1 00:00:11,600 --> 00:00:15,080 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:15,160 --> 00:00:18,800 Speaker 1: James Kirby, the editor at The Australian. Welcome aboard everybody. 3 00:00:19,600 --> 00:00:22,560 Speaker 1: Have you ever wondered what it's like to manage or 4 00:00:22,680 --> 00:00:25,200 Speaker 1: run a lot of money, say one hundred and ten 5 00:00:25,239 --> 00:00:29,319 Speaker 1: billion dollars for instance, with maybe two million people or so, 6 00:00:29,440 --> 00:00:32,400 Speaker 1: depending on you. I wonder how you might sleep at night, 7 00:00:32,560 --> 00:00:36,920 Speaker 1: Not just that, but the responsibility of managing that money 8 00:00:37,360 --> 00:00:40,760 Speaker 1: when you've had a very strong track record. In fact, 9 00:00:41,240 --> 00:00:44,159 Speaker 1: this fund i'm and fund manager I'm going to talk 10 00:00:44,200 --> 00:00:48,360 Speaker 1: to today has the number one performing super fund in 11 00:00:48,400 --> 00:00:51,720 Speaker 1: Australia bar none, over the last decade, with an annual 12 00:00:51,760 --> 00:00:56,000 Speaker 1: return of eight point three percent. If you haven't guessed already, 13 00:00:56,800 --> 00:00:59,840 Speaker 1: it is, of course Sam Cecilia, the chief investment officer 14 00:01:00,240 --> 00:01:03,320 Speaker 1: at host Plus. That's one of the big industry funds. 15 00:01:03,320 --> 00:01:06,200 Speaker 1: Of course, I've known Sam for quite a while. His 16 00:01:06,360 --> 00:01:09,600 Speaker 1: opinions are as strong as his results in my experience 17 00:01:09,600 --> 00:01:11,440 Speaker 1: that I'm looking forward to talking to him today. How 18 00:01:11,440 --> 00:01:12,880 Speaker 1: are you, Sam, I'm. 19 00:01:12,720 --> 00:01:15,120 Speaker 2: Well, Thanks Joon, Thanks for the opportunity. 20 00:01:15,720 --> 00:01:17,560 Speaker 1: Great to have you. Great to have you on the show. 21 00:01:17,600 --> 00:01:19,680 Speaker 1: You might think I have lots of fund managers and 22 00:01:19,720 --> 00:01:22,680 Speaker 1: super fund managers on the show. I don't. I don't, Sam, 23 00:01:23,400 --> 00:01:27,040 Speaker 1: but occasionally I do when they're particularly interesting and host 24 00:01:27,040 --> 00:01:30,560 Speaker 1: plus is particularly interesting, you might just it would be 25 00:01:30,640 --> 00:01:35,119 Speaker 1: nice to introduce you to the listeners, many of whom 26 00:01:35,160 --> 00:01:38,680 Speaker 1: would be in funds, some in your fund, some in 27 00:01:39,040 --> 00:01:43,600 Speaker 1: running their own funds, and much younger listeners on the 28 00:01:43,640 --> 00:01:46,960 Speaker 1: show than perhaps readers on the paper. That might just 29 00:01:47,000 --> 00:01:49,840 Speaker 1: reflect the medium, But what I'm the point I'm making 30 00:01:50,040 --> 00:01:52,560 Speaker 1: is that they probably haven't really made their minds up 31 00:01:52,600 --> 00:01:54,560 Speaker 1: about how they're going to invest in which way they're 32 00:01:54,560 --> 00:01:57,440 Speaker 1: going to do it. So you're running this fund? Is 33 00:01:57,480 --> 00:01:58,840 Speaker 1: it one of the sixteen years or so? 34 00:02:00,120 --> 00:02:02,120 Speaker 2: This is year sixteen, that's right? 35 00:02:03,400 --> 00:02:06,280 Speaker 1: And how much did the fund have the day you 36 00:02:06,320 --> 00:02:07,120 Speaker 1: walked in the door? 37 00:02:07,880 --> 00:02:11,960 Speaker 2: It was seven point six billion. 38 00:02:11,639 --> 00:02:14,720 Speaker 1: Dollars and today it's one hundred and ten. 39 00:02:15,919 --> 00:02:17,400 Speaker 2: Actually it's one hundred and twenty. 40 00:02:17,800 --> 00:02:21,480 Speaker 1: But who's quippling one hundred and twenty, give or take 41 00:02:21,520 --> 00:02:23,880 Speaker 1: ten billion. I want to talk to and I want 42 00:02:23,880 --> 00:02:25,800 Speaker 1: to put it to the audience, because the first thing, 43 00:02:26,000 --> 00:02:29,760 Speaker 1: if they don't know you and what you do, what 44 00:02:29,400 --> 00:02:31,840 Speaker 1: is it? What is it like? Is it something that you. 45 00:02:32,080 --> 00:02:37,320 Speaker 1: I know, I'm sure you have protocols and models and routines, 46 00:02:38,560 --> 00:02:41,359 Speaker 1: but there must be times where it is more demanding 47 00:02:41,520 --> 00:02:44,799 Speaker 1: than others managing that amount of money for that many people. 48 00:02:46,480 --> 00:02:52,160 Speaker 3: So we have close on to two million members at 49 00:02:52,160 --> 00:02:55,880 Speaker 3: host plus, average age thirty seven. 50 00:02:56,520 --> 00:02:58,799 Speaker 2: So not retiring, I'm sue. 51 00:02:59,440 --> 00:03:03,720 Speaker 3: And the reason and why I begin there is because 52 00:03:04,919 --> 00:03:10,360 Speaker 3: we really need to establish as investors, whether it's a 53 00:03:10,520 --> 00:03:15,440 Speaker 3: super fund investor or whether it's the listeners that are 54 00:03:15,480 --> 00:03:18,760 Speaker 3: listening to this podcast at the moment, you do need 55 00:03:18,800 --> 00:03:23,600 Speaker 3: to establish what type of investor you are in order 56 00:03:23,680 --> 00:03:28,840 Speaker 3: to make appropriate comparisons. I think let me leave it 57 00:03:28,880 --> 00:03:30,320 Speaker 3: with that teaser. 58 00:03:29,919 --> 00:03:31,680 Speaker 2: At the moment, and I'll come back to that. 59 00:03:31,919 --> 00:03:34,720 Speaker 3: But it matters, and I wanted to spend a bit 60 00:03:34,760 --> 00:03:39,680 Speaker 3: of time today, if you indulge me, to basically argue 61 00:03:39,720 --> 00:03:45,520 Speaker 3: that what really matters for long term superannuation investments? 62 00:03:45,520 --> 00:03:50,800 Speaker 2: So what is the objective here? The objective is to provide. 63 00:03:50,720 --> 00:03:57,320 Speaker 3: A retirement balance, so maximize returns over a working lifetime 64 00:03:57,360 --> 00:04:02,560 Speaker 3: which is likely to be closer to fifty years. Maximize 65 00:04:02,600 --> 00:04:06,640 Speaker 3: that return while at the same time controlling for risk. 66 00:04:07,920 --> 00:04:11,360 Speaker 3: And even though those words are thrown around, if you 67 00:04:11,440 --> 00:04:16,000 Speaker 3: are truly a long term investor. The models to which 68 00:04:16,040 --> 00:04:17,040 Speaker 3: you speak. 69 00:04:16,839 --> 00:04:19,719 Speaker 2: Are far less useful than some. 70 00:04:21,360 --> 00:04:28,440 Speaker 3: Other investment tools and investment beliefs, and so while it's 71 00:04:28,440 --> 00:04:33,360 Speaker 3: a responsibility to do that, we can't lose sight that 72 00:04:34,320 --> 00:04:41,000 Speaker 3: these are compounding returns over a lifetime, vastly different to 73 00:04:41,680 --> 00:04:43,560 Speaker 3: single year returns. 