Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the editor at The Australian. Welcome aboard everybody.
Speaker 1: Have you ever wondered what it's like to manage or
Speaker 1: run a lot of money, say one hundred and ten
Speaker 1: billion dollars for instance, with maybe two million people or so,
Speaker 1: depending on you. I wonder how you might sleep at night,
Speaker 1: Not just that, but the responsibility of managing that money
Speaker 1: when you've had a very strong track record. In fact,
Speaker 1: this fund i'm and fund manager I'm going to talk
Speaker 1: to today has the number one performing super fund in
Speaker 1: Australia bar none, over the last decade, with an annual
Speaker 1: return of eight point three percent. If you haven't guessed already,
Speaker 1: it is, of course Sam Cecilia, the chief investment officer
Speaker 1: at host Plus. That's one of the big industry funds.
Speaker 1: Of course, I've known Sam for quite a while. His
Speaker 1: opinions are as strong as his results in my experience
Speaker 1: that I'm looking forward to talking to him today. How
Speaker 1: are you, Sam, I'm.
Speaker 2: Well, Thanks Joon, Thanks for the opportunity.
Speaker 1: Great to have you. Great to have you on the show.
Speaker 1: You might think I have lots of fund managers and
Speaker 1: super fund managers on the show. I don't. I don't, Sam,
Speaker 1: but occasionally I do when they're particularly interesting and host
Speaker 1: plus is particularly interesting, you might just it would be
Speaker 1: nice to introduce you to the listeners, many of whom
Speaker 1: would be in funds, some in your fund, some in
Speaker 1: running their own funds, and much younger listeners on the
Speaker 1: show than perhaps readers on the paper. That might just
Speaker 1: reflect the medium, But what I'm the point I'm making
Speaker 1: is that they probably haven't really made their minds up
Speaker 1: about how they're going to invest in which way they're
Speaker 1: going to do it. So you're running this fund? Is
Speaker 1: it one of the sixteen years or so?
Speaker 2: This is year sixteen, that's right?
Speaker 1: And how much did the fund have the day you
Speaker 1: walked in the door?
Speaker 2: It was seven point six billion.
Speaker 1: Dollars and today it's one hundred and ten.
Speaker 2: Actually it's one hundred and twenty.
Speaker 1: But who's quippling one hundred and twenty, give or take
Speaker 1: ten billion. I want to talk to and I want
Speaker 1: to put it to the audience, because the first thing,
Speaker 1: if they don't know you and what you do, what
Speaker 1: is it? What is it like? Is it something that you.
Speaker 1: I know, I'm sure you have protocols and models and routines,
Speaker 1: but there must be times where it is more demanding
Speaker 1: than others managing that amount of money for that many people.
Speaker 3: So we have close on to two million members at
Speaker 3: host plus, average age thirty seven.
Speaker 2: So not retiring, I'm sue.
Speaker 3: And the reason and why I begin there is because
Speaker 3: we really need to establish as investors, whether it's a
Speaker 3: super fund investor or whether it's the listeners that are
Speaker 3: listening to this podcast at the moment, you do need
Speaker 3: to establish what type of investor you are in order
Speaker 3: to make appropriate comparisons. I think let me leave it
Speaker 3: with that teaser.
Speaker 2: At the moment, and I'll come back to that.
Speaker 3: But it matters, and I wanted to spend a bit
Speaker 3: of time today, if you indulge me, to basically argue
Speaker 3: that what really matters for long term superannuation investments?
Speaker 2: So what is the objective here? The objective is to provide.
Speaker 3: A retirement balance, so maximize returns over a working lifetime
Speaker 3: which is likely to be closer to fifty years. Maximize
Speaker 3: that return while at the same time controlling for risk.
Speaker 3: And even though those words are thrown around, if you
Speaker 3: are truly a long term investor. The models to which
Speaker 3: you speak.
Speaker 2: Are far less useful than some.
Speaker 3: Other investment tools and investment beliefs, and so while it's
Speaker 3: a responsibility to do that, we can't lose sight that
Speaker 3: these are compounding returns over a lifetime, vastly different to
Speaker 3: single year returns.
