1 00:00:03,440 --> 00:00:06,439 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,800 --> 00:00:09,539 Sean Aylmer: We talk a fair bit here about global equities for 3 00:00:09,539 --> 00:00:11,969 Sean Aylmer: a couple of reasons. The first is that whatever happens 4 00:00:11,970 --> 00:00:14,800 Sean Aylmer: on overseas markets often has an impact on the local 5 00:00:14,800 --> 00:00:17,690 Sean Aylmer: market too. The second is that it's never been easier 6 00:00:17,690 --> 00:00:20,329 Sean Aylmer: to buy shares in international companies. And it's not a 7 00:00:20,329 --> 00:00:23,290 Sean Aylmer: bad idea either. That's why I like talking to experts 8 00:00:23,290 --> 00:00:25,329 Sean Aylmer: about what we should be looking for, what trends to 9 00:00:25,329 --> 00:00:27,960 Sean Aylmer: keep an eye on, and where the opportunities might be. 10 00:00:28,140 --> 00:00:31,500 Sean Aylmer: Hugh Selby- Smith is the Co- Chief Investment Officer at 11 00:00:31,500 --> 00:00:35,229 Sean Aylmer: Talaria Capital, which specialises in investing in large cap global 12 00:00:35,229 --> 00:00:38,580 Sean Aylmer: stocks with around $ 500 million in funds under management. Hugh, 13 00:00:38,580 --> 00:00:39,330 Sean Aylmer: welcome to Fear and Greed. 14 00:00:40,180 --> 00:00:41,790 Hugh Selby-Smith: Sean, lovely to be here. Thank you. 15 00:00:42,100 --> 00:00:44,110 Sean Aylmer: Let's start with the basics. If I want to buy 16 00:00:44,110 --> 00:00:46,470 Sean Aylmer: overseas, what are the things I should be thinking about? 17 00:00:47,060 --> 00:00:50,390 Hugh Selby-Smith: Well, I think there's a couple of things. Firstly, why are you looking to 18 00:00:50,390 --> 00:00:53,690 Hugh Selby-Smith: buy overseas? I mean, is that really driven by the 19 00:00:53,690 --> 00:00:59,300 Hugh Selby-Smith: opportunity for diversification, for different return sources? Is it really 20 00:00:59,300 --> 00:01:03,340 Hugh Selby-Smith: a function of wishing to back specific companies or sectors? 21 00:01:03,720 --> 00:01:06,670 Hugh Selby-Smith: So I think there's a portfolio aspect that people should 22 00:01:06,670 --> 00:01:08,770 Hugh Selby-Smith: be thinking about. Where does that fit in, in terms 23 00:01:08,770 --> 00:01:14,860 Hugh Selby-Smith: of slowly diversifying your asset base away from just domestic Australia? Secondly, 24 00:01:14,860 --> 00:01:16,560 Hugh Selby-Smith: I think you should be thinking, how do you want 25 00:01:16,560 --> 00:01:20,140 Hugh Selby-Smith: to access that? Is that through a passive vehicle? Is 26 00:01:20,140 --> 00:01:24,050 Hugh Selby-Smith: that through a managed fund? So I think that's a consideration. 27 00:01:24,330 --> 00:01:26,410 Hugh Selby-Smith: And then the third thing, I guess is you really got 28 00:01:26,410 --> 00:01:28,430 Hugh Selby-Smith: to think what kind of asset class do you actually 29 00:01:28,430 --> 00:01:31,340 Hugh Selby-Smith: want to access? Because clearly there's a much broader and 30 00:01:31,340 --> 00:01:35,709 Hugh Selby-Smith: deeper opportunity set across asset classes globally. So think about 31 00:01:35,780 --> 00:01:39,310 Hugh Selby-Smith: corporate debt, for example, quite apart from a more diverse 32 00:01:39,310 --> 00:01:40,520 Hugh Selby-Smith: source of equities. 33 00:01:40,880 --> 00:01:46,000 Sean Aylmer: Okay. So Talaria Capital, how does Talaria Capital and you as the Co- 34 00:01:46,000 --> 00:01:49,040 Sean Aylmer: Chief Investment Officer, think about investing overseas? Do you go 35 00:01:49,040 --> 00:01:52,250 Sean Aylmer: through those three processes for your funds? Is that how 36 00:01:52,250 --> 00:01:52,700 Sean Aylmer: it works? 