74 00:04:44,080 --> 00:04:46,640 Speaker 1: It's interesting you said the average age in the funders 75 00:04:46,680 --> 00:04:49,240 Speaker 1: thirty seven, which the point you're making there, of course, 76 00:04:49,400 --> 00:04:52,799 Speaker 1: is that's pretty young as funds go. As Super fund school, 77 00:04:52,920 --> 00:04:55,719 Speaker 1: the average age on our service early service we did 78 00:04:55,720 --> 00:04:57,120 Speaker 1: a year or two ago on the show, was that 79 00:04:57,200 --> 00:05:00,200 Speaker 1: the average listener was thirty five. So very similar, so 80 00:05:00,520 --> 00:05:06,200 Speaker 1: very similar cohort in terms of who's listening, and your cohort, 81 00:05:06,240 --> 00:05:09,880 Speaker 1: which happens to be that nearly two million people and 82 00:05:10,000 --> 00:05:11,880 Speaker 1: they're super is in your control. 83 00:05:12,600 --> 00:05:12,880 Speaker 2: Now. 84 00:05:13,040 --> 00:05:14,960 Speaker 1: I know you make this point, and of course it's 85 00:05:14,960 --> 00:05:18,320 Speaker 1: a crucial point about long term investing, but I'm old 86 00:05:18,440 --> 00:05:22,039 Speaker 1: enough to know that the emphasis or the information flow, 87 00:05:22,080 --> 00:05:25,680 Speaker 1: if you like, has become very short term. So when 88 00:05:25,760 --> 00:05:30,240 Speaker 1: I was younger and I was in a super started 89 00:05:30,440 --> 00:05:33,479 Speaker 1: working in Australia, I remember you used to get your 90 00:05:33,720 --> 00:05:38,360 Speaker 1: super balance maybe once a year, and every year it 91 00:05:38,400 --> 00:05:41,560 Speaker 1: would be higher than the year before, and you'll be saying, well, 92 00:05:41,560 --> 00:05:43,719 Speaker 1: that's all right or whatever, And you might, if you 93 00:05:43,760 --> 00:05:45,680 Speaker 1: were a bit more sophisticated, you might look at it 94 00:05:45,720 --> 00:05:49,000 Speaker 1: in terms of what was the percentage return there. Now 95 00:05:49,560 --> 00:05:51,600 Speaker 1: I'm in the media and so I'm part of this, 96 00:05:51,839 --> 00:05:57,040 Speaker 1: but we see I'm seeing monthly reports on super Super 97 00:05:57,080 --> 00:05:59,200 Speaker 1: went up this month, it went down last month. This 98 00:05:59,320 --> 00:06:02,440 Speaker 1: isn't annual. So this is monthly, whether you like it 99 00:06:02,560 --> 00:06:07,480 Speaker 1: or not. Is your clients, customers, members and potential members. 100 00:06:07,920 --> 00:06:10,560 Speaker 1: They're also watching that. I don't think there's anything Is 101 00:06:10,560 --> 00:06:13,360 Speaker 1: there anything you can do to stop that? Part of 102 00:06:13,400 --> 00:06:16,719 Speaker 1: your reputation is based on the impact of how well 103 00:06:16,760 --> 00:06:19,760 Speaker 1: you did each year in super Sure. 104 00:06:20,120 --> 00:06:21,600 Speaker 2: So again, let's look at that. 105 00:06:21,800 --> 00:06:25,200 Speaker 3: A twenty year return is a series of twenty one 106 00:06:25,320 --> 00:06:26,080 Speaker 3: year returns. 107 00:06:27,200 --> 00:06:27,479 Speaker 2: Right. 108 00:06:27,680 --> 00:06:32,120 Speaker 3: All we're saying is you can't get access to your 109 00:06:32,360 --> 00:06:37,120 Speaker 3: money for retirement, if that's the objective. You can't get 110 00:06:37,160 --> 00:06:40,840 Speaker 3: access to it. All our splitting equal until you retire. 111 00:06:41,600 --> 00:06:45,680 Speaker 3: And so look at how long that runway is for you. 112 00:06:46,400 --> 00:06:52,040 Speaker 3: Is it thirty years because you're currently thirty five, or 113 00:06:52,360 --> 00:06:56,839 Speaker 3: is it five years because you're currently sixty? Even the 114 00:06:56,960 --> 00:07:01,440 Speaker 3: latter Super was designed at a time time when people 115 00:07:02,200 --> 00:07:06,320 Speaker 3: retired at sixty five and conveniently died at sixty eight. 116 00:07:07,760 --> 00:07:12,640 Speaker 3: Today they live to ninety eight. How do you intend 117 00:07:12,680 --> 00:07:19,920 Speaker 3: to live for thirty years after retirement without generating returns 118 00:07:20,160 --> 00:07:21,080 Speaker 3: in retirement? 119 00:07:21,520 --> 00:07:25,440 Speaker 1: Yep, so the emphasis is changing and on you too, right, 120 00:07:25,600 --> 00:07:29,720 Speaker 1: tell us about that. How your funds like you? The 121 00:07:29,760 --> 00:07:35,040 Speaker 1: whole thing was to amass money for people in retirement 122 00:07:35,080 --> 00:07:38,640 Speaker 1: and the pressure is changing now, isn't it as the 123 00:07:38,680 --> 00:07:44,680 Speaker 1: whole system grows as Australian age to provide deeper into retirement. 124 00:07:44,880 --> 00:07:48,200 Speaker 1: Does that mean any change in the investment approach when 125 00:07:48,240 --> 00:07:52,200 Speaker 1: the people between sixty and ninety compared to thirty and sixty. 126 00:07:52,440 --> 00:07:53,440 Speaker 2: That's a great question. 127 00:07:53,480 --> 00:07:57,239 Speaker 3: So let's break it up using the terms the accumulation 128 00:07:57,600 --> 00:08:03,760 Speaker 3: phase followed by the accumulation phase. The question is we 129 00:08:03,840 --> 00:08:09,760 Speaker 3: know when accumulation happens normally between during your working life, 130 00:08:10,240 --> 00:08:14,760 Speaker 3: when you're contributing to super, your employer is contributing to super, 131 00:08:14,880 --> 00:08:18,000 Speaker 3: or you are, and you get to a certain stage 132 00:08:18,040 --> 00:08:22,680 Speaker 3: that you would call retirement, and then you will decumulate 133 00:08:22,960 --> 00:08:29,840 Speaker 3: after that. All I'm saying here is that decumulation function 134 00:08:30,880 --> 00:08:35,200 Speaker 3: has an accumulation component in it still otherwise you're going 135 00:08:35,240 --> 00:08:36,240 Speaker 3: to run out of money? 136 00:08:36,840 --> 00:08:39,600 Speaker 1: Sure? And is that accumulation? Is that opponent? Is that 137 00:08:39,640 --> 00:08:41,160 Speaker 1: getting bigger and more important? 138 00:08:42,240 --> 00:08:46,559 Speaker 3: It's getting bigger and more important because of aging demographics. 139 00:08:47,080 --> 00:08:50,439 Speaker 3: This is a global problem, not just an Australian problem 140 00:08:50,640 --> 00:08:54,040 Speaker 3: because of the aging demographics. But there's a lot of 141 00:08:54,120 --> 00:09:00,960 Speaker 3: good people turning their good smart people turning their minds 142 00:09:01,000 --> 00:09:05,600 Speaker 3: towards how do you solve for longevity from a a 143 00:09:05,720 --> 00:09:09,360 Speaker 3: need to have income during that period of time. So 144 00:09:09,520 --> 00:09:12,240 Speaker 3: a lot of good work is being done there. There 145 00:09:12,280 --> 00:09:17,359 Speaker 3: are increasing products available that protect you from market volatility, 146 00:09:17,400 --> 00:09:19,480 Speaker 3: et cetera. All I'm saying is that if you intend 147 00:09:19,520 --> 00:09:23,679 Speaker 3: to live thirty years post retirement, then you are essentially 148 00:09:23,960 --> 00:09:27,079 Speaker 3: a thirty year old that retires at sixty, even though 149 00:09:27,120 --> 00:09:30,400 Speaker 3: you're a sixty year old retires at ninety. Right, And 150 00:09:30,480 --> 00:09:33,920 Speaker 3: so we need to change the frame of mind to 151 00:09:34,080 --> 00:09:37,600 Speaker 3: avoid people having the possibility. 