1 00:00:04,019 --> 00:00:06,720 Adam Lang: Welcome to the Fear and Greed Daily interview. I'm Adam 2 00:00:06,720 --> 00:00:09,959 Adam Lang: Lang. We haven't spoken to many Olympic gold medalists on 3 00:00:09,960 --> 00:00:12,420 Adam Lang: Fear and Greed before. In fact, this is a first 4 00:00:12,420 --> 00:00:15,360 Adam Lang: for me, but after winning gold for Australia in sailing 5 00:00:15,360 --> 00:00:18,178 Adam Lang: at the 2000 Olympics, Tom King has gone on to have 6 00:00:18,180 --> 00:00:21,570 Adam Lang: an impressive career in finance and investing. He's the Chief 7 00:00:21,600 --> 00:00:25,800 Adam Lang: Investment Officer of Nanuk Asset Management, a global company focused 8 00:00:25,800 --> 00:00:30,450 Adam Lang: on sustainable investing. Of course, this is an area hugely 9 00:00:30,450 --> 00:00:34,379 Adam Lang: growing in popularity with companies and investors alike shifting their 10 00:00:34,379 --> 00:00:39,150 Adam Lang: focus to environmental, social and governance factors. So I wanted 11 00:00:39,150 --> 00:00:41,940 Adam Lang: to speak to Tom about where he sees the opportunities 12 00:00:41,940 --> 00:00:45,239 Adam Lang: for investors and whether there's a trade off between making 13 00:00:45,240 --> 00:00:49,049 Adam Lang: money and making a difference. Remember, this is general information 14 00:00:49,049 --> 00:00:51,659 Adam Lang: only and you do need to get professional advice before 15 00:00:51,659 --> 00:00:56,040 Adam Lang: making any investment decisions. Tom King, welcome to Fear and Greed. 16 00:00:56,430 --> 00:00:57,180 Tom King: Thank you, Adam. 17 00:00:57,840 --> 00:01:00,390 Adam Lang: I want to talk about some specific stocks in a 18 00:01:00,390 --> 00:01:04,380 Adam Lang: moment, but broadly speaking, what qualities are you looking for 19 00:01:04,380 --> 00:01:06,480 Adam Lang: in a company when you are thinking of investing? 20 00:01:06,780 --> 00:01:11,759 Tom King: So we focus on investing in areas related to environmental 21 00:01:11,760 --> 00:01:17,490 Tom King: sustainability and resource efficiency, and we do that because we 22 00:01:17,520 --> 00:01:21,389 Tom King: think they are interesting areas to invest in because of 23 00:01:21,389 --> 00:01:25,110 Tom King: the way that the global economy is evolving and that 24 00:01:25,559 --> 00:01:28,020 Tom King: successfully investing in that part of the market over the 25 00:01:28,020 --> 00:01:32,250 Tom King: longer run is likely to lead to good investment outcomes. 26 00:01:32,610 --> 00:01:36,000 Tom King: But when we come to look at companies within that 27 00:01:36,000 --> 00:01:40,109 Tom King: space, we have a much more pragmatic investment approach that 28 00:01:40,110 --> 00:01:43,109 Tom King: is not directed so much at what the companies do, 29 00:01:43,110 --> 00:01:47,009 Tom King: but whether their stocks are likely to outperform or not, 30 00:01:47,699 --> 00:01:53,340 Tom King: and our approach is a fundamental valuation based approach. So 31 00:01:53,730 --> 00:01:57,119 Tom King: in the end, we are looking generally for companies that 32 00:01:57,120 --> 00:01:59,610 Tom King: are likely to deliver profits in the future that are 33 00:01:59,610 --> 00:02:02,850 Tom King: higher than what the market's pricing in or expecting today. 