Nvida,
27:42
Speaker 3: I would best that China is going to spend the
27:44
Speaker 3: biggest amount of money to buy up the entire GPU
27:48
Speaker 3: stock in order to take AI to the next level. Right,
27:53
Speaker 3: So what Deepsea have achieved is is a big breakthrough
27:57
Speaker 3: in terms of the success in optimizing the algorithm that
27:59
Speaker 3: some it seems like maybe the Western company have not
28:02
Speaker 3: managed to do so. But it doesn't change the narrative
28:05
Speaker 3: that AI is still changing the world. That's there a
28:07
Speaker 3: lot more things that you need to do you can
28:10
Speaker 3: do with AI. And of course in order to perform
28:12
Speaker 3: the training on AI, you need to have the GPU compute.
28:17
Speaker 2: Yeah. Interestingly, I'm looking looking at the antlers putting out
28:21
Speaker 2: almost immediate comments on this business today on Monday, As
28:25
Speaker 2: I say, I seeing all sorts of things from you
28:27
Speaker 2: know this, this will lead to a huge capex unwined
28:30
Speaker 2: and a mild recession in the US and an unwinding
28:34
Speaker 2: of equity inflows into the US and eventually a week
28:36
Speaker 2: a dollar. That's all a bit ott from from what
28:39
Speaker 2: you're saying. You don't think antles should be allowed to
28:43
Speaker 2: write instant responses, do you?
28:46
Speaker 3: No? I think I think the thing with the deep
28:48
Speaker 3: sea breakthrough is I think that's going to be more
28:51
Speaker 3: data point that we will get from some of the
28:53
Speaker 3: big tech companies. You probably want to hear from them, right,
28:55
Speaker 3: because like I said, I I suggest that, Okay, they're
28:59
Speaker 3: going to free up some capacity, but what is that number? Right?
29:02
Speaker 3: If you say to me they can free apply fifty
29:04
Speaker 3: percent off the capacity, that's a lot. That's a big number.
29:06
Speaker 3: If they can free up like twenty percent of the capacity,
29:08
Speaker 3: that's not a lot. So then I think there's still
29:10
Speaker 3: a debate in terms of what is happening. But the
29:13
Speaker 3: other thing, I just want to throw it out there
29:15
Speaker 3: because we're going to hear from matter to was a
29:17
Speaker 3: second berd On Friday, a few days ago before the
29:21
Speaker 3: deepsick announcement. Friday, he announced or pre announced the capital
29:25
Speaker 3: expenditure for twenty twenty five. So that number has gone
29:28
Speaker 3: up from fifty something trillion dollars expected for twenty twenty
29:31
Speaker 3: five into the range of more than sixty billion, fifty
29:34
Speaker 3: billion dollars to sixty billion dollars, So that number's gone
29:37
Speaker 3: up by over ten billion dollars. And I would imagine
29:40
Speaker 3: he actually was connected, right, Like he's not like he's
29:43
Speaker 3: going to hear the same news on Deepsey as you
29:45
Speaker 3: and I just reading on, hon said Bloomberg Channel. So
29:49
Speaker 3: by him doing that just being a bit speculative, was
29:52
Speaker 3: that he already know what this means for them. They
29:56
Speaker 3: already have worked out that Okay, we can maybe copy
29:59
Speaker 3: some of the the optimization algorithm that deep Seat have
30:02
Speaker 3: introduced because it's open source, but then they still need
30:05
Speaker 3: more GPU to do more things. So I think that's
30:07
Speaker 3: very interesting. But we will probably hear more from them
30:10
Speaker 3: this week because they're going to report their results.
30:13
Speaker 2: Okay, more on that later. So you're hanging onto Nvidia,
30:16
Speaker 2: and presumably you're hanging on to your other investments in
30:19
Speaker 2: the AI infrastructure area too. Say Vertive is another one
30:23
Speaker 2: in your top ten, which they do cooling infrastructure right
30:26
Speaker 2: for data centers.
30:27
Speaker 3: That's right. Yeah, I mean things are quite fluid, right,
30:31
Speaker 3: So at the moment, we're not selling. I think that's
30:34
Speaker 3: a starting moment. But we'll get more clarity as this
30:37
Speaker 3: week goes on. I think we need a few more
30:39
Speaker 3: data points to suggest whether our thesis might have changed
30:43
Speaker 3: from on that perspective.
