1 00:00:04,019 --> 00:00:06,870 Sean Aylmer: Welcome to the Fear & Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,900 --> 00:00:09,240 Sean Aylmer: We've talked a lot about the local share markets so 3 00:00:09,240 --> 00:00:12,600 Sean Aylmer: far this year, but investors are increasingly looking for opportunities 4 00:00:12,630 --> 00:00:15,900 Sean Aylmer: overseas as well. So I wanted to get an insight 5 00:00:15,900 --> 00:00:18,720 Sean Aylmer: into what investors can expect on global markets. Remember, this 6 00:00:18,720 --> 00:00:21,959 Sean Aylmer: is general information only. You should get professional advice before 7 00:00:21,960 --> 00:00:25,739 Sean Aylmer: making any investment decisions. Nick Healy is Portfolio Manager for 8 00:00:25,739 --> 00:00:30,240 Sean Aylmer: WAM Global, part of Wilson Asset Management. Nick, welcome to Fear & Greed. 9 00:00:31,230 --> 00:00:32,640 Nick Healy: Thanks Sean. Thanks for having me. 10 00:00:32,970 --> 00:00:35,820 Sean Aylmer: Now, whenever we talk to anyone from WAM, we tend 11 00:00:35,820 --> 00:00:37,229 Sean Aylmer: to get a great response. I don't want to put 12 00:00:37,229 --> 00:00:39,510 Sean Aylmer: any pressure on you, Nick, but that's what I'm just 13 00:00:39,510 --> 00:00:40,500 Sean Aylmer: putting there upfront. 14 00:00:41,490 --> 00:00:43,950 Nick Healy: It is a very solid team. I'll see how I go. 15 00:00:43,979 --> 00:00:46,170 Sean Aylmer: I'm sure you're up to it. Tell me, what are 16 00:00:46,170 --> 00:00:48,510 Sean Aylmer: some of the big themes to watch out this year 17 00:00:48,570 --> 00:00:54,000 Sean Aylmer: in global markets? It's about inflation, but what about beyond inflation? 18 00:00:54,720 --> 00:00:57,000 Nick Healy: Yeah, I think this year for me will be a 19 00:00:57,000 --> 00:01:00,990 Nick Healy: year of the market's sorting mechanism really stepping into gear. 20 00:01:01,560 --> 00:01:03,630 Nick Healy: So if you think of last year as the first 21 00:01:03,630 --> 00:01:06,600 Nick Healy: year of a bear market, what tends to happen is 22 00:01:06,720 --> 00:01:11,280 Nick Healy: in those early stages, assets get re- priced relatively indiscriminately. 23 00:01:11,940 --> 00:01:14,340 Nick Healy: And then in the later stages, I think this year 24 00:01:14,340 --> 00:01:17,190 Nick Healy: we're going to see a situation where the better stocks 25 00:01:17,190 --> 00:01:21,090 Nick Healy: tend to outperform, the poorest stocks show their worth and 26 00:01:21,090 --> 00:01:26,789 Nick Healy: the better management teams under- promise, over- deliver and really 27 00:01:27,030 --> 00:01:30,270 Nick Healy: control costs and drive really good outcomes for investors. So 28 00:01:30,270 --> 00:01:32,370 Nick Healy: I think the theme for me this year is that 29 00:01:32,370 --> 00:01:36,330 Nick Healy: it's a sorting mechanism and a year of efficiency. 30 00:01:37,620 --> 00:01:41,160 Sean Aylmer: So kind of the best managed and the companies with 31 00:01:41,160 --> 00:01:45,420 Sean Aylmer: great best fundamentals are likely to outshine some of the 32 00:01:45,420 --> 00:01:46,500 Sean Aylmer: others broadly? 33 00:01:47,340 --> 00:01:49,770 Nick Healy: Yeah, I think so. I think you're already seeing it 34 00:01:49,890 --> 00:01:54,570 Nick Healy: to be honest with ... so for 2021 and prior, those 35 00:01:54,570 --> 00:01:58,650 Nick Healy: were environments where really you didn't have to show profitability. 