34 00:02:03,480 --> 00:02:07,710 Tom King: In very rough terms, looking for things that are cheap, 35 00:02:07,740 --> 00:02:11,040 Tom King: but cheap in the context of earnings that are likely 36 00:02:11,040 --> 00:02:15,060 Tom King: to grow over time and cheap in the context that 37 00:02:16,110 --> 00:02:20,040 Tom King: their value's not well understood. So when I'm looking at 38 00:02:20,040 --> 00:02:22,890 Tom King: stocks and looking at companies, I'm looking for things that are 39 00:02:22,919 --> 00:02:26,340 Tom King: cheap, are likely to see their earnings grow in a 40 00:02:26,340 --> 00:02:28,889 Tom King: way that's quicker than the market and quicker than people 41 00:02:28,889 --> 00:02:32,790 Tom King: expect, and in some way misunderstood. And generally speaking, it's 42 00:02:32,790 --> 00:02:35,849 Tom King: pretty hard to find stocks with all of those three 43 00:02:35,849 --> 00:02:40,590 Tom King: characteristics, so at least two of those is generally what 44 00:02:40,590 --> 00:02:41,429 Tom King: I'm looking for. 45 00:02:41,459 --> 00:02:47,040 Adam Lang: Okay. In terms of those criteria for out- performance, sometimes 46 00:02:47,040 --> 00:02:51,059 Adam Lang: it's easier to exclude things. Are there some things that 47 00:02:51,059 --> 00:02:54,960 Adam Lang: you're steering clear of? Do you avoid entire sectors or 48 00:02:54,960 --> 00:02:56,580 Adam Lang: does it get more specific than that? 49 00:02:57,480 --> 00:03:02,070 Tom King: As a firm, we do in that, because we focus 50 00:03:02,070 --> 00:03:05,550 Tom King: on a set of industries related to sustainability, most of 51 00:03:05,550 --> 00:03:09,929 Tom King: which are pretty obvious things like renewable energy and electric 52 00:03:09,929 --> 00:03:13,829 Tom King: vehicles and waste management recycling and so on, we tend 53 00:03:13,830 --> 00:03:17,429 Tom King: not to focus on any companies that are involved in 54 00:03:17,760 --> 00:03:23,399 Tom King: areas of ethical concern or areas that are at odds 55 00:03:23,400 --> 00:03:27,269 Tom King: with the environmental focus of what we do, and that 56 00:03:27,270 --> 00:03:32,070 Tom King: narrows down our focus considerably. But when it comes to 57 00:03:32,070 --> 00:03:35,430 Tom King: looking at companies that fall within that space, we don't 58 00:03:36,600 --> 00:03:40,290 Tom King: tend to be hard and fast about excluding companies that 59 00:03:40,290 --> 00:03:44,100 Tom King: are involved in different activities within that space. 60 00:03:44,730 --> 00:03:47,429 Adam Lang: Gotcha. So perhaps if we can look at some specific 61 00:03:47,429 --> 00:03:51,359 Adam Lang: sectors and stocks. Nordex, for example, how are you looking at that? 62 00:03:52,139 --> 00:03:54,600 Tom King: That's a very contemporary example in that it's something we're 63 00:03:54,600 --> 00:03:58,590 Tom King: looking at at the moment. It's a leading wind turbine 64 00:03:58,590 --> 00:04:01,950 Tom King: manufacturer based in Europe. It's part of an industry that's 65 00:04:01,950 --> 00:04:08,340 Tom King: consolidated very significantly over recent years and an industry that's 66 00:04:08,400 --> 00:04:11,699 Tom King: outlook has improved over the last couple of years as 67 00:04:11,699 --> 00:04:17,130 Tom King: governments are making increasingly aggressive commitments to deploying renewable energy, 68 00:04:17,550 --> 00:04:21,270 Tom King: particularly in Europe where Nordex is based. But it's an 69 00:04:21,270 --> 00:04:24,330 Tom King: industry that's faced some real challenges in the short term 70 00:04:24,360 --> 00:04:27,899 Tom King: due to inflationary pressure and supply chain disruptions. And that's 71 00:04:28,230 --> 00:04:32,130 Tom King: very significantly affected short term profitability and seen share prices 72 00:04:32,940 --> 00:04:37,529 Tom King: in that industry fall away, and it's a good example 73 00:04:37,529 --> 00:04:40,620 Tom King: of the kind of things that we focus on as 74 00:04:40,620 --> 00:04:44,520 Tom King: a firm where we are looking for stocks where there's 75 00:04:44,520 --> 00:04:47,580 Tom King: some reason why earnings might improve significantly. So in that 76 00:04:47,580 --> 00:04:53,460 Tom King: case, well below average earnings or margins at the moment, 77 00:04:53,910 --> 00:04:56,820 Tom King: in the context of an improving outlook over the medium 78 00:04:56,820 --> 00:04:59,459 Tom King: term because of what's going on at a macro or 79 00:04:59,700 --> 00:05:03,719 Tom King: industry level, and so that's a good illustration of the 80 00:05:03,719 --> 00:05:06,449 Tom King: kind of things that we're searching for day to day. 81 00:05:07,080 --> 00:05:10,110 Adam Lang: Terrific. And Hyundai Mobis, what about that company? 