Speaker 1: It's interesting you said the average age in the funders
Speaker 1: thirty seven, which the point you're making there, of course,
Speaker 1: is that's pretty young as funds go. As Super fund school,
Speaker 1: the average age on our service early service we did
Speaker 1: a year or two ago on the show, was that
Speaker 1: the average listener was thirty five. So very similar, so
Speaker 1: very similar cohort in terms of who's listening, and your cohort,
Speaker 1: which happens to be that nearly two million people and
Speaker 1: they're super is in your control.
Speaker 2: Now.
Speaker 1: I know you make this point, and of course it's
Speaker 1: a crucial point about long term investing, but I'm old
Speaker 1: enough to know that the emphasis or the information flow,
Speaker 1: if you like, has become very short term. So when
Speaker 1: I was younger and I was in a super started
Speaker 1: working in Australia, I remember you used to get your
Speaker 1: super balance maybe once a year, and every year it
Speaker 1: would be higher than the year before, and you'll be saying, well,
Speaker 1: that's all right or whatever, And you might, if you
Speaker 1: were a bit more sophisticated, you might look at it
Speaker 1: in terms of what was the percentage return there. Now
Speaker 1: I'm in the media and so I'm part of this,
Speaker 1: but we see I'm seeing monthly reports on super Super
Speaker 1: went up this month, it went down last month. This
Speaker 1: isn't annual. So this is monthly, whether you like it
Speaker 1: or not. Is your clients, customers, members and potential members.
Speaker 1: They're also watching that. I don't think there's anything Is
Speaker 1: there anything you can do to stop that? Part of
Speaker 1: your reputation is based on the impact of how well
Speaker 1: you did each year in super Sure.
Speaker 2: So again, let's look at that.
Speaker 3: A twenty year return is a series of twenty one
Speaker 3: year returns.
Speaker 2: Right.
Speaker 3: All we're saying is you can't get access to your
Speaker 3: money for retirement, if that's the objective. You can't get
Speaker 3: access to it. All our splitting equal until you retire.
Speaker 3: And so look at how long that runway is for you.
Speaker 3: Is it thirty years because you're currently thirty five, or
Speaker 3: is it five years because you're currently sixty? Even the
Speaker 3: latter Super was designed at a time time when people
Speaker 3: retired at sixty five and conveniently died at sixty eight.
Speaker 3: Today they live to ninety eight. How do you intend
Speaker 3: to live for thirty years after retirement without generating returns
Speaker 3: in retirement?
Speaker 1: Yep, so the emphasis is changing and on you too, right,
Speaker 1: tell us about that. How your funds like you? The
Speaker 1: whole thing was to amass money for people in retirement
Speaker 1: and the pressure is changing now, isn't it as the
Speaker 1: whole system grows as Australian age to provide deeper into retirement.
Speaker 1: Does that mean any change in the investment approach when
Speaker 1: the people between sixty and ninety compared to thirty and sixty.
Speaker 2: That's a great question.
Speaker 3: So let's break it up using the terms the accumulation
Speaker 3: phase followed by the accumulation phase. The question is we
Speaker 3: know when accumulation happens normally between during your working life,
Speaker 3: when you're contributing to super, your employer is contributing to super,
Speaker 3: or you are, and you get to a certain stage
Speaker 3: that you would call retirement, and then you will decumulate
Speaker 3: after that. All I'm saying here is that decumulation function
Speaker 3: has an accumulation component in it still otherwise you're going
Speaker 3: to run out of money?
Speaker 1: Sure? And is that accumulation? Is that opponent? Is that
Speaker 1: getting bigger and more important?
Speaker 3: It's getting bigger and more important because of aging demographics.
Speaker 3: This is a global problem, not just an Australian problem
Speaker 3: because of the aging demographics. But there's a lot of
Speaker 3: good people turning their good smart people turning their minds
Speaker 3: towards how do you solve for longevity from a a
Speaker 3: need to have income during that period of time. So
Speaker 3: a lot of good work is being done there. There
Speaker 3: are increasing products available that protect you from market volatility,
Speaker 3: et cetera. All I'm saying is that if you intend
Speaker 3: to live thirty years post retirement, then you are essentially
Speaker 3: a thirty year old that retires at sixty, even though
Speaker 3: you're a sixty year old retires at ninety. Right, And
Speaker 3: so we need to change the frame of mind to
Speaker 3: avoid people having the possibility.
Speaker 2: Of running out of money well before.
Speaker 3: Their health runs out or well before their lifespan mons out.