36 00:01:58,860 --> 00:02:01,740 Nick Healy: You could always tap the capital markets. It was a 37 00:02:01,740 --> 00:02:07,050 Nick Healy: very favorable environment basically, regardless of your economic model and 38 00:02:07,050 --> 00:02:10,470 Nick Healy: how high quality of a company you were. I think 39 00:02:10,470 --> 00:02:13,650 Nick Healy: what we've seen at Palantir and Meta, now we hold 40 00:02:13,650 --> 00:02:16,560 Nick Healy: neither of those stocks, but I think they're fantastic examples. 41 00:02:16,560 --> 00:02:18,390 Sean Aylmer: Sorry, what was the first one? I missed that. 42 00:02:18,750 --> 00:02:21,179 Nick Healy: Yeah, Palantir, they do kind of the defense software. 43 00:02:21,360 --> 00:02:22,050 Sean Aylmer: Palantir, yep. 44 00:02:22,470 --> 00:02:26,639 Nick Healy: So I think they're fantastic examples of really being rewarded 45 00:02:26,669 --> 00:02:32,190 Nick Healy: for showing cost control, showing discipline, under- promising and over- 46 00:02:32,190 --> 00:02:36,359 Nick Healy: delivering. So Palantir had results where they had their first 47 00:02:36,660 --> 00:02:40,860 Nick Healy: profitable quarter ever, which seems incredible to think about for 48 00:02:40,860 --> 00:02:45,060 Nick Healy: such a highly valued company, but they did and the 49 00:02:45,060 --> 00:02:48,690 Nick Healy: market rewarded it with the stock price moving up over 50 00:02:48,690 --> 00:02:51,270 Nick Healy: 20%. And we know Meta, which is a much bigger 51 00:02:51,270 --> 00:02:56,790 Nick Healy: company, they had their famous year of efficiency result and 52 00:02:56,790 --> 00:03:00,120 Nick Healy: they promised $ 5 billion of cost out, and also in 53 00:03:00,120 --> 00:03:03,239 Nick Healy: that case the market moved the share price up by 54 00:03:03,240 --> 00:03:07,710 Nick Healy: over 20%. So I think other CEOs definitely look at 55 00:03:07,710 --> 00:03:10,049 Nick Healy: these signs in terms of what the market is rewarding. 56 00:03:11,040 --> 00:03:14,280 Sean Aylmer: Okay. So you mentioned a couple of companies there, we've 57 00:03:14,280 --> 00:03:17,669 Sean Aylmer: sort of had most of US earnings season now. What 58 00:03:17,669 --> 00:03:20,220 Sean Aylmer: are some of the key takeaways from that? 59 00:03:20,700 --> 00:03:23,190 Nick Healy: Yeah, I think it's a really interesting earnings season because 60 00:03:23,190 --> 00:03:27,180 Nick Healy: if you asked the kind of average market participant, my 61 00:03:27,180 --> 00:03:28,830 Nick Healy: view is they would say that this has been a 62 00:03:28,830 --> 00:03:33,030 Nick Healy: really favourable environment, the performance has been strong. I think 63 00:03:33,030 --> 00:03:36,480 Nick Healy: this is really just price driving narrative, which we see all 64 00:03:36,480 --> 00:03:39,660 Nick Healy: the time in the market. Actually, I was reading some 65 00:03:39,750 --> 00:03:43,590 Nick Healy: research yesterday from Credit Suisse who said that if you 66 00:03:43,590 --> 00:03:47,280 Nick Healy: look at how earnings expectations have changed, this is the 67 00:03:47,280 --> 00:03:51,510 Nick Healy: worst earnings outside of a recession in over two decades. 68 00:03:51,780 --> 00:03:55,470 Nick Healy: So I think it's a timely reminder basically to just 69 00:03:55,500 --> 00:03:57,660 Nick Healy: make sure that you're thinking about how the fundamentals are 70 00:03:57,660 --> 00:04:01,140 Nick Healy: performing and not to get caught up in the price movements. 