82 00:05:11,279 --> 00:05:14,760 Tom King: In some ways, similar. So we are big believers in 83 00:05:14,760 --> 00:05:19,859 Tom King: the ongoing and increasingly rapid shift towards electric vehicles on 84 00:05:19,860 --> 00:05:23,190 Tom King: a global basis. It's like many of the things we look 85 00:05:23,190 --> 00:05:25,980 Tom King: at, a trend that has been kicked off by pretty 86 00:05:25,980 --> 00:05:30,810 Tom King: aggressive government policy support that's continuing today, and the industry 87 00:05:31,200 --> 00:05:35,759 Tom King: has very widely recognized that that's the future. That's pretty 88 00:05:35,759 --> 00:05:39,120 Tom King: obvious to a lot of people these days, and the 89 00:05:39,120 --> 00:05:42,870 Tom King: believers have bid stocks like Tesla up to valuations that 90 00:05:43,080 --> 00:05:47,940 Tom King: we don't think will lead to good long term investment 91 00:05:47,940 --> 00:05:52,049 Tom King: returns and outperformance from where we are today. But there 92 00:05:52,050 --> 00:05:53,878 Tom King: are a lot of other companies involved in that industry, 93 00:05:53,880 --> 00:05:57,419 Tom King: and if you look through the suppliers, Hyundai Mobis has 94 00:05:57,480 --> 00:06:00,570 Tom King: stood out to us because it's the sole supplier of 95 00:06:00,570 --> 00:06:05,400 Tom King: electric drive train modules into the Hyundai and Kia motor 96 00:06:05,520 --> 00:06:09,389 Tom King: groups, which are producing some of the best mid price 97 00:06:09,389 --> 00:06:11,940 Tom King: point and lower price point EVs in the market today 98 00:06:12,270 --> 00:06:15,599 Tom King: and can sell as many as they make. It's a 99 00:06:15,599 --> 00:06:19,440 Tom King: business that perhaps isn't well understood because its exposure isn't 100 00:06:19,440 --> 00:06:22,620 Tom King: that transparent today, but is likely to become more so 101 00:06:22,620 --> 00:06:27,839 Tom King: over time. So a bit under 20% of Hyundai Mobis' business 102 00:06:27,839 --> 00:06:32,730 Tom King: is supplying electric vehicle systems to the group, but in 103 00:06:32,730 --> 00:06:37,320 Tom King: the future, will also better other OEMs like Mercedes. And 104 00:06:37,320 --> 00:06:40,110 Tom King: that part of its business is growing at 60% or more 105 00:06:40,110 --> 00:06:42,630 Tom King: than 60% year on year. So you don't have to 106 00:06:42,630 --> 00:06:47,610 Tom King: go on very long before 10 or 15% of sales of a 107 00:06:47,610 --> 00:06:51,510 Tom King: company that's growing at a very slow rate becomes 20 and 30% 108 00:06:51,599 --> 00:06:54,870 Tom King: of a company, and at an overall level, a company that's 109 00:06:54,900 --> 00:06:59,550 Tom King: been trading on sub 10 times PE starts growing in 110 00:06:59,550 --> 00:07:02,849 Tom King: a way that will justify a high valuation. And so 111 00:07:02,849 --> 00:07:07,079 Tom King: we're expecting that as that business leads to top line 112 00:07:07,080 --> 00:07:10,409 Tom King: growth, you'll see people assess the thing to be worth 113 00:07:10,410 --> 00:07:11,969 Tom King: more than it is today. 114 00:07:12,420 --> 00:07:14,430 Adam Lang: Stay with me, Tom. We'll be back in a minute. 