152 00:09:37,080 --> 00:09:40,360 Speaker 2: Of running out of money well before. 153 00:09:40,280 --> 00:09:44,200 Speaker 3: Their health runs out or well before their lifespan mons out. 154 00:09:45,800 --> 00:09:48,280 Speaker 1: Is there anything people listening to this show can do 155 00:09:48,480 --> 00:09:51,640 Speaker 1: about that? Now? At their agent we take it at 156 00:09:51,640 --> 00:09:53,000 Speaker 1: the average ages thirty five? 157 00:09:54,160 --> 00:10:00,840 Speaker 3: Sure, So again let's separate superinnuation wealth creation in superannuation 158 00:10:01,200 --> 00:10:06,000 Speaker 3: and wealth creation outside of superannuation. If you can, you 159 00:10:06,040 --> 00:10:12,200 Speaker 3: should do both. Right, wealth creation inside superannuation, there's a 160 00:10:12,240 --> 00:10:16,719 Speaker 3: superannuation guarantee. There's a certain amount it gets contributed on 161 00:10:16,760 --> 00:10:20,240 Speaker 3: your and invested on your behalf, and that's the bit 162 00:10:20,320 --> 00:10:23,880 Speaker 3: that compounds until you get to a retirement agent, or 163 00:10:23,920 --> 00:10:28,800 Speaker 3: at least under the current legislation. Right in outside of superannuation, 164 00:10:29,120 --> 00:10:33,000 Speaker 3: you can do other things. You may want to replicate 165 00:10:33,080 --> 00:10:37,400 Speaker 3: what your superfund can do. Why are you replicating because 166 00:10:37,440 --> 00:10:42,439 Speaker 3: you can't get access under the concept at least of preservation, 167 00:10:42,600 --> 00:10:46,559 Speaker 3: if not the legislation. Under the concept of preservation, you 168 00:10:46,600 --> 00:10:49,560 Speaker 3: can't really get access to that money until. 169 00:10:49,240 --> 00:10:51,840 Speaker 2: You qualify you reach retirement age. 170 00:10:51,960 --> 00:10:55,040 Speaker 3: But non super money you can get access to it 171 00:10:55,120 --> 00:10:58,720 Speaker 3: at any stage you wish. So if you can do both, 172 00:10:58,840 --> 00:11:03,720 Speaker 3: why wouldn't you do? And implicitly we do. We purchase 173 00:11:03,760 --> 00:11:09,480 Speaker 3: a home, perhaps purchase other assets and investment property or 174 00:11:10,080 --> 00:11:14,240 Speaker 3: art or whatever it is it that you believe will 175 00:11:14,320 --> 00:11:19,560 Speaker 3: appreciating value, and that's wealth accumulation outside of super emulation. 176 00:11:20,080 --> 00:11:23,080 Speaker 3: So I think the two are vastly different. Why because 177 00:11:23,200 --> 00:11:25,120 Speaker 3: the time horizons are different. 178 00:11:25,559 --> 00:11:30,000 Speaker 1: If people were replicating outside Super sam is. I often 179 00:11:30,040 --> 00:11:34,320 Speaker 1: wonder if we often cover and people often correspond and say, oh, 180 00:11:34,440 --> 00:11:36,559 Speaker 1: I've been looking at a future fund, or I've been 181 00:11:36,600 --> 00:11:39,520 Speaker 1: looking at Australian Super host plus or whatever, and I 182 00:11:39,600 --> 00:11:42,440 Speaker 1: got to try and learn from what they do. But 183 00:11:42,559 --> 00:11:45,680 Speaker 1: I wonder, is it feasible to actually replicate what Big 184 00:11:45,720 --> 00:11:48,040 Speaker 1: super does like you, Because when you've got a one 185 00:11:48,120 --> 00:11:51,760 Speaker 1: hundred and twenty billion, you're in a completely You're in 186 00:11:51,800 --> 00:11:54,360 Speaker 1: a different planet than someone who's got one hundred and 187 00:11:54,400 --> 00:11:57,120 Speaker 1: twenty thousand, and they want to try and manage that. 188 00:11:57,200 --> 00:12:00,600 Speaker 1: Could you explain what would be different to the listeners? 189 00:12:01,520 --> 00:12:05,760 Speaker 3: Okay, so perhaps by way of example, last financial year, 190 00:12:07,320 --> 00:12:12,079 Speaker 3: slightly more than thirteen billion dollars flowed into host Plus. 191 00:12:12,760 --> 00:12:18,160 Speaker 3: It's gross, so there are out benefits, deaths, transfers, et cetera. 192 00:12:19,000 --> 00:12:22,760 Speaker 3: Close to somewhere between seven and eight billion of that 193 00:12:22,960 --> 00:12:26,440 Speaker 3: thirty is net. In other words, it needs to find 194 00:12:26,480 --> 00:12:31,640 Speaker 3: an investment home. So we bat, if you like, with 195 00:12:32,080 --> 00:12:36,559 Speaker 3: seven billion dollars, we can take advantage of every opportunity 196 00:12:37,160 --> 00:12:38,559 Speaker 3: that we believe. 197 00:12:38,200 --> 00:12:40,720 Speaker 2: We want to that is desirable. 198 00:12:41,200 --> 00:12:46,880 Speaker 3: Right personally, I don't have that capital, and therefore I 199 00:12:46,920 --> 00:12:51,719 Speaker 3: would behave differently. I can't replicate as an individual as 200 00:12:51,800 --> 00:12:57,000 Speaker 3: Sam Secilia. I can't replicate what Sam Secilia the CIO 201 00:12:57,200 --> 00:12:59,319 Speaker 3: can do inside of host plus. 202 00:13:00,000 --> 00:13:02,199 Speaker 1: Are there certain assets you just can't get at as 203 00:13:02,320 --> 00:13:03,640 Speaker 1: the as an individual? 204 00:13:04,080 --> 00:13:12,280 Speaker 3: Interestingly increasingly no, you can get access to unlisted assets airports, 205 00:13:12,400 --> 00:13:16,319 Speaker 3: toll roads, shopping centers, logistics, et cetera. You can buy 206 00:13:16,520 --> 00:13:20,320 Speaker 3: slices of those. You can buy slices of them that 207 00:13:20,360 --> 00:13:26,199 Speaker 3: are listed on an exchange, but that behaves vastly differently 208 00:13:26,960 --> 00:13:33,480 Speaker 3: to the unlist The underlying unlisted asset that's illiquid, and 209 00:13:33,520 --> 00:13:38,320 Speaker 3: so it's your ability to tolerate illiquidity that's the problem. 210 00:13:39,000 --> 00:13:43,480 Speaker 3: Outside of SUPER or inside of SUPER, it's not. It's 211 00:13:43,520 --> 00:13:49,600 Speaker 3: not costless to liquidate positions in unlisted assets, right, you 212 00:13:49,640 --> 00:13:54,640 Speaker 3: need to sell your slice of the airport if it's unlisted. However, 213 00:13:55,480 --> 00:13:57,840 Speaker 3: if it's listed, you can do that at any stage. 214 00:13:57,840 --> 00:14:01,600 Speaker 3: But the two behave vastly differently. Right, the listed vehicles 215 00:14:02,120 --> 00:14:05,480 Speaker 3: are subject to the sentiment of listed markets. 216 00:14:05,240 --> 00:14:08,280 Speaker 1: For the listener. Can I just try and work this 217 00:14:08,400 --> 00:14:09,880 Speaker 1: out with you? And I think it would be very 218 00:14:10,320 --> 00:14:12,360 Speaker 1: good example, and it's really good that you've brought it up. 219 00:14:12,440 --> 00:14:16,000 Speaker 1: Airports listed and unlisted this is and listeners, if you're 220 00:14:16,000 --> 00:14:18,520 Speaker 1: not familiar with the bigger debate out there, the big 221 00:14:18,600 --> 00:14:23,720 Speaker 1: funds have explored, including the Future Fund, have explored unlisted assets. Right, 222 00:14:23,800 --> 00:14:26,160 Speaker 1: I'm always talking about this. They're not listed on the 223 00:14:26,200 --> 00:14:28,760 Speaker 1: share mark. This is an essential point. They are behind 224 00:14:28,760 --> 00:14:32,560 Speaker 1: the scenes. They are unlisted. A forest is a good example. 