30:45
Speaker 2: Yeah, and I'm interested. You know, you mentioned earlier something
30:48
Speaker 2: I was going to ask you about energy, and in
30:50
Speaker 2: particular about nuclear. You know, if you're very very pro AI,
30:54
Speaker 2: very pro data centers, AI infrastructure, et cetera, et cetera,
30:58
Speaker 2: does that make you want to lean into holding anything
31:01
Speaker 2: in the nuclear energy sector?
31:04
Speaker 3: Not currently, I think just from maybe a public equity
31:09
Speaker 3: investor perspective, there's just not many of these companies around, right.
31:13
Speaker 3: If you ended up finding a company that have some
31:15
Speaker 3: exposure to nuclear that probably have other stuff that you
31:18
Speaker 3: don't want to own, which is a typical maybe like
31:21
Speaker 3: a utilities company, they have like a nuclear operation or
31:24
Speaker 3: some nuclear plants, so you don't get a pure play
31:28
Speaker 3: in terms of nuclear, right, And of course, then whether
31:30
Speaker 3: we would end up investing into uranium, which we couldn't,
31:34
Speaker 3: then there's more of a very different game to play.
31:36
Speaker 2: Okay, So let's move on then and look at some
31:38
Speaker 2: other parts of the portfolio, some other sectors and themes
31:40
Speaker 2: that I know you're interested in. And one of the
31:42
Speaker 2: ones that always pops out to me when I look
31:44
Speaker 2: at your portfolio is what you like to call gaming,
31:47
Speaker 2: and I like to call gambling flutter for flutter for example, gaming,
31:52
Speaker 2: I think a bit of an euphemism here. It's outright gambling, right,
31:56
Speaker 2: But you think that sports gambling in the US is
32:00
Speaker 2: an area that you are exposed to and you have
32:03
Speaker 2: great hopes for, right.
32:05
Speaker 3: Yeah, So this is a very good illustration of what
32:08
Speaker 3: we're trying to achieve without twenty five companies, right, because
32:12
Speaker 3: the way that you do it is not only you
32:15
Speaker 3: find a good company or a high quality business model,
32:19
Speaker 3: and at the same time you want this company to
32:22
Speaker 3: capture new market share from someone else. So as far
32:27
Speaker 3: as US sports gaming or US gambling is concerned, sports
32:31
Speaker 3: gambling is concerned, that is a completely new opportunity since
32:36
Speaker 3: the US started to legalize sports gaming state by state
32:39
Speaker 3: a few years ago. So at the moment, when you
32:42
Speaker 3: look at the market segment in the US, it's only
32:44
Speaker 3: about fifty percent of the state or population would have
32:48
Speaker 3: access and at the same time it's a two players market,
32:52
Speaker 3: which is we like that in a way there's a
32:54
Speaker 3: jo operly. So in the US it's between Futter's subarank
32:58
Speaker 3: of Venduo versus DraftKings, which is a US listed company,
33:03
Speaker 3: and these two company they control over eighty percent of
33:06
Speaker 3: the market share, so they are very big companies. That's
33:08
Speaker 3: still a few more small players out there, but then
33:10
Speaker 3: they do get an economy of scale. But what we
33:13
Speaker 3: really like in a way to think about this, so
33:16
Speaker 3: between these two companies, their top line is about twenty
33:20
Speaker 3: billion dollars. So these are the money that they would
33:23
Speaker 3: be be keeping after they pay out all the winnings. Right.
33:27
Speaker 3: So then the question to ask is that where does
33:29
Speaker 3: these twenty billions come from? Right, because a few years
33:32
Speaker 3: ago the number was zero. Right. It's either the consumer
33:36
Speaker 3: in the US have spent less money with a restaurant,
33:38
Speaker 3: gone bought a fewer things from Amazon, or maybe gone
33:42
Speaker 3: fewer times to cinema or some other discretion spending. So
33:45
Speaker 3: this is what we really like in a way that
33:47
Speaker 3: is idiosyncratic, that is not depending on Trump. It's not
33:51
Speaker 3: depending on the war in Ukraine or the Middle East.