115 00:07:20,580 --> 00:07:24,000 Adam Lang: I'm speaking to Tom King, Chief Investment Officer at Nanuk 116 00:07:24,030 --> 00:07:28,439 Adam Lang: Asset Management. And Tom, in view of that company and 117 00:07:28,440 --> 00:07:31,440 Adam Lang: our change of government six months ago, did that change 118 00:07:31,440 --> 00:07:35,310 Adam Lang: of government affect how you look at Hyundai Mobis? 119 00:07:35,310 --> 00:07:38,400 Tom King: Our change of government? No, we're investing globally and, in 120 00:07:38,400 --> 00:07:41,670 Tom King: fact, haven't in 13 years invested in a stock in 121 00:07:41,670 --> 00:07:47,190 Tom King: Australia. I think what's happening in Australia is indicative of 122 00:07:47,190 --> 00:07:50,040 Tom King: what's happening all around the world. In fact, we've been 123 00:07:50,250 --> 00:07:54,240 Tom King: laggards in many respects in terms of policy support for 124 00:07:54,270 --> 00:07:57,210 Tom King: things like renewables and EVs, and we're only going to 125 00:07:57,210 --> 00:08:01,410 Tom King: see more aggressive support going forward. I think it's quite 126 00:08:01,469 --> 00:08:06,299 Tom King: pertinent that at the moment we've got the COP27 conference 127 00:08:06,299 --> 00:08:11,340 Tom King: in Egypt, and it's not surprising to me that real 128 00:08:11,340 --> 00:08:15,299 Tom King: question marks are being placed on the desire to keep 129 00:08:15,300 --> 00:08:18,209 Tom King: global warming to 1. 5 degrees and our ability to 130 00:08:18,210 --> 00:08:21,029 Tom King: achieve that. Because if you look at the commitments made 131 00:08:21,059 --> 00:08:23,850 Tom King: around the world, whilst there's a lot of 2050 net 132 00:08:23,850 --> 00:08:30,540 Tom King: zero pledges, there's not sufficient action being committed to yet 133 00:08:30,690 --> 00:08:33,750 Tom King: on shorter term timeframes to keep us anywhere near achieving 134 00:08:33,750 --> 00:08:38,190 Tom King: that sort of outcome. And with the kind of things 135 00:08:38,190 --> 00:08:40,768 Tom King: that have been happening on the environmental front around the 136 00:08:40,770 --> 00:08:43,320 Tom King: world as well as at home over the last 12 137 00:08:43,320 --> 00:08:46,740 Tom King: months, I think it's extremely likely you'll just see a 138 00:08:46,740 --> 00:08:51,240 Tom King: series of more aggressive step changes in policy in coming 139 00:08:51,240 --> 00:08:55,860 Tom King: years as the world strives to address these worsening problems. 140 00:08:56,400 --> 00:09:02,580 Tom King: And as that happens, companies making EVs, companies producing renewable energy 141 00:09:02,700 --> 00:09:06,238 Tom King: generating products like solar and wind and solutions to make 142 00:09:06,240 --> 00:09:09,450 Tom King: the grid work and energy storage and things like carbon 143 00:09:09,450 --> 00:09:13,199 Tom King: capture and storage in the future will benefit enormously from 144 00:09:13,650 --> 00:09:15,030 Tom King: those changes as they happen. 145 00:09:15,420 --> 00:09:18,358 Adam Lang: Interesting. So basically, the sum of the parts don't add 146 00:09:18,359 --> 00:09:20,880 Adam Lang: up to the changes we need to make and there's 147 00:09:20,970 --> 00:09:24,958 Adam Lang: thereby an undercurrent, if you will, of catching up that 148 00:09:24,960 --> 00:09:27,300 Adam Lang: needs to happen and that'll affect these very companies that 149 00:09:27,300 --> 00:09:27,959 Adam Lang: we're talking about. 150 00:09:29,099 --> 00:09:33,749 Tom King: Absolutely. When we started this business 12 or 13 years ago, that there 151 00:09:33,750 --> 00:09:36,990 Tom King: was a lot of skepticism about the need for this 152 00:09:36,990 --> 00:09:39,449 Tom King: kind of change and the ability to make it happen. 