37 00:01:53,170 --> 00:01:56,200 Hugh Selby-Smith: No. We have a pretty rigorous bottom- up process where, 38 00:01:56,270 --> 00:01:59,669 Hugh Selby-Smith: in effect, since the inception of the fund in 2005, 39 00:01:59,670 --> 00:02:03,720 Hugh Selby-Smith: it's always looked globally. So our universe is everything ex Australia, 40 00:02:03,720 --> 00:02:05,840 Hugh Selby-Smith: though it does need to be developed market listed. 41 00:02:06,150 --> 00:02:06,180 Sean Aylmer: Right. 42 00:02:06,310 --> 00:02:09,410 Hugh Selby-Smith: So really we're assessing the opportunity from a bottom- up 43 00:02:09,410 --> 00:02:13,280 Hugh Selby-Smith: basis to invest in mispriced companies that have a fantastic 44 00:02:13,280 --> 00:02:17,040 Hugh Selby-Smith: kind of asymmetry between the risk to lose money on 45 00:02:17,040 --> 00:02:20,740 Hugh Selby-Smith: the stock versus obviously the long-term return profile of the business. 46 00:02:21,240 --> 00:02:25,139 Sean Aylmer: Okay. And where are you mostly invested? So presumably Wall 47 00:02:25,139 --> 00:02:26,510 Sean Aylmer: Street's a big chunk of it. 48 00:02:27,260 --> 00:02:29,440 Hugh Selby-Smith: We're very diversified. I mean, as you can imagine, our 49 00:02:30,160 --> 00:02:35,610 Hugh Selby-Smith: opportunity set is around about 3000 companies. We have significant 50 00:02:35,610 --> 00:02:41,030 Hugh Selby-Smith: exposure to Europe, including the UK. Japan's around about 14% of 51 00:02:41,030 --> 00:02:45,209 Hugh Selby-Smith: the portfolio. The US is around about 30, that includes 52 00:02:45,210 --> 00:02:48,570 Hugh Selby-Smith: several Canadian companies, but we access via the New York Stock 53 00:02:48,570 --> 00:02:52,180 Hugh Selby-Smith: Exchange. We also have exposure to countries as diverse as 54 00:02:53,010 --> 00:02:56,530 Hugh Selby-Smith: Mexico, Brazil as well is a reasonable holding currently in 55 00:02:56,530 --> 00:02:57,250 Hugh Selby-Smith: the portfolio. 56 00:02:57,600 --> 00:02:59,959 Sean Aylmer: Okay. So there are a few emerging markets in there. 57 00:03:00,150 --> 00:03:01,620 Sean Aylmer: Those latter two being examples. 58 00:03:02,020 --> 00:03:05,150 Hugh Selby-Smith: There are. There are. As I said, Sean, you do 59 00:03:05,200 --> 00:03:07,820 Hugh Selby-Smith: need the company to have a developed market listing. So 60 00:03:07,820 --> 00:03:11,119 Hugh Selby-Smith: they need to be listed on the New York Stock 61 00:03:11,120 --> 00:03:13,190 Hugh Selby-Smith: Exchange for example, or in London. 62 00:03:13,200 --> 00:03:15,960 Sean Aylmer: Okay. Yes. Right. So let's get into it. I want 63 00:03:15,960 --> 00:03:18,540 Sean Aylmer: to talk about US tech stocks. Wall Street is pretty 64 00:03:18,540 --> 00:03:21,570 Sean Aylmer: much outperformed for a decade or so because of those 65 00:03:21,570 --> 00:03:25,399 Sean Aylmer: FAANG stocks and other tech stocks. Where are they up to? Are they too 66 00:03:25,400 --> 00:03:26,190 Sean Aylmer: expensive now? 67 00:03:26,680 --> 00:03:29,710 Hugh Selby-Smith: Well, certainly through our process, they are. I think it's 68 00:03:29,710 --> 00:03:34,010 Hugh Selby-Smith: kind of interesting. For example, just over the last four 69 00:03:34,010 --> 00:03:36,350 Hugh Selby-Smith: or five decades, if you look at the largest 10 70 00:03:36,380 --> 00:03:42,050 Hugh Selby-Smith: capitalisation stocks in the start of each decade, about eight out of the 10 71 00:03:42,050 --> 00:03:44,560 Hugh Selby-Smith: typically have fallen down the ranks over the course of 72 00:03:44,560 --> 00:03:47,980 Hugh Selby-Smith: the subsequent decade. And so that's really that they get 73 