33:54
Speaker 3: It's about American consumers shifting away some of the spending
33:57
Speaker 3: they're already doing to the creational sports gaming or sports
34:02
Speaker 3: scambling or like whatever you want to call it. But
34:05
Speaker 3: it's a new market for them. And of course, the
34:08
Speaker 3: other thing that we know which is very positive is
34:11
Speaker 3: the American sports market is multiple times bigger than the
34:15
Speaker 3: rest of the world sports market to start as a
34:17
Speaker 3: starting point, so we know that they love their sports. Secondly,
34:20
Speaker 3: the GDP per capital as the American consumers, they're a
34:24
Speaker 3: lot wealthier than the rest of the world. So when
34:27
Speaker 3: you put these two things together and then you have
34:29
Speaker 3: a new opportunity to capture some of the spending, then
34:33
Speaker 3: you know that this is going to be very igo
34:36
Speaker 3: syncratic and could be very positive. When you put all
34:38
Speaker 3: all these things together, then you you know that they
34:42
Speaker 3: it's likely more likely that they would do well. The
34:44
Speaker 3: only thing that they I would say it's a head
34:47
Speaker 3: wind or heard though, is the text coming from the
34:51
Speaker 3: States because like when the state decided or actually this
34:54
Speaker 3: is very profitable, or maybe you get this esg angle
34:57
Speaker 3: that I don't want you to do too much. They
34:59
Speaker 3: probably would increase the tax. But what we would say,
35:02
Speaker 3: this is a win win situation, right, because the only
35:04
Speaker 3: reason a state would decide to legalize sports gaming is
35:07
Speaker 3: because they want more income, So they probably don't want
35:10
Speaker 3: to kill the industry otherwise than they might as well
35:12
Speaker 3: not to have legalized it in the first place.
35:14
Speaker 2: Yeah, I see that that makes sense. You mentioned in
35:18
Speaker 2: your in your remarks there that this is an industry
35:21
Speaker 2: that isn't threatened by President Trump. Does his election change
35:26
Speaker 2: anything for you when you look at your portfolio or
35:28
Speaker 2: even you're you're so bottom up so stock specific, but
35:32
Speaker 2: is there anything in Trump's plans that changes the way
35:36
Speaker 2: you look at your portfolio or any the specific companies
35:39
Speaker 2: inside it.
35:40
Speaker 3: Yeah, so not so much on a maybe a stop
35:43
Speaker 3: by on a bottom level, just because when we were
35:46
Speaker 3: running into election, we were very much indifferent in terms
35:50
Speaker 3: of whether har Is or Trump is going to win,
35:51
Speaker 3: so we were not positioned either way. And since then
35:55
Speaker 3: we probably haven't actually got a lot benefit on the
35:57
Speaker 3: back of Trump being elected, because I think that's a
36:00
Speaker 3: feel policy that is probably going to benefit more from
36:02
Speaker 3: the stocks that we don't currently exposure to. I think
36:05
Speaker 3: what is interesting or what we are likely to get
36:08
Speaker 3: in this coming four years is, firstly, I think the
36:11
Speaker 3: headline Trump kind of driven volatility in the market is
36:15
Speaker 3: going to be a lot high in terms of headline risk,
36:17
Speaker 3: so then he's going to make a lot of comments
36:19
Speaker 3: about different sectors or companies, and the shares is probably
36:23
Speaker 3: going to move according to that comments. I think that
36:26
Speaker 3: it plays in the strength of a high conviction active
36:29
Speaker 3: investors who are actually doing some work behind the scenes
36:32
Speaker 3: to assess whether some of these are just a rumor, speculation,
36:35
Speaker 3: or some of that is going to get translated in
36:37
Speaker 3: proper terms in terms of impact. So I think that's one. Secondly,
36:41
Speaker 3: I think that's probably more of a macro debate, which
36:45
Speaker 3: we're not an expert of, but of course we follow
36:47
Speaker 3: the dynamics. Is whether Trump's policy is going to be
36:50
Speaker 3: a lot more inflationary, which means interest rate is going
36:53
Speaker 3: to stay high for longer, or maybe it would even
36:56
Speaker 3: go out from here rather than coming down. So I
36:58
Speaker 3: think that's more of a macro positioning in terms of
37:02
Speaker 3: valuation in terms of whether money should be coming out
37:06
Speaker 3: from equities to fixing income and all that, but not
37:09
Speaker 3: so much on a bottom up company perspective, and not.