153 00:09:39,450 --> 00:09:42,630 Tom King: It's become widely accepted that we need to make these 154 00:09:42,630 --> 00:09:46,080 Tom King: kind of changes and that government policy can help drive that, 155 00:09:46,320 --> 00:09:49,590 Tom King: but we're still miles away from moving at the rate 156 00:09:49,770 --> 00:09:52,109 Tom King: that we need to in order for there not to 157 00:09:52,109 --> 00:09:57,540 Tom King: be pretty serious consequences and geopolitical consequences that flow from 158 00:09:57,540 --> 00:10:00,929 Tom King: that in decades to come. So I think it's quite 159 00:10:00,929 --> 00:10:05,189 Tom King: likely you'll continue to see an acceleration. The fact that 160 00:10:05,190 --> 00:10:07,200 Tom King: we are lagging behind where the world needs to be 161 00:10:07,200 --> 00:10:09,390 Tom King: and what scientists have been saying for some time is the 162 00:10:09,750 --> 00:10:12,598 Tom King: trajectory we need to achieve means that the further we 163 00:10:12,600 --> 00:10:15,900 Tom King: go forward, the more levers that need to get pulled 164 00:10:15,900 --> 00:10:18,300 Tom King: at once at some stage down the track to fix 165 00:10:18,300 --> 00:10:19,020 Tom King: these problems. 166 00:10:20,490 --> 00:10:23,520 Adam Lang: Speaking of this, what other trends do you think investors 167 00:10:23,520 --> 00:10:26,458 Adam Lang: should be looking at? Carbon capture, storage, those sorts of 168 00:10:26,460 --> 00:10:28,649 Adam Lang: things. Is there anything that comes to mind for you? 169 00:10:29,279 --> 00:10:32,460 Tom King: Yeah, we've been talking about this recently in some of 170 00:10:32,460 --> 00:10:36,449 Tom King: our longer term thinking because, as I said, we started 171 00:10:36,450 --> 00:10:38,550 Tom King: this business some time ago and a decade ago we 172 00:10:38,550 --> 00:10:43,049 Tom King: were out there talking about how we thought, given what 173 00:10:43,049 --> 00:10:47,699 Tom King: we knew, areas like renewables and electric vehicles were likely 174 00:10:47,699 --> 00:10:51,450 Tom King: to evolve. And that thinking wasn't widely embraced at the 175 00:10:51,450 --> 00:10:56,550 Tom King: time, but it's proven to be largely correct, and now 176 00:10:56,550 --> 00:11:01,530 Tom King: there's a very wide acceptance of that and mainstream investment 177 00:11:01,530 --> 00:11:05,159 Tom King: firms and many investors are well and truly on top 178 00:11:05,160 --> 00:11:08,400 Tom King: of those trends. But if we look forward over the next 179 00:11:08,400 --> 00:11:11,640 Tom King: decade and what might be happening as we move towards 180 00:11:11,640 --> 00:11:16,679 Tom King: 2030, the solutions that people are aware of or investing 181 00:11:16,679 --> 00:11:20,429 Tom King: in today really only represent 20 or 30% of what's required to meet 182 00:11:21,150 --> 00:11:24,900 Tom King: the science based targets, and we need to see other 183 00:11:24,900 --> 00:11:29,400 Tom King: grid solutions. We're going to see things like hydrogen and 184 00:11:29,460 --> 00:11:33,929 Tom King: nuclear and a whole raft of technologies to support greater 185 00:11:33,929 --> 00:11:39,089 Tom King: electrification through the economy. We are going to need carbon capture and 186 00:11:39,089 --> 00:11:43,410 Tom King: storage on a very large scale, not only to decarbonize 187 00:11:43,410 --> 00:11:46,108 Tom King: hard to decarbonize parts of the economy, but also to 188 00:11:46,530 --> 00:11:49,980 Tom King: eventually reverse some of the damage that's been done through 189 00:11:50,070 --> 00:11:54,929 Tom King: direct air capture, and at a broader level in terms 190 00:11:54,929 --> 00:12:00,480 Tom King: of resource efficiency and availability of raw materials, we need 191 00:12:00,480 --> 00:12:03,929 Tom King: to move towards a more sustainable and circular economy, and 192 00:12:03,929 --> 00:12:10,260 Tom King: that'll affect