71 00:04:01,230 --> 00:04:04,230 Sean Aylmer: Okay. So on that basis, tell me, can you nominate 72 00:04:04,260 --> 00:04:07,770 Sean Aylmer: an undervalued company that we should be keeping an eye on? 73 00:04:08,340 --> 00:04:11,100 Nick Healy: Yeah, I think a great example on that front would 74 00:04:11,100 --> 00:04:15,240 Nick Healy: be ICON, which we hold in the fund. So ICON 75 00:04:15,240 --> 00:04:19,289 Nick Healy: had a relatively tough 2022. At one point the stock 76 00:04:19,290 --> 00:04:24,210 Nick Healy: was down over 40%. And importantly what ICON do is 77 00:04:24,210 --> 00:04:28,800 Nick Healy: they help pharmaceutical firms shepherd their drugs through clinical development. 78 00:04:29,250 --> 00:04:31,620 Nick Healy: So this is not a kind of company that will 79 00:04:31,620 --> 00:04:36,990 Nick Healy: see significant earnings decay. It's very economically acyclical, very safe, 80 00:04:37,470 --> 00:04:40,290 Nick Healy: but price drives narrative again. And so when the price 81 00:04:40,290 --> 00:04:44,790 Nick Healy: was down, everybody was looking for issues. Now ICON had 82 00:04:44,790 --> 00:04:49,830 Nick Healy: a really positive update at the JPMorgan healthcare conference in January. 83 00:04:50,160 --> 00:04:55,560 Nick Healy: They outlined mid- single digit growth, margins expanding, really no problem, 84 00:04:55,860 --> 00:04:58,650 Nick Healy: and the market treated that really positively. So it's just 85 00:04:58,650 --> 00:05:01,560 Nick Healy: an example of, I think it's always important just to 86 00:05:01,560 --> 00:05:03,479 Nick Healy: focus on how the fundamentals are going. 87 00:05:03,750 --> 00:05:06,360 Sean Aylmer: I know another one you've spoken about is Booz Allen. 88 00:05:06,720 --> 00:05:10,409 Nick Healy: Yeah, absolutely. So we really like Booz Allen. They are 89 00:05:10,410 --> 00:05:14,340 Nick Healy: the best in class consulting firm for the US defense 90 00:05:14,400 --> 00:05:18,720 Nick Healy: and intelligence communities. Now obviously we're seeing in the news, 91 00:05:18,990 --> 00:05:22,679 Nick Healy: there's a lot of friction with regards to the geopolitical situation. 92 00:05:23,130 --> 00:05:26,460 Nick Healy: You would be hard- pressed to find a bipartisan issue 93 00:05:26,460 --> 00:05:31,500 Nick Healy: in the United States government apparatus. Defence is that bipartisan issue. 94 00:05:31,500 --> 00:05:34,440 Nick Healy: So both sides of the aisle definitely want to spend 95 00:05:34,890 --> 00:05:37,919 Nick Healy: and Booz is really well positioned to benefit from that. 96 00:05:38,160 --> 00:05:41,130 Nick Healy: So Booz actually had what we thought was a fantastic result, 97 00:05:41,130 --> 00:05:44,820 Nick Healy: really strong. They'd been struggling to hire in 2021 just 98 00:05:44,820 --> 00:05:48,390 Nick Healy: because tech has been taking all of the talent. That's 99 00:05:48,390 --> 00:05:50,730 Nick Healy: starting to get better with some of these tech layoffs. 100 00:05:50,850 --> 00:05:53,430 Nick Healy: So we thought it was a great result. The market 101 00:05:53,430 --> 00:05:56,250 Nick Healy: sent it down 6% on the day and we just 102 00:05:56,250 --> 00:05:59,760 Nick Healy: think that's fantastic. So we added to our position, we 103 00:05:59,760 --> 00:06:02,940 Nick Healy: definitely are more of a how are the fundamentals and 104 00:06:02,940 --> 00:06:05,219 Nick Healy: happy to take advantage of Mr. Market. 