00:03:48,050 --> 00:03:51,640 Hugh Selby-Smith: mispriced to be able to generate reasonable returns. So from 74 00:03:51,640 --> 00:03:56,430 Hugh Selby-Smith: our bottom- up process, I think the embedded expectations around profitability, 75 00:03:56,430 --> 00:04:00,680 Hugh Selby-Smith: but also long-term growth are unrealistic if people are expecting 76 00:04:00,720 --> 00:04:03,910 Hugh Selby-Smith: the returns of the last decade to be a reflection 77 00:04:03,910 --> 00:04:05,150 Hugh Selby-Smith: of what's likely to come, Sean. 78 00:04:05,490 --> 00:04:09,500 Sean Aylmer: Okay. So that is a way of saying that potentially you 79 00:04:09,500 --> 00:04:12,090 Sean Aylmer: won't get over the next 10 years, the returns out 80 00:04:12,090 --> 00:04:14,210 Sean Aylmer: of the tech stocks that you got over the last, is that right? 81 00:04:14,540 --> 00:04:15,710 Hugh Selby-Smith: Yes, absolutely right. 82 00:04:16,100 --> 00:04:18,910 Sean Aylmer: Okay. So what are the areas that you would look at over the 83 00:04:18,910 --> 00:04:21,810 Sean Aylmer: next 10 years or so that you think might replace 84 00:04:21,810 --> 00:04:24,219 Sean Aylmer: the tech stocks given they're kind of coming to the 85 00:04:24,220 --> 00:04:25,920 Sean Aylmer: end of their decade and mispriced? 86 00:04:26,310 --> 00:04:28,279 Hugh Selby-Smith: Well, I'm certainly not in a position of forecasting what's 87 00:04:28,279 --> 00:04:30,610 Hugh Selby-Smith: going to become the kind of darling sector going forward. 88 00:04:30,620 --> 00:04:32,560 Hugh Selby-Smith: That's really not what we do, Sean. It's sort of 89 00:04:32,560 --> 00:04:35,969 Hugh Selby-Smith: individual securities from a bottom- up perspective. But what I 90 00:04:35,970 --> 00:04:39,570 Hugh Selby-Smith: would say that investors need to think about is what 91 00:04:39,570 --> 00:04:43,480 Hugh Selby-Smith: are the embedded risks in their portfolio, because rather than trying 92 00:04:43,480 --> 00:04:48,049 Hugh Selby-Smith: to forecast the future, which is a fool's errand, what 93 00:04:48,050 --> 00:04:50,700 Hugh Selby-Smith: we can do, of course, is we can really create 94 00:04:50,700 --> 00:04:55,650 Hugh Selby-Smith: a portfolio through diversification primarily that actually stands here in 95 00:04:55,650 --> 00:04:59,080 Hugh Selby-Smith: good stead in a range of outcomes. So I think 96 00:04:59,080 --> 00:05:02,860 Hugh Selby-Smith: what people should be doing, given my comment around US technology, 97 00:05:02,860 --> 00:05:05,770 Hugh Selby-Smith: but also the crowding of the positions in US technology 98 00:05:05,770 --> 00:05:11,370 Hugh Selby-Smith: is a secondary aspect, is that they should be looking for geographical diversification. 99 00:05:11,600 --> 00:05:16,099 Hugh Selby-Smith: They should be looking for diversification by return type, because 100 00:05:16,100 --> 00:05:19,010 Hugh Selby-Smith: clearly over the last decade, the majority of returns have 101 00:05:19,010 --> 00:05:22,120 Hugh Selby-Smith: been capital growth rather than this balance between and income 102 00:05:22,300 --> 00:05:25,119 Hugh Selby-Smith: and growth. And I think the third thing is that 103 00:05:25,200 --> 00:05:29,250 Hugh Selby-Smith: they need to be able to diversify by sector because 104 00:05:29,250 --> 00:05:31,620 Hugh Selby-Smith: if I have a look at the companies in, say 105 00:05:31,620 --> 00:05:37,060 Hugh Selby-Smith: the Russell 1500 or the S&P 1500, the top 20% of those, 106 00:05:37,060 --> 00:05:43,510 Hugh Selby-Smith: so there's sort of 300 companies that are most dependent, or most correlated, with falling 107 00:05:43,510 --> 00:05:48,130 Hugh Selby-Smith: interest rates, make up around about 51% of the market capitalisation. 