industries like waste management and recycling and broadly, agriculture 193 00:12:10,260 --> 00:12:13,349 Tom King: needs to make some significant changes over time as well. 194 00:12:13,349 --> 00:12:16,559 Tom King: And so those kind of areas are, I think, highly 195 00:12:16,559 --> 00:12:21,210 Tom King: prospective over the next few years as governments start to 196 00:12:21,510 --> 00:12:23,880 Tom King: act in relation to them in the way that they 197 00:12:23,940 --> 00:12:26,669 Tom King: acted in relation to renewables a decade ago. 198 00:12:27,690 --> 00:12:31,650 Adam Lang: Tom, you've had a pretty remarkable career including reaching the 199 00:12:31,650 --> 00:12:35,458 Adam Lang: absolute pinnacle of global sport, an Olympic gold medalist in 200 00:12:35,458 --> 00:12:38,850 Adam Lang: sailing, what are you most excited about in this world 201 00:12:38,850 --> 00:12:41,340 Adam Lang: of finance and investing in the year ahead? 202 00:12:41,970 --> 00:12:48,029 Tom King: I'm excited about the opportunities that the dislocations in markets 203 00:12:48,030 --> 00:12:51,809 Tom King: over the last 12 or 18 months have presented. It was a 204 00:12:51,809 --> 00:12:54,840 Tom King: pretty challenging and frustrating environment investing in many of the 205 00:12:54,840 --> 00:12:58,800 Tom King: areas we focus on two years ago because there was 206 00:12:58,800 --> 00:13:02,099 Tom King: a lot of speculative investment that had driven valuations to 207 00:13:02,099 --> 00:13:05,250 Tom King: very high levels, and that's led to a period of 208 00:13:05,460 --> 00:13:08,699 Tom King: fairly meaningful underperformance in a lot of those areas. We've 209 00:13:08,849 --> 00:13:12,119 Tom King: dodged most of that, which we're pleased with, but we're 210 00:13:12,119 --> 00:13:14,280 Tom King: getting to a point now where you're starting to see 211 00:13:14,670 --> 00:13:18,809 Tom King: opportunities in areas we're interested in and this combination of 212 00:13:18,809 --> 00:13:23,429 Tom King: short term challenges and share price underperformance aligning with a 213 00:13:23,429 --> 00:13:27,719 Tom King: longer term story that's improving, and I think that as 214 00:13:27,719 --> 00:13:30,690 Tom King: an investor, it's an exciting time to be looking at 215 00:13:30,690 --> 00:13:32,490 Tom King: what's going on in the world and companies that are 216 00:13:32,490 --> 00:13:33,510 Tom King: going to benefit from that. 217 00:13:34,380 --> 00:13:36,780 Adam Lang: And one that'll have a positive impact on the world. 218 00:13:37,290 --> 00:13:40,590 Tom King: Well, let's hope so. It's, I guess, an important part 219 00:13:40,590 --> 00:13:43,110 Tom King: of what we offer that the companies we invest in are on 220 00:13:43,590 --> 00:13:45,328 Tom King: the right side of the ledger in terms of their 221 00:13:45,330 --> 00:13:49,530 Tom King: activities contributing in a positive way to a better world 222 00:13:49,530 --> 00:13:50,250 Tom King: in the future. 223 00:13:50,580 --> 00:13:52,890 Adam Lang: Tom, thank you very much for talking to Fear and Greed. 224 00:13:53,160 --> 00:13:53,760 Tom King: My pleasure. 225 00:13:54,330 --> 00:13:58,049 Adam Lang: That was Tom King, Chief Investment Officer at Nanuk Asset 226 00:13:58,050 --> 00:14:01,439 Adam Lang: Management. This is the Fear and Greed daily interview. Remember, 227 00:14:01,440 --> 00:14:05,129 Adam Lang: this was general information only and you should seek professional 228 00:14:05,129 --> 00:14:08,700 Adam Lang: advice before you make any investment decisions. Join us every 229 00:14:08,700 --> 00:14:11,730 Adam Lang: morning for the full episode of Fear and Greed, Australia's 230 00:14:11,730 --> 00:14:15,330 Adam Lang: most popular business podcast. I'm Adam Lang. Enjoy your day.