225 00:14:32,640 --> 00:14:34,920 Speaker 1: So you can't if you were invested in a forest, 226 00:14:34,920 --> 00:14:38,040 Speaker 1: you simply must wait years and years for the forest 227 00:14:38,080 --> 00:14:41,200 Speaker 1: to grow, for the timber to grow. Now in the airports, 228 00:14:41,240 --> 00:14:44,840 Speaker 1: Sam is talking about how listed and unlisted behave differently. Sam, 229 00:14:45,040 --> 00:14:49,840 Speaker 1: during the COVID closed down the airports were closed, did 230 00:14:49,880 --> 00:14:54,360 Speaker 1: the listed airports behave very differently than the unlisted ones? 231 00:14:55,040 --> 00:14:59,360 Speaker 3: But behavior you're referring to the valuation of those airports 232 00:14:59,440 --> 00:15:05,520 Speaker 3: not Yeah? So yeah, So the answer to that is yes. 233 00:15:06,200 --> 00:15:09,640 Speaker 3: So the real question is what is the underlying root 234 00:15:09,800 --> 00:15:12,239 Speaker 3: cause of the different behavior. 235 00:15:13,600 --> 00:15:20,160 Speaker 2: So let's just do an example. Take Melbourne Airport, Perth Airport. 236 00:15:20,240 --> 00:15:27,240 Speaker 3: These are unlisted vehicles, unlisted assets rather and if you 237 00:15:27,280 --> 00:15:29,760 Speaker 3: think about the operation of an airport, you get paid 238 00:15:29,760 --> 00:15:32,520 Speaker 3: when the aeroplane lands, you get paid when the aeroplane 239 00:15:32,560 --> 00:15:33,120 Speaker 3: takes off. 240 00:15:33,160 --> 00:15:34,680 Speaker 2: That doesn't happen. 241 00:15:34,840 --> 00:15:40,160 Speaker 3: During COVID because there were no departures and arrivals. So 242 00:15:40,200 --> 00:15:44,400 Speaker 3: if you are a long term investor, you have to 243 00:15:44,520 --> 00:15:47,400 Speaker 3: believe that one day that airport is going to go 244 00:15:47,480 --> 00:15:52,960 Speaker 3: back to functioning. Because it's illiquid, you can't sell it, 245 00:15:53,080 --> 00:15:56,960 Speaker 3: which perversely is a good thing because if you could 246 00:15:57,000 --> 00:15:59,880 Speaker 3: sell it, no buyer would buy it off you at 247 00:16:00,040 --> 00:16:02,760 Speaker 3: its current valuation. They'll say, well, if you want to 248 00:16:02,800 --> 00:16:06,080 Speaker 3: sell it now, I need a sixty percent discount to 249 00:16:06,120 --> 00:16:11,960 Speaker 3: its price, right and so coverstly. Unlisted assets not only 250 00:16:12,080 --> 00:16:17,000 Speaker 3: provide diversification to what is on the listed markets, but 251 00:16:17,080 --> 00:16:20,840 Speaker 3: they also act as a mitigant against knee jerk reaction 252 00:16:21,000 --> 00:16:25,120 Speaker 3: about what's happening in listed markets. So you have to 253 00:16:25,160 --> 00:16:28,320 Speaker 3: be able to tolerate that. In liquidity, you have to 254 00:16:28,320 --> 00:16:31,280 Speaker 3: be able to be a long term investor to see 255 00:16:31,320 --> 00:16:35,120 Speaker 3: through not just COVID, but the global financial crisis, the 256 00:16:35,240 --> 00:16:40,280 Speaker 3: bird flu pandemic that threatened to shut down air travel all. 257 00:16:40,120 --> 00:16:41,160 Speaker 2: Over the world. 258 00:16:41,400 --> 00:16:46,840 Speaker 3: So public markets or public markets are a very small. 259 00:16:46,520 --> 00:16:48,160 Speaker 2: Part of the overall economy. 260 00:16:48,880 --> 00:16:57,800 Speaker 3: Nearly ninety percent of the world's assets are unlisted. Shopping centers, buildings, logistics, 261 00:16:57,880 --> 00:17:04,440 Speaker 3: warehouse facilities, can accommodation I can just keep medical officers. 262 00:17:04,920 --> 00:17:09,919 Speaker 3: Your house is unlisted. All the residential properties are unlisted globally. 263 00:17:10,040 --> 00:17:12,399 Speaker 3: I imagine how many of that do compared to what 264 00:17:13,119 --> 00:17:17,000 Speaker 3: four hundred stops on the asx two thousand stocks on 265 00:17:17,040 --> 00:17:21,640 Speaker 3: the US stock market. It's like a handful of assets 266 00:17:21,640 --> 00:17:24,880 Speaker 3: are listed and pretty much everything else is unlisted. But 267 00:17:24,960 --> 00:17:28,240 Speaker 3: your ability to tap into those ninety percent is the 268 00:17:28,359 --> 00:17:32,879 Speaker 3: difference between sam secily the CIO of one hundred and 269 00:17:32,920 --> 00:17:36,080 Speaker 3: twenty billion dollar fund, and sam Scilia of the individual 270 00:17:36,359 --> 00:17:39,719 Speaker 3: that might dabble with one thousand or five thousand dollars 271 00:17:39,760 --> 00:17:42,800 Speaker 3: here and there. For the record, Jones, I do not 272 00:17:43,000 --> 00:17:49,560 Speaker 3: own any assets or investments outside of my host plus account. 273 00:17:50,000 --> 00:17:51,680 Speaker 2: It's cleaner that way. 274 00:17:52,119 --> 00:17:54,439 Speaker 1: No, Well, I'm glad to hear it. So just finally 275 00:17:54,480 --> 00:17:57,920 Speaker 1: on that so as listeners would, and as you've articulated 276 00:17:58,200 --> 00:18:02,560 Speaker 1: that idea, that advantage and the distinction of the big 277 00:18:02,600 --> 00:18:07,160 Speaker 1: FONT is that it can go into unlisted assets, and you, 278 00:18:07,240 --> 00:18:11,600 Speaker 1: as a private investor or as an SMS if you can, 279 00:18:11,880 --> 00:18:16,320 Speaker 1: but it's very difficult to really get in there. And ironically, 280 00:18:16,760 --> 00:18:22,040 Speaker 1: the main window of late is perversely on listed markets, 281 00:18:22,080 --> 00:18:25,800 Speaker 1: which by definition are onlisted assets on listed markets it's 282 00:18:25,800 --> 00:18:27,880 Speaker 1: a bit of an oxymoron. I just want to ask 283 00:18:27,920 --> 00:18:30,080 Speaker 1: you one last thing about all that salmon. As long 284 00:18:30,119 --> 00:18:31,679 Speaker 1: as I've known you and I've talked to you, you 285 00:18:31,800 --> 00:18:36,879 Speaker 1: have been a passionate believer in unlisted assets and their advantage, 286 00:18:36,920 --> 00:18:40,200 Speaker 1: the advantage that they give and the price you pay 287 00:18:40,280 --> 00:18:42,680 Speaker 1: is the liquidity that you can't sell small parts of 288 00:18:42,720 --> 00:18:44,880 Speaker 1: them quickly. We understand that. I just want to ask 289 00:18:44,920 --> 00:18:49,360 Speaker 1: you one thing, though. Has your perception of the appeal 290 00:18:49,400 --> 00:18:52,879 Speaker 1: of the unlisted assets changed? Has anything changed them? I 291 00:18:52,920 --> 00:18:55,840 Speaker 1: know the GFC didn't and COVID didn't, but I wonder 292 00:18:56,440 --> 00:18:59,919 Speaker 1: as we see a rush into it now by all sorts, 293 00:19:00,080 --> 00:19:03,399 Speaker 1: ships and sizes, and then funds springing up everywhere. It 294 00:19:03,480 --> 00:19:06,960 Speaker 1: is very much an open secret at this DIGE, has 295 00:19:07,640 --> 00:19:10,040 Speaker 1: there any of that changed your attitude to it? 296 00:19:10,760 --> 00:19:12,000 Speaker 2: The short answer is no. 297 00:19:13,480 --> 00:19:17,080 Speaker 3: The rationale behind is that if you cut out all 298 00:19:17,160 --> 00:19:23,400 Speaker 3: the unlisted assets, what's left is equities, listed equities, passion bombs, 299 00:19:24,200 --> 00:19:28,000 Speaker 3: three asset classes compared to ten or so if you 300 00:19:28,560 --> 00:19:35,800 Speaker 3: venture into unlisted markets, unlisted infrastructure, unlisted real estate, credit, 301 00:19:36,720 --> 00:19:42,200 Speaker 3: private equity and venture capital or unlisted asset classes and 302 00:19:42,280 --> 00:19:46,560 Speaker 3: so you want to be as diversified as possible, because 303 00:19:46,600 --> 00:19:51,040 Speaker 3: that's your one ticket to mitigating market risk. 304 00:19:51,320 --> 00:19:53,680 Speaker 2: But as diversified as possible. 