108 00:05:48,839 --> 00:05:53,570 Hugh Selby-Smith: Now the 300 companies that are most correlated with, for example, 109 00:05:53,570 --> 00:05:57,400 Hugh Selby-Smith: a rise in the consumer price index, they make up less 110 00:05:57,400 --> 00:05:59,180 Hugh Selby-Smith: than 10% of the index. 111 00:05:59,260 --> 00:05:59,330 Sean Aylmer: Right. 112 00:05:59,380 --> 00:06:02,500 Hugh Selby-Smith: And that gives you two things in that example. One, 113 00:06:02,500 --> 00:06:06,450 Hugh Selby-Smith: it shows you the concentration about really what's been the 40- 114 00:06:06,450 --> 00:06:10,529 Hugh Selby-Smith: year trajectory of interest rates to, well, 4, 000 to 5, 115 00:06:10,529 --> 00:06:14,440 Hugh Selby-Smith: 000 year old lows. But it also shows you the 116 00:06:14,440 --> 00:06:17,500 Hugh Selby-Smith: opportunity. You've got 300 companies here that can give you 117 00:06:17,500 --> 00:06:22,650 Hugh Selby-Smith: a diversification within your portfolio, which allows you to prosper, 118 00:06:22,650 --> 00:06:26,409 Hugh Selby-Smith: irrespective of actually the outcome of, in this instance, consumer 119 00:06:26,410 --> 00:06:27,210 Hugh Selby-Smith: price inflation. 120 00:06:28,140 --> 00:06:31,049 Sean Aylmer: Okay. Just talking about inflation, in a sense what you're talking about, 121 00:06:31,050 --> 00:06:35,870 Sean Aylmer: diversification and setting yourself up for whatever happens, the debate 122 00:06:35,870 --> 00:06:39,029 Sean Aylmer: at the moment is whether inflation is persistent or transitory. 123 00:06:39,510 --> 00:06:41,659 Sean Aylmer: Does that matter as much? I mean, I think what you're saying 124 00:06:41,660 --> 00:06:43,839 Sean Aylmer: is actually just be prepared for whatever it is. 125 00:06:44,300 --> 00:06:48,630 Hugh Selby-Smith: Absolutely. Our approach really over the 16 years of the fund, I mean, 126 00:06:48,910 --> 00:06:52,760 Hugh Selby-Smith: I can only really speak for myself, is when the market's complacent or 127 00:06:52,820 --> 00:06:57,640 Hugh Selby-Smith: extremely positive, investors and us should be prepared to give 128 00:06:57,640 --> 00:07:00,220 Hugh Selby-Smith: a little bit of that upside up to make sure 129 00:07:00,220 --> 00:07:04,080 Hugh Selby-Smith: that they quickly recover that when so- called unexpected events 130 00:07:04,230 --> 00:07:08,370 Hugh Selby-Smith: take markets lower. So I think there's too much energy going into 131 00:07:08,370 --> 00:07:12,080 Hugh Selby-Smith: working out what might happen rather than managing risk about 132 00:07:12,080 --> 00:07:16,000 Hugh Selby-Smith: the range of scenarios that possibly could impact people's financial wellbeing. 133 00:07:16,000 --> 00:07:18,810 Sean Aylmer: Okay. Stay with me, Hugh, we'll be back in a 134 00:07:18,810 --> 00:07:19,100 Sean Aylmer: minute. 135 00:07:24,290 --> 00:07:27,730 Sean Aylmer: I'm speaking to Hugh Selby- Smith, Co- Chief Investment Officer 136 00:07:27,810 --> 00:07:31,930 Sean Aylmer: at Talaria Capital. Hugh, you're listing two global equity funds 137 00:07:31,930 --> 00:07:35,640 Sean Aylmer: as active ETFs in the next few weeks, hopefully. Now 138 00:07:35,640 --> 00:07:39,650 Sean Aylmer: for listeners not familiar with ETFs and active ETFs, what's the 139 00:07:39,650 --> 00:07:43,530 Sean Aylmer: benefit of active ETFs vis- a- vis passive ETFs? 140 00:07:43,870 --> 00:07:48,110 Hugh Selby-Smith: Sure. So I guess a passive ETF in effect is 141 00:07:48,380 --> 00:07:51,890 Hugh Selby-Smith: where every dollar that flows into a passive ETF is 142 00:07:51,890 --> 00:07:56,330 Hugh Selby-Smith: a price insensitive buyer. Okay. So in effect, there is 143 00:07:56,330 --> 00:07:59,910 Hugh Selby-Smith: no security selection. It's just really mirroring the sector and 144 00:07:59,910 --> 00:08:03,680 Hugh Selby-Smith: index weights that are currently on offer within the market. 