Speaker 1: Is there anything people listening to this show can do
Speaker 1: about that? Now? At their agent we take it at
Speaker 1: the average ages thirty five?
Speaker 3: Sure, So again let's separate superinnuation wealth creation in superannuation
Speaker 3: and wealth creation outside of superannuation. If you can, you
Speaker 3: should do both. Right, wealth creation inside superannuation, there's a
Speaker 3: superannuation guarantee. There's a certain amount it gets contributed on
Speaker 3: your and invested on your behalf, and that's the bit
Speaker 3: that compounds until you get to a retirement agent, or
Speaker 3: at least under the current legislation. Right in outside of superannuation,
Speaker 3: you can do other things. You may want to replicate
Speaker 3: what your superfund can do. Why are you replicating because
Speaker 3: you can't get access under the concept at least of preservation,
Speaker 3: if not the legislation. Under the concept of preservation, you
Speaker 3: can't really get access to that money until.
Speaker 2: You qualify you reach retirement age.
Speaker 3: But non super money you can get access to it
Speaker 3: at any stage you wish. So if you can do both,
Speaker 3: why wouldn't you do? And implicitly we do. We purchase
Speaker 3: a home, perhaps purchase other assets and investment property or
Speaker 3: art or whatever it is it that you believe will
Speaker 3: appreciating value, and that's wealth accumulation outside of super emulation.
Speaker 3: So I think the two are vastly different. Why because
Speaker 3: the time horizons are different.
Speaker 1: If people were replicating outside Super sam is. I often
Speaker 1: wonder if we often cover and people often correspond and say, oh,
Speaker 1: I've been looking at a future fund, or I've been
Speaker 1: looking at Australian Super host plus or whatever, and I
Speaker 1: got to try and learn from what they do. But
Speaker 1: I wonder, is it feasible to actually replicate what Big
Speaker 1: super does like you, Because when you've got a one
Speaker 1: hundred and twenty billion, you're in a completely You're in
Speaker 1: a different planet than someone who's got one hundred and
Speaker 1: twenty thousand, and they want to try and manage that.
Speaker 1: Could you explain what would be different to the listeners?
Speaker 3: Okay, so perhaps by way of example, last financial year,
Speaker 3: slightly more than thirteen billion dollars flowed into host Plus.
Speaker 3: It's gross, so there are out benefits, deaths, transfers, et cetera.
Speaker 3: Close to somewhere between seven and eight billion of that
Speaker 3: thirty is net. In other words, it needs to find
Speaker 3: an investment home. So we bat, if you like, with
Speaker 3: seven billion dollars, we can take advantage of every opportunity
Speaker 3: that we believe.
Speaker 2: We want to that is desirable.
Speaker 3: Right personally, I don't have that capital, and therefore I
Speaker 3: would behave differently. I can't replicate as an individual as
Speaker 3: Sam Secilia. I can't replicate what Sam Secilia the CIO
Speaker 3: can do inside of host plus.
Speaker 1: Are there certain assets you just can't get at as
Speaker 1: the as an individual?
Speaker 3: Interestingly increasingly no, you can get access to unlisted assets airports,
Speaker 3: toll roads, shopping centers, logistics, et cetera. You can buy
Speaker 3: slices of those. You can buy slices of them that
Speaker 3: are listed on an exchange, but that behaves vastly differently
Speaker 3: to the unlist The underlying unlisted asset that's illiquid, and
Speaker 3: so it's your ability to tolerate illiquidity that's the problem.
Speaker 3: Outside of SUPER or inside of SUPER, it's not. It's
Speaker 3: not costless to liquidate positions in unlisted assets, right, you
Speaker 3: need to sell your slice of the airport if it's unlisted. However,
Speaker 3: if it's listed, you can do that at any stage.
Speaker 3: But the two behave vastly differently. Right, the listed vehicles
Speaker 3: are subject to the sentiment of listed markets.
Speaker 1: For the listener. Can I just try and work this
Speaker 1: out with you? And I think it would be very
Speaker 1: good example, and it's really good that you've brought it up.
Speaker 1: Airports listed and unlisted this is and listeners, if you're
Speaker 1: not familiar with the bigger debate out there, the big
Speaker 1: funds have explored, including the Future Fund, have explored unlisted assets. Right,
Speaker 1: I'm always talking about this. They're not listed on the
Speaker 1: share mark. This is an essential point. They are behind
Speaker 1: the scenes. They are unlisted. A forest is a good example.