37:12
Speaker 2: Much you can do about money moving out of equities
37:14
Speaker 2: into fixed income is that given what your fund does. Okay,
37:20
Speaker 2: what else is in the in the fund that we
37:22
Speaker 2: haven't discussed that do you think would be interesting?
37:24
Speaker 3: So I want to suggest another very controversial stock, which
37:28
Speaker 3: is Philip Morris, that has done very well for.
37:32
Speaker 2: Us gambling and smoking.
37:34
Speaker 3: I don't know, and can I have to stop branding.
37:37
Speaker 2: This podcast as an ESG podcast at this rate?
37:40
Speaker 3: So the way I want to reason for Phil Morris
37:43
Speaker 3: to just to have a very quick discussion was so
37:46
Speaker 3: it's a new stock for us. I mean, we've only
37:48
Speaker 3: been holding it for over a year or so, so
37:49
Speaker 3: we haven't got it since the beginning of the fun
37:52
Speaker 3: back in seventeen. But what we really like about a
37:54
Speaker 3: company is a good company to start with, right, the margin,
37:58
Speaker 3: the return of investor capital pro while I mean sustainable,
38:02
Speaker 3: the business model on a very high level. We all
38:04
Speaker 3: like that. But what have changed for us, which I
38:07
Speaker 3: think is the important part, is when you look at
38:09
Speaker 3: phil Morris as a business today, fifty percent of the
38:12
Speaker 3: business is in non traditional cigarettes products. So the fifty
38:16
Speaker 3: percent is the one that is probably the more relatively
38:20
Speaker 3: healthier way of consuming nicotine. Okay, we can have a
38:22
Speaker 3: debate on whate.
38:23
Speaker 2: But we can have debates because anyone there's a lot
38:26
Speaker 2: of conversation about when you say non traditionally you're talking
38:28
Speaker 2: about vaping, right.
38:30
Speaker 3: I'm talking about heat not burnt and also nicotine pouches
38:34
Speaker 3: by Swedish Match, so not vaping, so they don't do vaping,
38:38
Speaker 3: so they don't say okay, they don't do vraping, so
38:41
Speaker 3: that's not what we're after. But it's more nicotine pouches.
38:44
Speaker 3: They have this product called e cores which they use
38:46
Speaker 3: heat not burnt technology to smoke a cigarette, but not
38:50
Speaker 3: basically making it combustible, so they use the heating technology
38:53
Speaker 3: is slightly complicated, but they pioneered that more than ten
38:56
Speaker 3: years ago and their market leader in a few markets globally.
38:59
Speaker 3: So basically the view that we took is obviously okay nicotine.
39:04
Speaker 3: We can debate whether nicotine is good for anyone, but
39:06
Speaker 3: to us, it's more of a choice. It's like alcohol,
39:09
Speaker 3: like maybe it's not good, but people should have a
39:12
Speaker 3: way to consume the product they want to consume. But
39:15
Speaker 3: of course, from a company perspective or from the regulator perspective,
39:19
Speaker 3: is we want them to be consuming a healthier manner,
39:22
Speaker 3: right or less damaging manner anyway, it's better that you
39:25
Speaker 3: don't consume any of this stuff.
39:28
Speaker 2: We're going to take AI. We can stop justifying it now.
39:31
Speaker 3: It's okay.
39:33
Speaker 2: Agree with you or not agree with you.
39:34
Speaker 3: Ye yeah, no no. So the point that I want
39:36
Speaker 3: trying to make is, like, so fifty percent of the
39:37
Speaker 3: business now is in a non traditional secret world, which
39:40
Speaker 3: is growing very fast because people are adopting a healthier
39:43
Speaker 3: way to consume nicotine. And secondly, the reason we like
39:46
Speaker 3: it is because since they spin out from l Threa
39:48
Speaker 3: back in two thousand and eight, Feeling Moris businesses anywhere
39:51
Speaker 3: but the US, but recently because of the icos product,
39:55
Speaker 3: the heat not burn technology, which is the healthier version
39:57
Speaker 3: of a smoking a compassible cigarette is they got the
40:00
Speaker 3: permission from the FDA in the US to market the
40:03
Speaker 3: product back to the US. So this is a completely
40:06
Speaker 3: new market for them. Right. So the way that you
40:08
Speaker 3: think about we think about Film Morris is that this
40:11
Speaker 3: company have been going around for it has been around
40:13
Speaker 3: for years and been doing what we've been doing, but
40:15
Speaker 3: there's a bit of a transitioning going on to start with,
40:17
Speaker 3: which is growing a lot quicker than a traditional business.