305 00:19:55,040 --> 00:19:57,240 Speaker 1: Okay, very good. We'll take a short break, folks. We'll 306 00:19:57,240 --> 00:19:58,440 Speaker 1: be back in a moment. I want to talk to 307 00:19:58,520 --> 00:20:02,119 Speaker 1: Sam about more topical issues. But that was a very 308 00:20:02,119 --> 00:20:04,960 Speaker 1: good introduction to his view of the world, which is 309 00:20:05,040 --> 00:20:08,000 Speaker 1: always worth hearing because not just as I said that 310 00:20:08,040 --> 00:20:10,080 Speaker 1: he runs a large amount of money, but he is 311 00:20:10,119 --> 00:20:14,000 Speaker 1: the top fund managemer in the nation over a ten 312 00:20:14,080 --> 00:20:25,280 Speaker 1: year period. Okay, back in a moment. Hello, Welcome back 313 00:20:25,280 --> 00:20:28,239 Speaker 1: to The Australian's Money Puzzle podcast. I'm James Kirby, Well 314 00:20:28,400 --> 00:20:31,360 Speaker 1: Editor talking to Sam Cecilia of Host Plus, Chief investment 315 00:20:31,400 --> 00:20:35,480 Speaker 1: officer at host Plus. Sam, you didn't quite answer my 316 00:20:35,560 --> 00:20:38,119 Speaker 1: question about lying in bed at night with one hundred 317 00:20:38,119 --> 00:20:40,760 Speaker 1: and ten billion dollars out There are there times that's 318 00:20:40,760 --> 00:20:41,720 Speaker 1: harder than others. 319 00:20:43,480 --> 00:20:46,560 Speaker 3: There's a lot of short term noise and if you 320 00:20:46,720 --> 00:20:50,399 Speaker 3: lose sleep over that short term noise, you. 321 00:20:50,359 --> 00:20:56,639 Speaker 2: Might life hard for yourself at superanuation fund investor. 322 00:20:57,640 --> 00:21:05,159 Speaker 3: So if you have a good long term investment strategy defined, 323 00:21:06,920 --> 00:21:13,840 Speaker 3: and you have solid investment beliefs and you are able 324 00:21:13,960 --> 00:21:19,439 Speaker 3: to stick to both of those long term investment strategy 325 00:21:20,040 --> 00:21:25,360 Speaker 3: investment beliefs, then sleeping at nights pretty easy. 326 00:21:26,240 --> 00:21:27,879 Speaker 2: So let's have a look at some what am I 327 00:21:27,960 --> 00:21:28,560 Speaker 2: talking about. 328 00:21:28,680 --> 00:21:34,480 Speaker 3: Let's talk about inflation, interest rates going up. Yes, very 329 00:21:34,640 --> 00:21:41,439 Speaker 3: painful for individuals myself included, but not very painful for 330 00:21:41,480 --> 00:21:47,879 Speaker 3: a twenty year investment horizon investor in a superfund lose 331 00:21:48,040 --> 00:21:53,879 Speaker 3: no sleep over inflation or interest rates personally, lose a 332 00:21:53,880 --> 00:21:57,480 Speaker 3: lot of sleep about individuals. There's a lot of pain 333 00:21:57,600 --> 00:22:02,879 Speaker 3: out there, but the superfund still Ask yourself this, why 334 00:22:02,960 --> 00:22:06,040 Speaker 3: is it that every year there's a forecast of doom 335 00:22:06,119 --> 00:22:09,399 Speaker 3: and gloom, and every year somebody comes out and says 336 00:22:09,400 --> 00:22:12,920 Speaker 3: the superfunds have survived Again. The answer is because they're well, 337 00:22:13,080 --> 00:22:17,480 Speaker 3: so well diversified that not much can happen globally that's 338 00:22:17,520 --> 00:22:21,000 Speaker 3: going to permanently indent them. So I don't lose any 339 00:22:21,080 --> 00:22:27,520 Speaker 3: steep over that. Let's talk about geopolitics war again in 340 00:22:27,640 --> 00:22:33,200 Speaker 3: the same vein Very painful for individuals, needless to say, 341 00:22:34,119 --> 00:22:39,440 Speaker 3: especially those that are directly impacted, but not very painful 342 00:22:39,560 --> 00:22:44,920 Speaker 3: for long term investors. There are winners and losers in 343 00:22:45,080 --> 00:22:48,600 Speaker 3: every aspect of life, and a long term investor sees 344 00:22:48,680 --> 00:22:52,120 Speaker 3: through all of those short term noise cycles. So I'm 345 00:22:52,160 --> 00:22:55,600 Speaker 3: not worried about war for the superfund. 346 00:22:56,119 --> 00:22:59,399 Speaker 2: I'm not worried about inflation or interest rate for the 347 00:22:59,480 --> 00:23:00,000 Speaker 2: super fund. 348 00:23:00,680 --> 00:23:05,200 Speaker 3: Right the assets are often inflation linked if their infrastructure. 349 00:23:05,200 --> 00:23:07,919 Speaker 3: There's parts of the portfolio that wins, and there are 350 00:23:08,000 --> 00:23:12,119 Speaker 3: parts of the portfolio that loses, no matter what's happening. 351 00:23:11,760 --> 00:23:15,439 Speaker 2: On the plant. So what do I lose sleepover? 352 00:23:17,200 --> 00:23:24,240 Speaker 3: There's probably one scenario that worries me a lot, and 353 00:23:24,320 --> 00:23:29,760 Speaker 3: that's it's a potential byproduct of all of the things 354 00:23:29,800 --> 00:23:35,080 Speaker 3: that I've mentioned, inflation, interest rates, a war, climate change. 355 00:23:35,760 --> 00:23:40,440 Speaker 3: When take climate change, for example, if climate change spooks 356 00:23:40,560 --> 00:23:46,840 Speaker 3: enough people and they start to move because their current 357 00:23:47,000 --> 00:23:52,840 Speaker 3: land is insufficient to grow food. If that were to happen, 358 00:23:53,400 --> 00:23:58,399 Speaker 3: where do they move to someone else's land? There's no 359 00:23:58,600 --> 00:24:02,119 Speaker 3: free land left. And when someone tries to move onto 360 00:24:02,200 --> 00:24:08,920 Speaker 3: someone else's land, especially en mass, that never ends well never, 361 00:24:09,440 --> 00:24:15,600 Speaker 3: And so the potential for civil unrest, for economic, for 362 00:24:16,240 --> 00:24:22,200 Speaker 3: other environmental reasons is something worthy of losing sleep about, 363 00:24:22,800 --> 00:24:28,879 Speaker 3: because what's the point in retiring if you're headed towards 364 00:24:28,960 --> 00:24:32,920 Speaker 3: that well, that environment, If you're heading towards that environment, 365 00:24:33,400 --> 00:24:35,920 Speaker 3: it's not very pleasant. So I kind of lose more 366 00:24:35,960 --> 00:24:40,040 Speaker 3: sleep over that. The ability to have an impact there 367 00:24:40,400 --> 00:24:41,600 Speaker 3: is at the margin. 