Speaker 1: So you can't if you were invested in a forest,
Speaker 1: you simply must wait years and years for the forest
Speaker 1: to grow, for the timber to grow. Now in the airports,
Speaker 1: Sam is talking about how listed and unlisted behave differently. Sam,
Speaker 1: during the COVID closed down the airports were closed, did
Speaker 1: the listed airports behave very differently than the unlisted ones?
Speaker 3: But behavior you're referring to the valuation of those airports
Speaker 3: not Yeah? So yeah, So the answer to that is yes.
Speaker 3: So the real question is what is the underlying root
Speaker 3: cause of the different behavior.
Speaker 2: So let's just do an example. Take Melbourne Airport, Perth Airport.
Speaker 3: These are unlisted vehicles, unlisted assets rather and if you
Speaker 3: think about the operation of an airport, you get paid
Speaker 3: when the aeroplane lands, you get paid when the aeroplane
Speaker 3: takes off.
Speaker 2: That doesn't happen.
Speaker 3: During COVID because there were no departures and arrivals. So
Speaker 3: if you are a long term investor, you have to
Speaker 3: believe that one day that airport is going to go
Speaker 3: back to functioning. Because it's illiquid, you can't sell it,
Speaker 3: which perversely is a good thing because if you could
Speaker 3: sell it, no buyer would buy it off you at
Speaker 3: its current valuation. They'll say, well, if you want to
Speaker 3: sell it now, I need a sixty percent discount to
Speaker 3: its price, right and so coverstly. Unlisted assets not only
Speaker 3: provide diversification to what is on the listed markets, but
Speaker 3: they also act as a mitigant against knee jerk reaction
Speaker 3: about what's happening in listed markets. So you have to
Speaker 3: be able to tolerate that. In liquidity, you have to
Speaker 3: be able to be a long term investor to see
Speaker 3: through not just COVID, but the global financial crisis, the
Speaker 3: bird flu pandemic that threatened to shut down air travel all.
Speaker 2: Over the world.
Speaker 3: So public markets or public markets are a very small.
Speaker 2: Part of the overall economy.
Speaker 3: Nearly ninety percent of the world's assets are unlisted. Shopping centers, buildings, logistics,
Speaker 3: warehouse facilities, can accommodation I can just keep medical officers.
Speaker 3: Your house is unlisted. All the residential properties are unlisted globally.
Speaker 3: I imagine how many of that do compared to what
Speaker 3: four hundred stops on the asx two thousand stocks on
Speaker 3: the US stock market. It's like a handful of assets
Speaker 3: are listed and pretty much everything else is unlisted. But
Speaker 3: your ability to tap into those ninety percent is the
Speaker 3: difference between sam secily the CIO of one hundred and
Speaker 3: twenty billion dollar fund, and sam Scilia of the individual
Speaker 3: that might dabble with one thousand or five thousand dollars
Speaker 3: here and there. For the record, Jones, I do not
Speaker 3: own any assets or investments outside of my host plus account.
Speaker 2: It's cleaner that way.
Speaker 1: No, Well, I'm glad to hear it. So just finally
Speaker 1: on that so as listeners would, and as you've articulated
Speaker 1: that idea, that advantage and the distinction of the big
Speaker 1: FONT is that it can go into unlisted assets, and you,
Speaker 1: as a private investor or as an SMS if you can,
Speaker 1: but it's very difficult to really get in there. And ironically,
Speaker 1: the main window of late is perversely on listed markets,
Speaker 1: which by definition are onlisted assets on listed markets it's
Speaker 1: a bit of an oxymoron. I just want to ask
Speaker 1: you one last thing about all that salmon. As long
Speaker 1: as I've known you and I've talked to you, you
Speaker 1: have been a passionate believer in unlisted assets and their advantage,
Speaker 1: the advantage that they give and the price you pay
Speaker 1: is the liquidity that you can't sell small parts of
Speaker 1: them quickly. We understand that. I just want to ask
Speaker 1: you one thing, though. Has your perception of the appeal
Speaker 1: of the unlisted assets changed? Has anything changed them? I
Speaker 1: know the GFC didn't and COVID didn't, but I wonder
Speaker 1: as we see a rush into it now by all sorts,
Speaker 1: ships and sizes, and then funds springing up everywhere. It
Speaker 1: is very much an open secret at this DIGE, has
Speaker 1: there any of that changed your attitude to it?