105 00:06:05,760 --> 00:06:08,010 Sean Aylmer: Stay with me Nick, we'll be back in a minute. 106 00:06:14,310 --> 00:06:17,729 Sean Aylmer: My guest this morning is Nick Healy, Portfolio Manager for 107 00:06:17,730 --> 00:06:21,239 Sean Aylmer: WAM Global. Okay. I'm going to talk about Volkswagen then 108 00:06:21,240 --> 00:06:24,239 Sean Aylmer: because its share price has really fallen pretty sharply over 109 00:06:24,240 --> 00:06:27,089 Sean Aylmer: the past couple of years, a little less than that. 110 00:06:27,089 --> 00:06:29,520 Sean Aylmer: It's about half what it was notwithstanding, it has probably 111 00:06:29,520 --> 00:06:32,339 Sean Aylmer: had a good couple of weeks recently. Is this the 112 00:06:32,339 --> 00:06:34,950 Sean Aylmer: sort of company that you're talking about, good fundamental but 113 00:06:35,250 --> 00:06:38,070 Sean Aylmer: it's almost like the losers from '21, '22 might be the 114 00:06:38,070 --> 00:06:39,090 Sean Aylmer: winners in '23? 115 00:06:39,540 --> 00:06:43,680 Nick Healy: Yeah, I think Volkswagen's a very interesting company because you 116 00:06:43,680 --> 00:06:46,140 Nick Healy: can do a very interesting sum of the parts on 117 00:06:46,140 --> 00:06:51,270 Nick Healy: it. They hold a 75% stake in Porsche after recently IPOing 118 00:06:51,300 --> 00:06:55,380 Nick Healy: 25% of the holding. Now anyone that's driven a Porsche 119 00:06:55,650 --> 00:06:58,860 Nick Healy: will know that these are just fantastic vehicles, lots of 120 00:06:58,860 --> 00:07:02,370 Nick Healy: brand love, basically a luxury good and the market is 121 00:07:02,370 --> 00:07:06,240 Nick Healy: rewarding the Porsche trading company at over a hundred billion 122 00:07:06,240 --> 00:07:10,230 Nick Healy: dollars of market valuation. Now, Volkswagen Group, which as I 123 00:07:10,230 --> 00:07:14,520 Nick Healy: said owns 75% of Porsche can be acquired today on 124 00:07:14,520 --> 00:07:18,060 Nick Healy: the market for 75 billion. So it doesn't take very 125 00:07:18,060 --> 00:07:21,810 Nick Healy: impressive mathematical skills to figure out that you get the 126 00:07:21,810 --> 00:07:25,290 Nick Healy: rest of the Volkswagen Group for free. So that's things 127 00:07:25,290 --> 00:07:30,630 Nick Healy: like Audi, Lamborghini, and their mass market brands. All combined, 128 00:07:30,660 --> 00:07:33,540 Nick Healy: they produce over 6 million cars a year. This is 129 00:07:33,540 --> 00:07:36,540 Nick Healy: just an incredible thing to be given for free. Now 130 00:07:36,540 --> 00:07:38,880 Nick Healy: I would say in this situation it will take patience 131 00:07:38,880 --> 00:07:42,900 Nick Healy: because clearly a car company will be exposed to the 132 00:07:42,960 --> 00:07:45,750 Nick Healy: kind of slower economic environment we may see over the 133 00:07:45,750 --> 00:07:49,380 Nick Healy: coming year or two. But just the value disconnect on 134 00:07:49,380 --> 00:07:50,760 Nick Healy: offer is very compelling. 