40:20
Speaker 3: At the same time, they have been on the back
40:22
Speaker 3: of this, they've got the license to go back to
40:24
Speaker 3: the US to take market share from your lives of
40:27
Speaker 3: Elktrea or some other company that have been only in
40:30
Speaker 3: the US for a long time. So that is very idiosyncratic.
40:34
Speaker 3: And the reason I want to outline flutter in Phil
40:36
Speaker 3: Morris is just to showcase that we're not just a
40:39
Speaker 3: tech fund, that we do have some other opportunities that
40:41
Speaker 3: are very different to your AI conversation.
40:44
Speaker 2: Then how you define tech, I guess I mean that
40:46
Speaker 2: you know, heat not burned stuff. That's a bit techy,
40:49
Speaker 2: isn't it. I want to take you back to something
40:52
Speaker 2: that we talked briefly about earlier, the role of an
40:54
Speaker 2: active fund. And obviously the active industry has been shrinking
40:58
Speaker 2: and shrinking and shrinking as a basis to do the
41:00
Speaker 2: industry as a whole over the last decade or so.
41:02
Speaker 2: And most people will now listen to what we're saying
41:05
Speaker 2: and saying, well, yeah, he's done all right, but in
41:07
Speaker 2: the main passive is better. Do you see there's any
41:10
Speaker 2: any danger in that or any I mean, we've been
41:13
Speaker 2: talking you and I and the other active fund managers
41:15
Speaker 2: who I talked to for years now about how it's
41:17
Speaker 2: going to turn around, and you know that the active
41:20
Speaker 2: fund will have a great resurgence, particularly anyone who invests
41:23
Speaker 2: in the way that you do, in a very concentrated,
41:25
Speaker 2: high active share way that you know that your day
41:27
Speaker 2: will come again.
41:29
Speaker 3: Do you see.
41:29
Speaker 2: Signs of that over over the next decade or is
41:33
Speaker 2: it really just going to keep shrinking.
41:35
Speaker 3: We are shrinking as the industry as we speak at
41:38
Speaker 3: that journey is going to continue for another good few years.
41:41
Speaker 3: I think I think that the debates this is very interesting,
41:44
Speaker 3: right in a way that all the time, if the
41:47
Speaker 3: majority of money in the market, which is not the
41:49
Speaker 3: case today, I think today is about fifty to fifty split,
41:51
Speaker 3: but let's give you another five years and then passive
41:54
Speaker 3: would become like seventy to eighty percent of the market
41:56
Speaker 3: in terms of flows or a um that you would
41:59
Speaker 3: actually make them market less efficient because it's a lot
42:03
Speaker 3: easier to compete with a passive driven market. Right if
42:07
Speaker 3: you ask me to compete with another active investors, I
42:10
Speaker 3: mean we're having a podcast here, I'm sure like that
42:13
Speaker 3: another team of people would be doing a lot of
42:15
Speaker 3: work on investment opportunities. So then it's and also at
42:19
Speaker 3: the same time, it's a lot harder to work out
42:21
Speaker 3: what they're trying to do or how they're doing it.
42:23
Speaker 3: But when you're trying to compete with passive, this is
42:26
Speaker 3: my point that I'm trying to make. It's very easy
42:29
Speaker 3: to be the passive. It's a lot more difficult to
42:32
Speaker 3: be an active investor because you don't know what they're doing,
42:35
Speaker 3: you don't know the resources they have, you don't know
42:37
Speaker 3: the information they have. To be the passive, you only
42:40
Speaker 3: need to work out they the top fifteen or twenty
42:44
Speaker 3: companies that are very big, and then you take an
42:47
Speaker 3: active view on why you're not owning them because you
42:50
Speaker 3: have something better. Right Like, if you're think you have
42:52
Speaker 3: something better than your Max seven, feel free do not
42:55
Speaker 3: own them. Just make sure that you deliver the same
42:57
Speaker 3: level return of those Macs seven. But if you haven't
43:00
Speaker 3: got as good of a company to do the same thing,
43:03
Speaker 3: just own them. Or if you can own them more
43:06
Speaker 3: in size like we have, then you outperform the market. Right.