368 00:24:41,960 --> 00:24:44,919 Speaker 1: Can I just quickly on that issue, on the broader 369 00:24:44,960 --> 00:24:51,080 Speaker 1: issue of EESG environmental, social and governance issues, which were 370 00:24:51,119 --> 00:24:55,040 Speaker 1: front and center and so dominant for a few years 371 00:24:55,080 --> 00:24:57,679 Speaker 1: and now there seems to be a backlash against it. 372 00:24:57,720 --> 00:25:01,440 Speaker 1: There is a backlash against it, probably because it definitions 373 00:25:01,480 --> 00:25:06,680 Speaker 1: and standards. That's the main reason, I think. But where 374 00:25:06,680 --> 00:25:09,040 Speaker 1: do you come from on that? What is your stance 375 00:25:09,119 --> 00:25:10,879 Speaker 1: on that as a manager of a fund. 376 00:25:11,720 --> 00:25:16,639 Speaker 3: So again, let's separate personal views from the being the 377 00:25:16,760 --> 00:25:21,280 Speaker 3: check investment officer of the super right, our primary purpose 378 00:25:21,560 --> 00:25:26,480 Speaker 3: is to generate a financial return for our members while 379 00:25:26,840 --> 00:25:31,720 Speaker 3: mitigating risk. So what kind of risks have an ESG flavor? 380 00:25:32,400 --> 00:25:32,680 Speaker 2: Right? 381 00:25:33,640 --> 00:25:38,959 Speaker 3: So you would remember many years ago when Nike was 382 00:25:39,119 --> 00:25:43,639 Speaker 3: using child labor to manufacture shoes and there was a 383 00:25:43,760 --> 00:25:49,240 Speaker 3: consumer backlack, a backlash, a boycott that results in the 384 00:25:49,280 --> 00:25:54,160 Speaker 3: share price of Nike falling. That is a threat to 385 00:25:54,200 --> 00:25:57,639 Speaker 3: the to the investments we have. So we need to 386 00:25:57,680 --> 00:26:02,760 Speaker 3: make sure that companies are behaving in a sustainable. 387 00:26:01,960 --> 00:26:07,639 Speaker 2: Way to protect their share price. These are not ideological positions. 388 00:26:07,680 --> 00:26:09,960 Speaker 2: That can be, but that would be a personal view. 389 00:26:10,440 --> 00:26:15,080 Speaker 3: But as a superannuation CIO, I'm more concerned about the 390 00:26:15,119 --> 00:26:18,280 Speaker 3: share price and make sure you're not behaving in a 391 00:26:18,320 --> 00:26:21,119 Speaker 3: way that would adversely impact that share price. 392 00:26:21,520 --> 00:26:23,800 Speaker 1: And part of that is you actually legally bound on that, 393 00:26:23,840 --> 00:26:26,840 Speaker 1: aren't you Some with the sole purpose set on superannuation. 394 00:26:27,119 --> 00:26:29,359 Speaker 3: Yes, we need to make sure that what we do 395 00:26:29,800 --> 00:26:33,720 Speaker 3: acts in the everything with what we do acts in 396 00:26:33,880 --> 00:26:36,840 Speaker 3: the best financial interests of our members. 397 00:26:38,359 --> 00:26:40,919 Speaker 2: But there are derivatives. 398 00:26:40,240 --> 00:26:46,360 Speaker 3: Right, So the derivative there is obvious is stopping that example, 399 00:26:46,400 --> 00:26:48,400 Speaker 3: I'm going to have to labor it a little bit more, 400 00:26:48,400 --> 00:26:54,199 Speaker 3: but asking Nike to change their behavior because it threatenier downstream, 401 00:26:54,480 --> 00:26:57,840 Speaker 3: It will threaten the share price and therefore our member's 402 00:26:57,920 --> 00:27:01,760 Speaker 3: best financial interest. So the next access to the member's 403 00:27:01,840 --> 00:27:05,560 Speaker 3: best financial interest taste should be clear. If you need 404 00:27:05,600 --> 00:27:08,320 Speaker 3: to sit there and scratch your head and wonder why, 405 00:27:08,359 --> 00:27:10,760 Speaker 3: then you're not doing it for the right reasons. 406 00:27:11,280 --> 00:27:14,480 Speaker 1: I'm going to get Sam to stay with us and 407 00:27:14,680 --> 00:27:17,840 Speaker 1: go through some of our listeners questions, which should be 408 00:27:17,920 --> 00:27:30,240 Speaker 1: very interesting. We'll be back in a moment. Hello, Welcome 409 00:27:30,280 --> 00:27:33,280 Speaker 1: back to The Australian's Money Puzzle podcast. I'm James Kirkby, 410 00:27:33,320 --> 00:27:36,359 Speaker 1: Wealth editor at The Australian. I'm talking to Sam Cecilia, 411 00:27:37,320 --> 00:27:40,800 Speaker 1: the chief investment officer of host plus for sixteen years, 412 00:27:40,920 --> 00:27:44,000 Speaker 1: probably one of the longest serving chief investment officers out 413 00:27:44,000 --> 00:27:47,119 Speaker 1: there in Big Super and lots of changes actually of 414 00:27:47,200 --> 00:27:49,880 Speaker 1: late in Big Super at the top at the steering wheel, 415 00:27:49,880 --> 00:27:52,840 Speaker 1: if you like, of some of the major funds now, Sam, 416 00:27:52,920 --> 00:27:54,800 Speaker 1: I have a few questions. The first one certainly you'll 417 00:27:54,840 --> 00:27:57,760 Speaker 1: warm too. I'm sure it's from Mike. What role do 418 00:27:57,800 --> 00:28:01,560 Speaker 1: you think that they decline in better populations around the 419 00:28:01,560 --> 00:28:06,600 Speaker 1: world that is currently happening will have on markets over 420 00:28:06,640 --> 00:28:11,119 Speaker 1: the long term. Will long term financial averages change due 421 00:28:11,160 --> 00:28:14,200 Speaker 1: to the population no longer growing in the same way. 422 00:28:14,560 --> 00:28:16,600 Speaker 1: Do you have some sort of formalized way where you 423 00:28:16,680 --> 00:28:19,320 Speaker 1: cover these big picture issues. Do you have a committee 424 00:28:19,520 --> 00:28:22,720 Speaker 1: that is literally dealing with big picture issues way beyond 425 00:28:22,880 --> 00:28:25,240 Speaker 1: the daily or the quarterly issues, or is it up 426 00:28:25,280 --> 00:28:27,480 Speaker 1: to you as an individual as the running the fund, 427 00:28:27,680 --> 00:28:28,840 Speaker 1: to be abreast of all this. 428 00:28:29,600 --> 00:28:35,160 Speaker 3: Cool So, the investment team at host plus and the 429 00:28:35,200 --> 00:28:41,760 Speaker 3: host Plus's advisors, that Financial Investment Advisors JAA, and the 430 00:28:41,800 --> 00:28:46,720 Speaker 3: board get briefings about a whole set of things that 431 00:28:46,800 --> 00:28:52,280 Speaker 3: are not directly today impacting the decision to put a 432 00:28:52,360 --> 00:28:57,760 Speaker 3: dollar in a market or an asset, pending demographic changes, 433 00:28:58,120 --> 00:29:05,560 Speaker 3: declining demographics in China, but accelerating demographics in India. So 434 00:29:05,880 --> 00:29:09,440 Speaker 3: the natural question that comes out of that is should 435 00:29:09,480 --> 00:29:14,440 Speaker 3: we add more to China, take away from China, should 436 00:29:14,480 --> 00:29:16,680 Speaker 3: we start investing in India? 437 00:29:16,720 --> 00:29:20,120 Speaker 2: Should we put more in India? Is now the time 438 00:29:20,480 --> 00:29:21,000 Speaker 2: to do that? 439 00:29:21,520 --> 00:29:26,520 Speaker 3: Or we're waiting for other environmental factors to come into place. 440 00:29:26,680 --> 00:29:30,520 Speaker 3: I think all of those things are important considerations for 441 00:29:30,760 --> 00:29:34,480 Speaker 3: any investor, whether it's inside super or outside of Superowl. 