145 00:08:04,040 --> 00:08:04,080 Sean Aylmer: Yep. 146 00:08:04,180 --> 00:08:08,450 Hugh Selby-Smith: What we've seen is, since the GFC, an enormous amount 147 00:08:08,450 --> 00:08:12,330 Hugh Selby-Smith: of money has flowed into passive ETFs. And of course, 148 00:08:12,330 --> 00:08:14,870 Hugh Selby-Smith: given that flow and it makes up well over 50% 149 00:08:14,870 --> 00:08:18,730 Hugh Selby-Smith: of the current equity market asset base, they've been forced 150 00:08:18,730 --> 00:08:22,930 Hugh Selby-Smith: to buy very large capitalisation and mega -cap stocks. So 151 00:08:23,530 --> 00:08:26,220 Hugh Selby-Smith: I was getting back to the point about diversification, the 152 00:08:26,220 --> 00:08:30,480 Hugh Selby-Smith: top 20% of companies, for example, in the S&P 1500 account 153 00:08:30,480 --> 00:08:33,670 Hugh Selby-Smith: for 83% of the market cap. So in effect, when 154 00:08:33,670 --> 00:08:37,590 Hugh Selby-Smith: you put a dollar into a passive ETF, really 83 155 00:08:37,590 --> 00:08:40,160 Hugh Selby-Smith: cents of that is going into 20% of the companies. 156 00:08:40,160 --> 00:08:43,679 Hugh Selby-Smith: So you're far less diversified than perhaps you imagine. 157 00:08:43,740 --> 00:08:44,360 Sean Aylmer: I would have thought. Yeah. 158 00:08:44,429 --> 00:08:46,859 Hugh Selby-Smith: I think the difference in terms of an active ETF 159 00:08:46,860 --> 00:08:50,530 Hugh Selby-Smith: and what are the benefits, it's really a mirroring of 160 00:08:50,590 --> 00:08:55,699 Hugh Selby-Smith: a manager's individual security selection and discretion in building a portfolio, 161 00:08:56,220 --> 00:08:59,090 Hugh Selby-Smith: which is not reflected in a passive ETF. I think 162 00:08:59,090 --> 00:09:02,929 Hugh Selby-Smith: the benefits for savers is that it's accessible. So there's 163 00:09:02,929 --> 00:09:05,390 Hugh Selby-Smith: no minimum investment amount, which is quite different to a 164 00:09:05,390 --> 00:09:08,450 Hugh Selby-Smith: whole range of other kinds of funds. It's liquid, so 165 00:09:08,450 --> 00:09:11,590 Hugh Selby-Smith: investors can buy and sell intraday on the ASX in 166 00:09:11,590 --> 00:09:15,290 Hugh Selby-Smith: this instance. It's very transparent. You have live trading prices, 167 00:09:15,290 --> 00:09:18,990 Hugh Selby-Smith: you have quarterly full portfolio disclosures. So there's nothing behind 168 00:09:18,990 --> 00:09:23,300 Hugh Selby-Smith: the scenes. It's all extremely transparent. Plus, all the benefits 169 00:09:23,300 --> 00:09:26,730 Hugh Selby-Smith: of an actively managed portfolio. So in our instance, obviously 170 00:09:27,200 --> 00:09:29,640 Hugh Selby-Smith: our acumen and so on in terms of building robust 171 00:09:29,640 --> 00:09:32,820 Hugh Selby-Smith: portfolios to be able to deliver a greater certainty of 172 00:09:32,820 --> 00:09:34,010 Hugh Selby-Smith: outcomes for our clients. 173 00:09:34,010 --> 00:09:38,250 Sean Aylmer: Okay. And then just finally, you've got a diversified portfolio 174 00:09:38,250 --> 00:09:41,620 Sean Aylmer: of 25 to 40 large caps. Can you run me 175 00:09:41,620 --> 00:09:44,339 Sean Aylmer: through some of the stocks that are in that portfolio? 