135 00:07:51,900 --> 00:07:56,520 Sean Aylmer: So we've seen quite a move in recent weeks in 136 00:07:56,520 --> 00:07:59,310 Sean Aylmer: equity markets and I mean I just want to talk 137 00:07:59,310 --> 00:08:03,390 Sean Aylmer: about US Wall Street versus other markets, but just before 138 00:08:03,390 --> 00:08:06,810 Sean Aylmer: we go there, is it such that because we've seen 139 00:08:06,810 --> 00:08:09,480 Sean Aylmer: that move a lot of the, at least, short term 140 00:08:09,480 --> 00:08:12,240 Sean Aylmer: upside might not be on offer like it was on 141 00:08:12,240 --> 00:08:13,140 Sean Aylmer: the 1st of January? 142 00:08:13,710 --> 00:08:16,680 Nick Healy: I think absolutely, I would concur with that, that thinking. 143 00:08:17,070 --> 00:08:19,260 Nick Healy: We've seen, and you do tend to see this in 144 00:08:19,260 --> 00:08:23,760 Nick Healy: bear markets, we've seen over 2022 and into 2023, the 145 00:08:23,760 --> 00:08:27,450 Nick Healy: primary driving force is clearly inflation's been very strong. That 146 00:08:27,450 --> 00:08:29,550 Nick Healy: has forced central banks around the world to take rates 147 00:08:29,550 --> 00:08:32,760 Nick Healy: up. That's not great for equities. But you've seen this 148 00:08:32,760 --> 00:08:37,170 Nick Healy: choppiness of trading where at certain points in the cycle, 149 00:08:37,380 --> 00:08:41,309 Nick Healy: I think of May and October, fear was everywhere, pessimism 150 00:08:41,309 --> 00:08:46,710 Nick Healy: was everywhere and stock prices were really low. Alternatively, right 151 00:08:46,710 --> 00:08:49,860 Nick Healy: now is a time when it does feel like optimism has 152 00:08:49,860 --> 00:08:53,370 Nick Healy: kind of returned. The fundamentals haven't changed that much. So 153 00:08:53,700 --> 00:08:55,500 Nick Healy: we think it's probably a situation where you want to 154 00:08:55,500 --> 00:08:59,160 Nick Healy: be more selective and cautious, maybe not trust this rally 155 00:08:59,160 --> 00:08:59,790 Nick Healy: so much. 156 00:09:00,059 --> 00:09:03,420 Sean Aylmer: And one final thing, Nick Healy, Portfolio Manager for WAM 157 00:09:03,420 --> 00:09:05,040 Sean Aylmer: Global that I want to talk to you about. I 158 00:09:05,040 --> 00:09:07,800 Sean Aylmer: want to talk about the US versus Europe, but I 159 00:09:07,800 --> 00:09:10,710 Sean Aylmer: want to do it a little differently and you've led me, 160 00:09:10,860 --> 00:09:12,809 Sean Aylmer: me being the horse to water here, and I want 161 00:09:12,809 --> 00:09:17,819 Sean Aylmer: to drink the water, actually talking about specific companies in 162 00:09:17,820 --> 00:09:22,590 Sean Aylmer: the US versus a competitor in Europe. So is it 163 00:09:23,100 --> 00:09:25,020 Sean Aylmer: KONE versus Otis? The elevator crown? 164 00:09:25,050 --> 00:09:25,710 Nick Healy: Yeah, KONE. 165 00:09:25,770 --> 00:09:30,179 Sean Aylmer: For example, Sage versus Intuit, the software groups. How do 166 00:09:30,179 --> 00:09:33,540 Sean Aylmer: you actually think about these companies? Does it matter where they are, 167 00:09:33,540 --> 00:09:34,980 Sean Aylmer: whether they're in Europe or the US? 168 00:09:35,460 --> 00:09:38,579 Nick Healy: Yeah, I think this is a perfect kind of conversation 169 00:09:38,580 --> 00:09:41,340 Nick Healy: to have along the field of making sure that you're 170 00:09:41,340 --> 00:09:44,640 Nick Healy: looking at stocks individually and bottoms up. So we hear 171 00:09:44,640 --> 00:09:47,580 Nick Healy: in the market constantly the concept that this area is 172 00:09:47,580 --> 00:09:51,420 Nick Healy: cheap or that area is cheap. So