442 00:29:35,600 --> 00:29:38,880 Speaker 1: Okay, yeah, and do you the specific question was do 443 00:29:38,920 --> 00:29:42,200 Speaker 1: you think the decline of developed populations what's the impact 444 00:29:42,200 --> 00:29:45,960 Speaker 1: they will have on global markets? Is there a theoretical 445 00:29:46,480 --> 00:29:48,520 Speaker 1: big picture answer that would come to mind. 446 00:29:49,680 --> 00:29:53,720 Speaker 3: We saw the countries that come to mind, Japan and 447 00:29:53,840 --> 00:29:59,960 Speaker 3: China with deteriorating demographics, put stresses and stragons on those 448 00:30:00,000 --> 00:30:04,400 Speaker 3: as economies. In order to function, they need more people 449 00:30:04,680 --> 00:30:09,680 Speaker 3: of working age. Equally, the social security issue, that is, 450 00:30:09,720 --> 00:30:13,000 Speaker 3: how do you take care of a much older population 451 00:30:13,120 --> 00:30:18,080 Speaker 3: that again is living longer. It becomes a political problem, 452 00:30:18,280 --> 00:30:22,760 Speaker 3: and those political problems ultimately impact the companies that are 453 00:30:23,920 --> 00:30:28,040 Speaker 3: operating in those countries and ultimately has the possibility of 454 00:30:28,080 --> 00:30:32,960 Speaker 3: impacting returns from investments in those areas. So I think 455 00:30:32,960 --> 00:30:36,440 Speaker 3: it would be unwise to say nothing to do with. 456 00:30:36,520 --> 00:30:40,240 Speaker 2: Us, that's their problem. Very unwise as an investor to 457 00:30:41,200 --> 00:30:42,040 Speaker 2: understand it. 458 00:30:42,280 --> 00:30:46,760 Speaker 3: Even if you can't directly make an assessment of it today, 459 00:30:46,840 --> 00:30:48,400 Speaker 3: you begin to understand it. 460 00:30:49,200 --> 00:30:51,640 Speaker 1: Okay, all right, question from Donna. This is not the 461 00:30:51,680 --> 00:30:54,560 Speaker 1: sort of question that you'd get now on at your 462 00:30:54,600 --> 00:30:57,720 Speaker 1: high level investment committees. But it's the sort of question 463 00:30:57,840 --> 00:31:00,440 Speaker 1: I guess, and I'm really interested to see you would 464 00:31:00,440 --> 00:31:03,080 Speaker 1: answer it. Donna says, I'm new to the stock market. 465 00:31:03,400 --> 00:31:06,080 Speaker 1: I want to know if some shares can defy the 466 00:31:06,120 --> 00:31:08,880 Speaker 1: stock market and retain or increase in value even when 467 00:31:08,880 --> 00:31:13,240 Speaker 1: the majority of stocks have declined. Now, that's a question 468 00:31:13,760 --> 00:31:17,680 Speaker 1: that you would probably ask when you're new to share 469 00:31:17,760 --> 00:31:22,040 Speaker 1: market investing. But value investors are what they call bottom 470 00:31:22,080 --> 00:31:25,600 Speaker 1: up investors, would actually very much take that point of view, Dona, 471 00:31:25,600 --> 00:31:27,720 Speaker 1: and they would say, Look, we don't really buy stocks. 472 00:31:28,240 --> 00:31:31,840 Speaker 1: We buy listed we buy companies. We buy parts of 473 00:31:31,920 --> 00:31:36,000 Speaker 1: listed companies, bits of them, and we're interested in the 474 00:31:36,200 --> 00:31:39,960 Speaker 1: company and how it performs and if I have twenty stocks, 475 00:31:40,000 --> 00:31:44,160 Speaker 1: I have twenty slices of twenty companies. I'm not particularly 476 00:31:44,200 --> 00:31:47,480 Speaker 1: interested in the market per se. I'm oblivious to the market. 477 00:31:47,520 --> 00:31:49,600 Speaker 1: There's two thousand listed stocks on the ASEX and I 478 00:31:49,600 --> 00:31:52,280 Speaker 1: don't care about that. I'm just interested in the twenty 479 00:31:52,320 --> 00:31:55,760 Speaker 1: companies and I boat. Do you what's your approach? Sam? 480 00:31:55,800 --> 00:31:58,320 Speaker 1: Do you have as the CIO at a fund? Is 481 00:31:58,320 --> 00:32:00,360 Speaker 1: there like a bottom up approach to top down coaches? 482 00:32:00,400 --> 00:32:02,720 Speaker 1: Does one dominate the other? 483 00:32:04,520 --> 00:32:07,440 Speaker 2: So it depends on which markets we're talking about. 484 00:32:07,640 --> 00:32:14,360 Speaker 3: In some markets, especially emerging markets, the bottom up approach 485 00:32:14,680 --> 00:32:18,920 Speaker 3: is that we favored by most of the investment managers. 486 00:32:19,200 --> 00:32:21,040 Speaker 2: We would't use they're on the ground. 487 00:32:21,320 --> 00:32:26,400 Speaker 3: You need to go kick tires in India to purchase 488 00:32:26,440 --> 00:32:31,000 Speaker 3: an emerging company. In developed markets, you can have a 489 00:32:31,080 --> 00:32:36,080 Speaker 3: top down view because there are certain events happening in 490 00:32:36,120 --> 00:32:39,240 Speaker 3: the economy, certain parts of the cycle, which would be 491 00:32:39,520 --> 00:32:40,880 Speaker 3: more favorable. 492 00:32:40,400 --> 00:32:41,920 Speaker 2: To some companies and not others. 493 00:32:42,000 --> 00:32:46,320 Speaker 3: For example, in times of low interest rates, all companies 494 00:32:46,360 --> 00:32:46,840 Speaker 3: do well. 495 00:32:47,040 --> 00:32:48,680 Speaker 2: Small companies do well. 496 00:32:48,440 --> 00:32:51,680 Speaker 3: But when interest rates start to hop to rise, small 497 00:32:51,760 --> 00:32:55,720 Speaker 3: companies have difficulty servicing that debt and they would be 498 00:32:55,960 --> 00:32:59,680 Speaker 3: expected to suffer more So that kind of high level 499 00:33:00,000 --> 00:33:03,480 Speaker 3: analysis makes a lot of sense. Having said that, if 500 00:33:03,520 --> 00:33:07,760 Speaker 3: you are an individual and you are new to the stock. 501 00:33:07,560 --> 00:33:12,000 Speaker 2: Market and you are thinking of buying companies. 502 00:33:11,440 --> 00:33:19,760 Speaker 3: That define the market overall, the answer is they actually exist. Unfortunately, 503 00:33:19,840 --> 00:33:23,200 Speaker 3: it's not the same company every time. And what you 504 00:33:23,280 --> 00:33:26,600 Speaker 3: then need to do is know when to time marks 505 00:33:27,200 --> 00:33:31,520 Speaker 3: to go in and out. And unfortunately, market timing is 506 00:33:31,560 --> 00:33:35,560 Speaker 3: a loser's game. You need to be there when lightning 507 00:33:35,640 --> 00:33:42,040 Speaker 3: strikes if you learn the game of going in and 508 00:33:42,160 --> 00:33:47,840 Speaker 3: out of markets. Unlearning that game is incredibly difficult, And 509 00:33:47,920 --> 00:33:50,960 Speaker 3: what happens is, even if you are a lucky investor, 510 00:33:51,760 --> 00:33:54,800 Speaker 3: you flip heads three or four times in a row, 511 00:33:55,240 --> 00:33:58,800 Speaker 3: but eventually you flip tails and you hand all of 512 00:33:58,840 --> 00:34:03,080 Speaker 3: your gains back to the market. And so market timing 513 00:34:03,520 --> 00:34:07,160 Speaker 3: is not one of our investment beliefs. So we believe 514 00:34:07,280 --> 00:34:12,120 Speaker 3: in the old adage it's best to have to spend 515 00:34:12,160 --> 00:34:17,240 Speaker 3: time in the markets rather than timing the markets. Right, 516 00:34:17,440 --> 00:34:22,359 Speaker 3: So if you must buy an ETF that's across the 517 00:34:22,400 --> 00:34:25,560 Speaker 3: whole ISx two hundred and just put it in the 518 00:34:25,560 --> 00:34:26,480 Speaker 3: bottom draw. 519 00:34:26,400 --> 00:34:28,640 Speaker 2: And see what happens after twenty years. 