43:10
Speaker 3: So then I don't understand or this is the I
43:13
Speaker 3: think the reason why the industry is dying a little bit.
43:16
Speaker 3: I think that's a bit of legacy before the rise
43:19
Speaker 3: of the ETF that there's many more funds. Right, you
43:22
Speaker 3: have different fund manager with a different investment philosophy, different
43:25
Speaker 3: way of operating, and then they're trying to sell you
43:27
Speaker 3: their approach. Oh, we are value manager, we are growth manager,
43:32
Speaker 3: we are quality manager, we're a UK manager. They're trying
43:35
Speaker 3: to sell you the approach and we are not going
43:36
Speaker 3: to deviate from an investment philosophy. And of course I
43:39
Speaker 3: think that was a period of time that it did work.
43:41
Speaker 3: But over time actually the markets worked out that the
43:44
Speaker 3: ETF can replicate a lot of diffactored in itself, where
43:47
Speaker 3: there's a quality basket of stocks, value stocks or growthy stocks.
43:51
Speaker 3: So then I think there's a lot of low quality
43:54
Speaker 3: in a way, a value for money proposition from an
43:57
Speaker 3: active manager funds perspect active that it could disappear, right
44:02
Speaker 3: if everyone is similar to what we're trying to achieve,
44:05
Speaker 3: which I do feel we do have a cohort of
44:08
Speaker 3: outperforming active managers that are trying to deliver more value
44:12
Speaker 3: for investors, and I think the money would come back
44:14
Speaker 3: to the active because when everyone els have got passive,
44:18
Speaker 3: everyone is getting the same return. So then you want
44:20
Speaker 3: to be differentiator. I want to be wealthier than my
44:23
Speaker 3: neighbor or my colleague, and then so I probably want
44:26
Speaker 3: to have a bit of active. But at the moment
44:28
Speaker 3: it's very difficult for people to differentiate a good active
44:33
Speaker 3: funds versus bad active funds. I think that's at the
44:36
Speaker 3: moment you just don't want to have any active Why
44:40
Speaker 3: don't we just go everything in the passive? But I
44:41
Speaker 3: think over time people worked out actually I want something different,
44:44
Speaker 3: I want something better, And hopefully we will still be
44:46
Speaker 3: here to join that conversation.
44:50
Speaker 2: And hopefully too it will become clear to active managers
44:52
Speaker 2: if they want to survive long term, they need to
44:54
Speaker 2: take leave out of your book and at least be
44:56
Speaker 2: a concentrated active manager, a real active manager, we might
45:00
Speaker 2: put it as opposed to an active manager who knocks
45:02
Speaker 2: around the benchmark hoping for the best. There are two
45:06
Speaker 2: more quick things I wanted to ask you about. I
45:08
Speaker 2: know that you're not a crypto investor, but I did
45:12
Speaker 2: just want to ask you briefly about bitcoin.
45:14
Speaker 3: Do you ever look at it?
45:15
Speaker 2: And we've seen it come down today, we're talking again,
45:17
Speaker 2: I repeat on Monday, and as video and as the
45:20
Speaker 2: nasdack have come down quite a bit, so has bitcoin
45:22
Speaker 2: followed do you see it just as a non asset
45:26
Speaker 2: class that is simply correlated to techtocs in the US,
45:30
Speaker 2: or do you see it as something more special.