Speaker 2: The short answer is no.
Speaker 3: The rationale behind is that if you cut out all
Speaker 3: the unlisted assets, what's left is equities, listed equities, passion bombs,
Speaker 3: three asset classes compared to ten or so if you
Speaker 3: venture into unlisted markets, unlisted infrastructure, unlisted real estate, credit,
Speaker 3: private equity and venture capital or unlisted asset classes and
Speaker 3: so you want to be as diversified as possible, because
Speaker 3: that's your one ticket to mitigating market risk.
Speaker 2: But as diversified as possible.
Speaker 1: Okay, very good. We'll take a short break, folks. We'll
Speaker 1: be back in a moment. I want to talk to
Speaker 1: Sam about more topical issues. But that was a very
Speaker 1: good introduction to his view of the world, which is
Speaker 1: always worth hearing because not just as I said that
Speaker 1: he runs a large amount of money, but he is
Speaker 1: the top fund managemer in the nation over a ten
Speaker 1: year period. Okay, back in a moment. Hello, Welcome back
Speaker 1: to The Australian's Money Puzzle podcast. I'm James Kirby, Well
Speaker 1: Editor talking to Sam Cecilia of Host Plus, Chief investment
Speaker 1: officer at host Plus. Sam, you didn't quite answer my
Speaker 1: question about lying in bed at night with one hundred
Speaker 1: and ten billion dollars out There are there times that's
Speaker 1: harder than others.
Speaker 3: There's a lot of short term noise and if you
Speaker 3: lose sleep over that short term noise, you.
Speaker 2: Might life hard for yourself at superanuation fund investor.
Speaker 3: So if you have a good long term investment strategy defined,
Speaker 3: and you have solid investment beliefs and you are able
Speaker 3: to stick to both of those long term investment strategy
Speaker 3: investment beliefs, then sleeping at nights pretty easy.
Speaker 2: So let's have a look at some what am I
Speaker 2: talking about.
Speaker 3: Let's talk about inflation, interest rates going up. Yes, very
Speaker 3: painful for individuals myself included, but not very painful for
Speaker 3: a twenty year investment horizon investor in a superfund lose
Speaker 3: no sleep over inflation or interest rates personally, lose a
Speaker 3: lot of sleep about individuals. There's a lot of pain
Speaker 3: out there, but the superfund still Ask yourself this, why
Speaker 3: is it that every year there's a forecast of doom
Speaker 3: and gloom, and every year somebody comes out and says
Speaker 3: the superfunds have survived Again. The answer is because they're well,
Speaker 3: so well diversified that not much can happen globally that's
Speaker 3: going to permanently indent them. So I don't lose any
Speaker 3: steep over that. Let's talk about geopolitics war again in
Speaker 3: the same vein Very painful for individuals, needless to say,
Speaker 3: especially those that are directly impacted, but not very painful
Speaker 3: for long term investors. There are winners and losers in
Speaker 3: every aspect of life, and a long term investor sees
Speaker 3: through all of those short term noise cycles. So I'm
Speaker 3: not worried about war for the superfund.
Speaker 2: I'm not worried about inflation or interest rate for the
Speaker 2: super fund.
Speaker 3: Right the assets are often inflation linked if their infrastructure.
Speaker 3: There's parts of the portfolio that wins, and there are
Speaker 3: parts of the portfolio that loses, no matter what's happening.
Speaker 2: On the plant. So what do I lose sleepover?
Speaker 3: There's probably one scenario that worries me a lot, and
Speaker 3: that's it's a potential byproduct of all of the things
Speaker 3: that I've mentioned, inflation, interest rates, a war, climate change.
Speaker 3: When take climate change, for example, if climate change spooks
Speaker 3: enough people and they start to move because their current
Speaker 3: land is insufficient to grow food. If that were to happen,
Speaker 3: where do they move to someone else's land? There's no
Speaker 3: free land left. And when someone tries to move onto
Speaker 3: someone else's land, especially en mass, that never ends well never,
Speaker 3: And so the potential for civil unrest, for economic, for
Speaker 3: other environmental reasons is something worthy of losing sleep about,
Speaker 3: because what's the point in retiring if you're headed towards
Speaker 3: that well, that environment, If you're heading towards that environment,
Speaker 3: it's not very pleasant. So I kind of lose more
Speaker 3: sleep over that. The ability to have an impact there
Speaker 3: is at the margin.