520 00:34:29,200 --> 00:34:32,319 Speaker 3: But if your time horizon is only one year, then 521 00:34:32,360 --> 00:34:33,399 Speaker 3: you are setting. 522 00:34:33,080 --> 00:34:37,440 Speaker 2: Yourself up for disappointment. There is no quick path to 523 00:34:37,520 --> 00:34:38,239 Speaker 2: getting rich. 524 00:34:39,040 --> 00:34:42,080 Speaker 1: All right, I've got a final question. I'm going to 525 00:34:42,120 --> 00:34:45,320 Speaker 1: take the one I think here from David, we often 526 00:34:45,360 --> 00:34:47,480 Speaker 1: hear there is enough evidence out there to say that 527 00:34:47,520 --> 00:34:52,440 Speaker 1: ETFs are index funds exchange treated funds, as that acronym suggests, 528 00:34:52,560 --> 00:34:57,319 Speaker 1: regularly outperformed fund managers. However, we then hear, if you're 529 00:34:57,320 --> 00:34:59,000 Speaker 1: looking at small caps, it will be better to go 530 00:34:59,080 --> 00:35:01,239 Speaker 1: with the fund manager because they can get in there 531 00:35:01,239 --> 00:35:04,200 Speaker 1: and pick stocks one by one. I understand the idea 532 00:35:04,239 --> 00:35:05,880 Speaker 1: that there is a lot of rubbish out in the 533 00:35:05,920 --> 00:35:08,920 Speaker 1: market some so having someone way through which should give 534 00:35:08,960 --> 00:35:12,600 Speaker 1: better results. But is there actually any evidence that active 535 00:35:12,680 --> 00:35:19,000 Speaker 1: managers outperform passive managers in small caps? Just to pick 536 00:35:19,080 --> 00:35:23,080 Speaker 1: up on David's question, Sam, and in the end, in 537 00:35:23,120 --> 00:35:26,240 Speaker 1: the end, you are an active manager, aren't you. Would 538 00:35:26,239 --> 00:35:27,040 Speaker 1: you agree with that? 539 00:35:27,480 --> 00:35:27,719 Speaker 2: Yes? 540 00:35:28,040 --> 00:35:32,120 Speaker 1: Okay? And then this whole theory that active managers can't 541 00:35:32,120 --> 00:35:36,440 Speaker 1: beat passive managers. So someone might say, I wonder if 542 00:35:36,880 --> 00:35:41,279 Speaker 1: the big super funds simply ran index funds where they 543 00:35:41,320 --> 00:35:45,240 Speaker 1: do as well. And I'm sure the invest the ETF 544 00:35:45,360 --> 00:35:48,399 Speaker 1: sellers and the index funds sellers out there would talk 545 00:35:48,520 --> 00:35:52,680 Speaker 1: like that, what do you say to that core suggestion 546 00:35:52,880 --> 00:35:57,640 Speaker 1: that passive investing wins in the end and beats all 547 00:35:57,760 --> 00:35:59,720 Speaker 1: active managers over long periods of time. 548 00:36:01,000 --> 00:36:06,040 Speaker 3: So in listed markets you could mount that argument, But 549 00:36:06,080 --> 00:36:10,840 Speaker 3: there are there is no passive strategy for airports and 550 00:36:10,960 --> 00:36:16,920 Speaker 3: toll roads and seaports and buildings in infrastructure, in private equity, 551 00:36:16,960 --> 00:36:20,640 Speaker 3: in venture capital, in credit, so you miss out on 552 00:36:20,680 --> 00:36:24,680 Speaker 3: a substantial portion of the market. Right, You could buy 553 00:36:24,719 --> 00:36:29,320 Speaker 3: an ETF that is that has exposure to the listed 554 00:36:29,440 --> 00:36:32,480 Speaker 3: versions of all of those, but that behaves very differently 555 00:36:32,560 --> 00:36:37,920 Speaker 3: to the unlisted version. Having said that, there's an inefficiency 556 00:36:38,440 --> 00:36:42,239 Speaker 3: in the small end of the market that's often exploited 557 00:36:42,280 --> 00:36:43,320 Speaker 3: by fund managers. 558 00:36:43,360 --> 00:36:44,719 Speaker 2: Why how do we know this? 559 00:36:45,239 --> 00:36:48,880 Speaker 3: Well, because if you look at these small company index 560 00:36:50,480 --> 00:36:55,040 Speaker 3: there are years where most of the managers outperform that index. 561 00:36:55,880 --> 00:36:57,720 Speaker 2: How can that be right? 562 00:36:57,920 --> 00:37:01,640 Speaker 3: And the answer is because the index has everything in it, 563 00:37:01,920 --> 00:37:06,760 Speaker 3: and those managers have some skill at picking out smaller 564 00:37:06,880 --> 00:37:10,400 Speaker 3: companies that are behaving in a particular way that's consistent 565 00:37:10,480 --> 00:37:13,680 Speaker 3: with their own investment beliefs, and believe that the share 566 00:37:13,680 --> 00:37:16,240 Speaker 3: price will go up faster than would otherwise. 567 00:37:16,280 --> 00:37:19,920 Speaker 2: Be the case. So the's horses for courses. 568 00:37:19,960 --> 00:37:23,040 Speaker 3: There are times for passive strategies and areas that you 569 00:37:23,040 --> 00:37:27,480 Speaker 3: would do passive management index funds, etc. And there are 570 00:37:27,560 --> 00:37:30,719 Speaker 3: areas where you just can't do that, and therefore you 571 00:37:30,760 --> 00:37:34,000 Speaker 3: have no choice to either do active management or miss 572 00:37:34,040 --> 00:37:34,680 Speaker 3: out altogether. 573 00:37:35,600 --> 00:37:38,600 Speaker 1: Okay, very interesting and as David says, there is all 574 00:37:38,600 --> 00:37:41,080 Speaker 1: sorts of rubbish health there, which is what the active 575 00:37:41,080 --> 00:37:44,000 Speaker 1: manager is supposed to dodge. But as some are saying, 576 00:37:44,520 --> 00:37:47,279 Speaker 1: it's really only applicable. Even the debate is only applicable 577 00:37:47,280 --> 00:37:51,320 Speaker 1: to listed securities and as he mentioned at the start 578 00:37:51,360 --> 00:37:54,760 Speaker 1: of the Shield, the vast bulk of business activity commerce 579 00:37:54,800 --> 00:37:57,560 Speaker 1: in the world is not listed on the share market. 580 00:37:57,680 --> 00:38:00,360 Speaker 1: Really interesting to talk to you today, Sam, great to 581 00:38:00,360 --> 00:38:02,920 Speaker 1: have you on. Thank you very much, great coming on 582 00:38:02,960 --> 00:38:03,279 Speaker 1: the show. 583 00:38:03,640 --> 00:38:04,480 Speaker 2: Thank you Jones. 584 00:38:04,920 --> 00:38:07,480 Speaker 1: That was Sam Cecilia folks. He is the chief investment 585 00:38:07,520 --> 00:38:12,120 Speaker 1: officer at host Plus. Do send some correspondence in love 586 00:38:12,160 --> 00:38:14,520 Speaker 1: to hear from you. The money puzzle at the Australian 587 00:38:14,560 --> 00:38:17,959 Speaker 1: dot com dot au is the email do mention us 588 00:38:18,000 --> 00:38:20,120 Speaker 1: to someone you know mentioned the show. We would love 589 00:38:20,160 --> 00:38:23,600 Speaker 1: to spread the word. Maybe mention us to one person 590 00:38:24,320 --> 00:38:26,080 Speaker 1: and we will be talking to you soon.