there's been this 173 00:09:51,420 --> 00:09:54,930 Nick Healy: idea that Europe is exceedingly cheap compared to the US. 174 00:09:55,470 --> 00:09:57,720 Nick Healy: Now our work says when you look stock by stock, 175 00:09:57,720 --> 00:10:00,360 Nick Healy: you do tend to see situations where there actually are 176 00:10:00,360 --> 00:10:03,420 Nick Healy: fewer high quality companies in Europe, there's a lot of 177 00:10:03,420 --> 00:10:07,020 Nick Healy: captive asset managers, say a portfolio manager that can only 178 00:10:07,020 --> 00:10:09,870 Nick Healy: invest in the UK. So they're going to hold those 179 00:10:09,870 --> 00:10:12,510 Nick Healy: high quality companies and you'll see situations where they can 180 00:10:12,510 --> 00:10:15,510 Nick Healy: trade at valuations that are less appealing than in the 181 00:10:15,510 --> 00:10:18,089 Nick Healy: United States. So I think you threw out some really 182 00:10:18,090 --> 00:10:22,140 Nick Healy: good examples. So KONE is number three in the world 183 00:10:22,140 --> 00:10:25,679 Nick Healy: in elevators. Otis is number one. You can have Otis 184 00:10:25,679 --> 00:10:29,069 Nick Healy: at a cheap evaluation than KONE. At the same time 185 00:10:29,070 --> 00:10:32,160 Nick Healy: you can get Intuit, which is just a far better 186 00:10:32,820 --> 00:10:37,410 Nick Healy: cloud enabled accounting and business software company. Sage has done 187 00:10:37,410 --> 00:10:39,929 Nick Healy: a much poorer job. You can get those at very 188 00:10:39,929 --> 00:10:42,630 Nick Healy: similar valuations. And so I think it's just a bit 189 00:10:42,630 --> 00:10:45,030 Nick Healy: of a pushback on the narrative that this area is 190 00:10:45,030 --> 00:10:48,510 Nick Healy: exceedingly cheap and it's all about individual stock picking. 191 00:10:48,780 --> 00:10:52,170 Sean Aylmer: So it's kind of less relevant where they are. I mean, 192 00:10:52,170 --> 00:10:54,420 Sean Aylmer: particularly if they're operating in global markets like KONE and 193 00:10:54,570 --> 00:10:59,100 Sean Aylmer: Otis for example, and Sage and Intuit, it's less relevant where 194 00:10:59,100 --> 00:11:00,000 Sean Aylmer: their home base is? 195 00:11:00,630 --> 00:11:05,940 Nick Healy: 100%. So many companies these days are extremely global. There 196 00:11:05,940 --> 00:11:08,580 Nick Healy: will be translational FX effects, but at the end of 197 00:11:08,580 --> 00:11:11,340 Nick Healy: the day that doesn't matter. It's the end markets that 198 00:11:11,340 --> 00:11:11,940 Nick Healy: they serve. 199 00:11:12,240 --> 00:11:15,420 Sean Aylmer: Fantastic. Nick, thank you very much for talking to Fear & Greed. 200 00:11:15,990 --> 00:11:17,760 Nick Healy: Thank you Sean. Really appreciate the time. 201 00:11:18,390 --> 00:11:21,600 Sean Aylmer: That was Nick Healy, Portfolio Manager for WAM Global. This 202 00:11:21,600 --> 00:11:24,059 Sean Aylmer: is the Fear & Greed Daily Interview. Remember, this information is 203 00:11:24,059 --> 00:11:26,970 Sean Aylmer: general in nature and you should seek professional advice before 204 00:11:26,970 --> 00:11:30,059 Sean Aylmer: making any investment decisions. Join us every morning for the 205 00:11:30,059 --> 00:11:33,689 Sean Aylmer: full episode of Fear & Greed, Australia's most popular business podcast. 206 00:11:33,690 --> 00:11:35,490 Sean Aylmer: I'm Sean Aylmer, enjoy your day.