Speaker 1: Can I just quickly on that issue, on the broader
Speaker 1: issue of EESG environmental, social and governance issues, which were
Speaker 1: front and center and so dominant for a few years
Speaker 1: and now there seems to be a backlash against it.
Speaker 1: There is a backlash against it, probably because it definitions
Speaker 1: and standards. That's the main reason, I think. But where
Speaker 1: do you come from on that? What is your stance
Speaker 1: on that as a manager of a fund.
Speaker 3: So again, let's separate personal views from the being the
Speaker 3: check investment officer of the super right, our primary purpose
Speaker 3: is to generate a financial return for our members while
Speaker 3: mitigating risk. So what kind of risks have an ESG flavor?
Speaker 2: Right?
Speaker 3: So you would remember many years ago when Nike was
Speaker 3: using child labor to manufacture shoes and there was a
Speaker 3: consumer backlack, a backlash, a boycott that results in the
Speaker 3: share price of Nike falling. That is a threat to
Speaker 3: the to the investments we have. So we need to
Speaker 3: make sure that companies are behaving in a sustainable.
Speaker 2: Way to protect their share price. These are not ideological positions.
Speaker 2: That can be, but that would be a personal view.
Speaker 3: But as a superannuation CIO, I'm more concerned about the
Speaker 3: share price and make sure you're not behaving in a
Speaker 3: way that would adversely impact that share price.
Speaker 1: And part of that is you actually legally bound on that,
Speaker 1: aren't you Some with the sole purpose set on superannuation.
Speaker 3: Yes, we need to make sure that what we do
Speaker 3: acts in the everything with what we do acts in
Speaker 3: the best financial interests of our members.
Speaker 2: But there are derivatives.
Speaker 3: Right, So the derivative there is obvious is stopping that example,
Speaker 3: I'm going to have to labor it a little bit more,
Speaker 3: but asking Nike to change their behavior because it threatenier downstream,
Speaker 3: It will threaten the share price and therefore our member's
Speaker 3: best financial interest. So the next access to the member's
Speaker 3: best financial interest taste should be clear. If you need
Speaker 3: to sit there and scratch your head and wonder why,
Speaker 3: then you're not doing it for the right reasons.
Speaker 1: I'm going to get Sam to stay with us and
Speaker 1: go through some of our listeners questions, which should be
Speaker 1: very interesting. We'll be back in a moment. Hello, Welcome
Speaker 1: back to The Australian's Money Puzzle podcast. I'm James Kirkby,
Speaker 1: Wealth editor at The Australian. I'm talking to Sam Cecilia,
Speaker 1: the chief investment officer of host plus for sixteen years,
Speaker 1: probably one of the longest serving chief investment officers out
Speaker 1: there in Big Super and lots of changes actually of
Speaker 1: late in Big Super at the top at the steering wheel,
Speaker 1: if you like, of some of the major funds now, Sam,
Speaker 1: I have a few questions. The first one certainly you'll
Speaker 1: warm too. I'm sure it's from Mike. What role do
Speaker 1: you think that they decline in better populations around the
Speaker 1: world that is currently happening will have on markets over
Speaker 1: the long term. Will long term financial averages change due
Speaker 1: to the population no longer growing in the same way.
Speaker 1: Do you have some sort of formalized way where you
Speaker 1: cover these big picture issues. Do you have a committee
Speaker 1: that is literally dealing with big picture issues way beyond
Speaker 1: the daily or the quarterly issues, or is it up
Speaker 1: to you as an individual as the running the fund,
Speaker 1: to be abreast of all this.
Speaker 3: Cool So, the investment team at host plus and the
Speaker 3: host Plus's advisors, that Financial Investment Advisors JAA, and the
Speaker 3: board get briefings about a whole set of things that
Speaker 3: are not directly today impacting the decision to put a
Speaker 3: dollar in a market or an asset, pending demographic changes,
Speaker 3: declining demographics in China, but accelerating demographics in India. So
Speaker 3: the natural question that comes out of that is should
Speaker 3: we add more to China, take away from China, should
Speaker 3: we start investing in India?