176 00:09:44,610 --> 00:09:47,510 Hugh Selby-Smith: Sure. We've talked a lot about the US market being 177 00:09:47,510 --> 00:09:50,589 Hugh Selby-Smith: potentially in aggregate relatively overvalued, but that's not to say 178 00:09:50,590 --> 00:09:53,000 Hugh Selby-Smith: that we don't find a whole range of well- priced 179 00:09:53,000 --> 00:09:56,510 Hugh Selby-Smith: securities in the US that are great companies. So I sort to highlight something like 180 00:09:56,510 --> 00:10:00,440 Hugh Selby-Smith: McKesson, many people don't know McKesson. It has around 200 181 00:10:00,440 --> 00:10:05,540 Hugh Selby-Smith: billion of revenues. It is America's largest pharmaceutical distributor. It's 182 00:10:05,540 --> 00:10:09,910 Hugh Selby-Smith: a very consolidated market. The top three account for 93, 94% 183 00:10:09,910 --> 00:10:13,300 Hugh Selby-Smith: of all pharmaceuticals distributed in the US. It's very cash 184 00:10:13,300 --> 00:10:16,250 Hugh Selby-Smith: generative. So there's not a lot of capital required in 185 00:10:16,250 --> 00:10:18,610 Hugh Selby-Smith: the business. They don't have to build out infrastructure. They don't 186 00:10:18,610 --> 00:10:22,729 Hugh Selby-Smith: have to build out servers and manufacturing plants. And that 187 00:10:22,730 --> 00:10:25,929 Hugh Selby-Smith: means that every dollar of earnings really converts fully into 188 00:10:25,929 --> 00:10:29,070 Hugh Selby-Smith: cash. Now the current P/ E on the company is 189 00:10:29,070 --> 00:10:31,359 Hugh Selby-Smith: around about 10. So it's a shorthand for a free 190 00:10:31,420 --> 00:10:35,309 Hugh Selby-Smith: cash flow yield of about 10%. So you're getting 10% 191 00:10:35,309 --> 00:10:37,250 Hugh Selby-Smith: per annum of cash back to you as an equity 192 00:10:37,250 --> 00:10:40,240 Hugh Selby-Smith: holder. And the management is doing a relatively good job 193 00:10:40,240 --> 00:10:43,010 Hugh Selby-Smith: in terms of capital allocation. The majority of that is 194 00:10:43,010 --> 00:10:44,470 Hugh Selby-Smith: coming back to you as a shareholder. 195 00:10:44,750 --> 00:10:45,070 Sean Aylmer: Okay. 196 00:10:45,179 --> 00:10:50,120 Hugh Selby-Smith: Another example in the US specifically would be America's largest 197 00:10:50,120 --> 00:10:54,809 Hugh Selby-Smith: fertiliser producer, which is called CF Industries. Clearly, food and 198 00:10:54,809 --> 00:10:58,459 Hugh Selby-Smith: food security is a huge structural area of concern, I 199 00:10:58,460 --> 00:11:00,900 Hugh Selby-Smith: think for the globe over the next 20 to 30 years, as 200 00:11:00,900 --> 00:11:04,530 Hugh Selby-Smith: we continue to see populations grow. It's got a very 201 00:11:04,530 --> 00:11:09,329 Hugh Selby-Smith: competitive advantage in the sense that the largest cost input 202 00:11:09,330 --> 00:11:12,839 Hugh Selby-Smith: into the production of fertiliser really is energy and they 203 00:11:12,840 --> 00:11:17,100 Hugh Selby-Smith: mostly use natural gas. And the natural gas price in 204 00:11:17,100 --> 00:11:20,100 Hugh Selby-Smith: the US is significantly lower than the global peers, particularly 205 00:11:20,100 --> 00:11:23,070 Hugh Selby-Smith: in Europe, but also the reference price in Asia. And 206 00:11:23,070 --> 00:11:27,270 Hugh Selby-Smith: what that means is that the company has a cost advantage. 207 00:11:27,720 --> 00:11:32,080 Hugh Selby-Smith: Now by our bottom- up work, the implied difference between 208 00:11:32,080 --> 00:11:34,170 Hugh Selby-Smith: the cost of gas in the US and the cost 209 00:11:34,170 --> 00:11:38,069 Hugh Selby-Smith: of gas in Europe and Asia is around $ 2. 80. And 210 00:11:38,570 --> 00:11:41,410 Hugh Selby-Smith: that compares to the 10- year average of about $ 4. 80. 