45:32
Speaker 3: I think the way for people to think about bigcod
45:34
Speaker 3: I'm sure people would have a lot of people have
45:36
Speaker 3: made a lot of money from the crypto, is that
45:38
Speaker 3: it's about the use cases. So from our perspective, the
45:41
Speaker 3: reason that we are not we firstly, we can't invest
45:44
Speaker 3: into bigcoin as far as the strategies concerned. But even
45:46
Speaker 3: personally I'm not an investor in bigcoin, the reason only
45:50
Speaker 3: being is that I don't see too much of a
45:53
Speaker 3: use cases, so then it become more of a speculative
45:56
Speaker 3: as a class. I can see the argument. Why is
45:59
Speaker 3: that some sort of like digital goal In a way
46:02
Speaker 3: that you want to protect your money away from the
46:04
Speaker 3: US dollar or what the central banks are doing, you
46:06
Speaker 3: probably don't want to have too much sterlings. Maybe you
46:09
Speaker 3: can have a bit of a big con on that note,
46:12
Speaker 3: But then it's all about the use cases. Right If
46:14
Speaker 3: you tell me in the next five years that bigcoon
46:16
Speaker 3: is going to be used in supermarkets in our day
46:19
Speaker 3: to day or maybe some of our our pay or
46:21
Speaker 3: bonus are going to pack get pain bigcoon. Then yeah,
46:23
Speaker 3: maybe there's an argument to we make that you can
46:26
Speaker 3: justify why the crypto is training at a certain level.
46:29
Speaker 3: But before then, which at the moment we're still not
46:32
Speaker 3: seeing any of this, then it's become more of a
46:34
Speaker 3: speculative as a class, which then is a very different playbook.
46:38
Speaker 3: Right Like, if if you know that speculative, then the
46:41
Speaker 3: way that you try to make money will be more
46:43
Speaker 3: short term rather than you take a long term view
46:46
Speaker 3: to thing. Okay, why do I buy a hoe and
46:48
Speaker 3: thinking that become will go up in a high level.
46:51
Speaker 2: Okay, so you're not going to be launching a blue whale.
46:53
Speaker 3: Coin if if there's demand, like we probably want to
46:58
Speaker 3: like Trump did, right, Yeah, I was wondering that's worth
47:01
Speaker 3: like ten billion, right.
47:02
Speaker 2: So I was thinking that we could have a new
47:08
Speaker 2: way to judge our podcast. You know, the moment, we
47:11
Speaker 2: just look at how many people listen to them. But
47:12
Speaker 2: a much more effective and immediate way might be to
47:14
Speaker 2: simply launch a meme coin for every single podcast and
47:18
Speaker 2: see which one reached the highest price. Then we would
47:21
Speaker 2: know who had been our most popular guest without even
47:23
Speaker 2: having to bother to look at the start at the statistics.
47:25
Speaker 2: That's right, I'll suggest network producer at the end. I'm
47:28
Speaker 2: sure she's all over it, Stephen. Final question, what are
47:31
Speaker 2: you reading at the moment? What's the book on your
47:33
Speaker 2: bedside table?
47:35
Speaker 3: Oh? Actually, I've just started that, but I'm reading a
47:39
Speaker 3: book on Trump. I can't remember the name of the book,
47:42
Speaker 3: but it just came out, and so I'm just trying
47:44
Speaker 3: to learn about what we're dealing with in the next
47:47
Speaker 3: four years and then guess i'm inside in terms of
47:50
Speaker 3: Trump's upbringing and his exposure.
47:53
Speaker 2: Okay, excellent. Thank you. I'm going to ask you to
47:55
Speaker 2: email us the name of that book so that we
47:57
Speaker 2: can put it into our show notes, because we would
48:00
Speaker 2: like that very much. We like to know what everyone's reading.
48:02
Speaker 2: Thank you, and so I think that that's probably it.
48:04
Speaker 2: I've spent far too long asking these questions, but thank
48:07
Speaker 2: you so much for explaining deep seek and it's impact
48:09
Speaker 2: to us. I think that's a very important thing to
48:12
Speaker 2: know about. Thank you for listening to this week's Marin
48:18
Speaker 2: Talks Money. If you like our show, rate review, and
48:20
Speaker 2: subscribe wherever you listen to podcasts, and keep sending questions
48:23
Speaker 2: or comments to Merin Money at Bloomberg dot nat. You
48:27
Speaker 2: can also follow me and John on Twitter or x
48:30
Speaker 2: I'm at merin sw and John is John Underscore Steppech
48:34
Speaker 2: Stephen Are you on Twitter?
48:35
Speaker 3: Tory X Stephen you my name yep.
48:38
Speaker 2: The show is produced by Samasadia Moses and sound designed
48:41
Speaker 2: by Blake Maples, and the executive producer is Brendan Francis
48:44
Speaker 2: Newnham Special thanks to Stephen You