Speaker 2: Should we put more in India? Is now the time
Speaker 2: to do that?
Speaker 3: Or we're waiting for other environmental factors to come into place.
Speaker 3: I think all of those things are important considerations for
Speaker 3: any investor, whether it's inside super or outside of Superowl.
Speaker 1: Okay, yeah, and do you the specific question was do
Speaker 1: you think the decline of developed populations what's the impact
Speaker 1: they will have on global markets? Is there a theoretical
Speaker 1: big picture answer that would come to mind.
Speaker 3: We saw the countries that come to mind, Japan and
Speaker 3: China with deteriorating demographics, put stresses and stragons on those
Speaker 3: as economies. In order to function, they need more people
Speaker 3: of working age. Equally, the social security issue, that is,
Speaker 3: how do you take care of a much older population
Speaker 3: that again is living longer. It becomes a political problem,
Speaker 3: and those political problems ultimately impact the companies that are
Speaker 3: operating in those countries and ultimately has the possibility of
Speaker 3: impacting returns from investments in those areas. So I think
Speaker 3: it would be unwise to say nothing to do with.
Speaker 2: Us, that's their problem. Very unwise as an investor to
Speaker 2: understand it.
Speaker 3: Even if you can't directly make an assessment of it today,
Speaker 3: you begin to understand it.
Speaker 1: Okay, all right, question from Donna. This is not the
Speaker 1: sort of question that you'd get now on at your
Speaker 1: high level investment committees. But it's the sort of question
Speaker 1: I guess, and I'm really interested to see you would
Speaker 1: answer it. Donna says, I'm new to the stock market.
Speaker 1: I want to know if some shares can defy the
Speaker 1: stock market and retain or increase in value even when
Speaker 1: the majority of stocks have declined. Now, that's a question
Speaker 1: that you would probably ask when you're new to share
Speaker 1: market investing. But value investors are what they call bottom
Speaker 1: up investors, would actually very much take that point of view, Dona,
Speaker 1: and they would say, Look, we don't really buy stocks.
Speaker 1: We buy listed we buy companies. We buy parts of
Speaker 1: listed companies, bits of them, and we're interested in the
Speaker 1: company and how it performs and if I have twenty stocks,
Speaker 1: I have twenty slices of twenty companies. I'm not particularly
Speaker 1: interested in the market per se. I'm oblivious to the market.
Speaker 1: There's two thousand listed stocks on the ASEX and I
Speaker 1: don't care about that. I'm just interested in the twenty
Speaker 1: companies and I boat. Do you what's your approach? Sam?
Speaker 1: Do you have as the CIO at a fund? Is
Speaker 1: there like a bottom up approach to top down coaches?
Speaker 1: Does one dominate the other?
Speaker 2: So it depends on which markets we're talking about.
Speaker 3: In some markets, especially emerging markets, the bottom up approach
Speaker 3: is that we favored by most of the investment managers.
Speaker 2: We would't use they're on the ground.
Speaker 3: You need to go kick tires in India to purchase
Speaker 3: an emerging company. In developed markets, you can have a
Speaker 3: top down view because there are certain events happening in
Speaker 3: the economy, certain parts of the cycle, which would be
Speaker 3: more favorable.
Speaker 2: To some companies and not others.
Speaker 3: For example, in times of low interest rates, all companies
Speaker 3: do well.
Speaker 2: Small companies do well.
Speaker 3: But when interest rates start to hop to rise, small
Speaker 3: companies have difficulty servicing that debt and they would be
Speaker 3: expected to suffer more So that kind of high level
Speaker 3: analysis makes a lot of sense. Having said that, if
Speaker 3: you are an individual and you are new to the stock.
Speaker 2: Market and you are thinking of buying companies.