211 00:11:42,220 --> 00:11:46,970 Hugh Selby-Smith: So even taking in that kind of current $ 2. 80 price, 212 00:11:47,270 --> 00:11:50,050 Hugh Selby-Smith: you're getting around about 10% of your cash back per 213 00:11:50,050 --> 00:11:52,949 Hugh Selby-Smith: annum over the next couple of years in CF Industry. So, that'd 214 00:11:52,950 --> 00:11:59,280 Hugh Selby-Smith: be two examples in the US. Strategically important companies, leaders cheap, 215 00:11:59,500 --> 00:12:01,100 Hugh Selby-Smith: but happen to be listed in the US. So, there's 216 00:12:01,100 --> 00:12:05,020 Hugh Selby-Smith: no dearth of opportunities. Out of interest, those companies wouldn't 217 00:12:05,020 --> 00:12:07,130 Hugh Selby-Smith: really turn up in a passive ETF at all. They're 218 00:12:08,250 --> 00:12:11,840 Hugh Selby-Smith: just totally irrelevant. From a global perspective, we sort of 219 00:12:11,840 --> 00:12:14,569 Hugh Selby-Smith: touched on Latin America. We have a position in Ambev 220 00:12:15,250 --> 00:12:19,730 Hugh Selby-Smith: that is a fantastic market leader, particularly in the Brazilian 221 00:12:19,730 --> 00:12:23,760 Hugh Selby-Smith: beverages market, beer in particular. They have over a 60% 222 00:12:23,760 --> 00:12:28,380 Hugh Selby-Smith: market share. They have margins that have historically averaged well 223 00:12:28,380 --> 00:12:33,449 Hugh Selby-Smith: over 30% EBIT margins. There's very supportive demographics in Brazil, 224 00:12:33,450 --> 00:12:37,050 Hugh Selby-Smith: in terms of consumption trends. The company is net cash. 225 00:12:37,290 --> 00:12:40,910 Hugh Selby-Smith: And we continue to see them able to redeploy capital 226 00:12:41,580 --> 00:12:45,260 Hugh Selby-Smith: at extremely attractive incremental rates of return. So that would 227 00:12:45,260 --> 00:12:47,910 Hugh Selby-Smith: be another in terms of holding of the fund, Ambev. 228 00:12:47,911 --> 00:12:48,371 Sean Aylmer: Ambev. 229 00:12:49,030 --> 00:12:51,300 Hugh Selby-Smith: And as I said, 14% of the fund is in 230 00:12:51,300 --> 00:12:56,400 Hugh Selby-Smith: Japan. I would say highlight Secom, it's Japan's largest security 231 00:12:56,400 --> 00:12:59,570 Hugh Selby-Smith: firm. You haven't seen any negative year of growth in 232 00:12:59,570 --> 00:13:02,760 Hugh Selby-Smith: the last decade. Around about a third of the market 233 00:13:02,760 --> 00:13:04,900 Hugh Selby-Smith: cap of the company is actually in cash on the 234 00:13:04,900 --> 00:13:08,240 Hugh Selby-Smith: balance sheet. You're not really being asked to pay anything 235 00:13:08,240 --> 00:13:12,850 Hugh Selby-Smith: for that. Management has made selective acquisitions of further security 236 00:13:12,850 --> 00:13:15,339 Hugh Selby-Smith: companies, and it can currently has a free cash flow 237 00:13:15,340 --> 00:13:18,570 Hugh Selby-Smith: yield direct to equity of around about 6%. So we find 238 00:13:18,570 --> 00:13:21,110 Hugh Selby-Smith: that an attractive structural growth area as well. 239 00:13:21,490 --> 00:13:23,750 Sean Aylmer: Absolutely. Hugh, thank you for talking to Fear and Greed. 240 00:13:23,880 --> 00:13:24,910 Hugh Selby-Smith: Really appreciate your time. 241 00:13:25,309 --> 00:13:28,530 Sean Aylmer: That was Hugh Selby- Smith, Co- Chief Investment Officer at 242 00:13:28,530 --> 00:13:31,720 Sean Aylmer: Talaria Capital. This is the Fear and Greed Daily Interview. Join 243 00:13:31,720 --> 00:13:34,300 Sean Aylmer: me every morning for the full Fear and Greed Podcast 244 00:13:34,300 --> 00:13:36,640 Sean Aylmer: with all the business news you need to know. I'm 245 00:13:36,640 --> 00:13:38,230 Sean Aylmer: Sean Aylmer. Enjoy your day.