Speaker 3: That define the market overall, the answer is they actually exist. Unfortunately,
Speaker 3: it's not the same company every time. And what you
Speaker 3: then need to do is know when to time marks
Speaker 3: to go in and out. And unfortunately, market timing is
Speaker 3: a loser's game. You need to be there when lightning
Speaker 3: strikes if you learn the game of going in and
Speaker 3: out of markets. Unlearning that game is incredibly difficult, And
Speaker 3: what happens is, even if you are a lucky investor,
Speaker 3: you flip heads three or four times in a row,
Speaker 3: but eventually you flip tails and you hand all of
Speaker 3: your gains back to the market. And so market timing
Speaker 3: is not one of our investment beliefs. So we believe
Speaker 3: in the old adage it's best to have to spend
Speaker 3: time in the markets rather than timing the markets. Right,
Speaker 3: So if you must buy an ETF that's across the
Speaker 3: whole ISx two hundred and just put it in the
Speaker 3: bottom draw.
Speaker 2: And see what happens after twenty years.
Speaker 3: But if your time horizon is only one year, then
Speaker 3: you are setting.
Speaker 2: Yourself up for disappointment. There is no quick path to
Speaker 2: getting rich.
Speaker 1: All right, I've got a final question. I'm going to
Speaker 1: take the one I think here from David, we often
Speaker 1: hear there is enough evidence out there to say that
Speaker 1: ETFs are index funds exchange treated funds, as that acronym suggests,
Speaker 1: regularly outperformed fund managers. However, we then hear, if you're
Speaker 1: looking at small caps, it will be better to go
Speaker 1: with the fund manager because they can get in there
Speaker 1: and pick stocks one by one. I understand the idea
Speaker 1: that there is a lot of rubbish out in the
Speaker 1: market some so having someone way through which should give
Speaker 1: better results. But is there actually any evidence that active
Speaker 1: managers outperform passive managers in small caps? Just to pick
Speaker 1: up on David's question, Sam, and in the end, in
Speaker 1: the end, you are an active manager, aren't you. Would
Speaker 1: you agree with that?
Speaker 2: Yes?
Speaker 1: Okay? And then this whole theory that active managers can't
Speaker 1: beat passive managers. So someone might say, I wonder if
Speaker 1: the big super funds simply ran index funds where they
Speaker 1: do as well. And I'm sure the invest the ETF
Speaker 1: sellers and the index funds sellers out there would talk
Speaker 1: like that, what do you say to that core suggestion
Speaker 1: that passive investing wins in the end and beats all
Speaker 1: active managers over long periods of time.
Speaker 3: So in listed markets you could mount that argument, But
Speaker 3: there are there is no passive strategy for airports and
Speaker 3: toll roads and seaports and buildings in infrastructure, in private equity,
Speaker 3: in venture capital, in credit, so you miss out on
Speaker 3: a substantial portion of the market. Right, You could buy
Speaker 3: an ETF that is that has exposure to the listed
Speaker 3: versions of all of those, but that behaves very differently
Speaker 3: to the unlisted version. Having said that, there's an inefficiency
Speaker 3: in the small end of the market that's often exploited
Speaker 3: by fund managers.
Speaker 2: Why how do we know this?
Speaker 3: Well, because if you look at these small company index
Speaker 3: there are years where most of the managers outperform that index.
Speaker 2: How can that be right?
Speaker 3: And the answer is because the index has everything in it,
Speaker 3: and those managers have some skill at picking out smaller
Speaker 3: companies that are behaving in a particular way that's consistent
Speaker 3: with their own investment beliefs, and believe that the share
Speaker 3: price will go up faster than would otherwise.
Speaker 2: Be the case. So the's horses for courses.
Speaker 3: There are times for passive strategies and areas that you
Speaker 3: would do passive management index funds, etc. And there are
Speaker 3: areas where you just can't do that, and therefore you
Speaker 3: have no choice to either do active management or miss
Speaker 3: out altogether.
Speaker 1: Okay, very interesting and as David says, there is all
Speaker 1: sorts of rubbish health there, which is what the active
Speaker 1: manager is supposed to dodge. But as some are saying,
Speaker 1: it's really only applicable. Even the debate is only applicable
Speaker 1: to listed securities and as he mentioned at the start
Speaker 1: of the Shield, the vast bulk of business activity commerce
Speaker 1: in the world is not listed on the share market.
Speaker 1: Really interesting to talk to you today, Sam, great to
Speaker 1: have you on. Thank you very much, great coming on
Speaker 1: the show.
Speaker 2: Thank you Jones.
Speaker 1: That was Sam Cecilia folks. He is the chief investment
Speaker 1: officer at host Plus. Do send some correspondence in love
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